Venezuela's new oil law to allow private companies to market crude

Venezuela's proposed oil reforms will grant private companies in joint ventures with state-owned PDVSA the right to directly market their share of production, according to an explanatory memorandum released on Jan. 22.

The Organic Law on Hydrocarbons is designed to enhance cash flow and streamline financial operations, enabling companies to manage funds from oil sales across multiple currencies and jurisdictions.

The bill was approved in its first reading by Venezuela's parliament on Jan. 22 and will undergo another debate and vote before being signed by Acting President Delcy Rodriguez.

The oil reforms are being proposed following the US seizure of Venezuelan President Nicolas Maduro on Jan. 3, and subsequent promise by US President Donald Trump that companies would invest in Venezuela's oil infrastructure to grow output.

Venezuela's oil production has fallen from 3 million b/d in January 2008 to roughly 963,000 b/d in December due to a lack of investment in the country's infrastructure.

PDVSA currently produces around 300,000 b/d, while Chevron, through three JVs, produces around 244,000 b/d. North American Blue Energy Partners produces around 137,000 b/d through its JV with PDVSA. Repsol, China National Petroleum Corp. and Roszarubezhneft also have JVs with PDVSA.

The reform permits JVs to directly market their production, provided they can prove that their sale price will be higher than the prices achieved by companies exclusively owned by the government of Venezuela.

This legal reform breaks the monopoly powers established since the oil industry was nationalized in Venezuela in 1975.

"It is necessary to adapt this instrument to the evolution of the hydrocarbons market," said the explanatory memorandum of the bill, presented to the National Assembly by Delcy Rodríguez on Jan. 15.

Participation broadened

The reform bill incorporates new contract models.

First, it incorporates the business models of the Anti-Blockade Constitutional Law, including Productive Participation Contracts (CPP), where the operating company assumes full management at its own cost and risk. In this model, the state does not acquire debts, and the operator's remuneration consists of a percentage share of the audited volumes.

"In other words, the spectrum of participation is broadened, allowing primary activities to be carried out not only by the State or joint ventures, but also through duly awarded private companies," the memorandum said.

"It also empowers joint ventures to delegate technical and operational management to the minority partner, ensuring the application of international best practices," the memorandum said.

Secondly, the law proposes a tax regime to encourage investment in undeveloped oil fields.

Additionally, the proposal aims to strengthen legal guarantees for investors in the hydrocarbons sector by introducing independent mediation and arbitration for dispute resolution, and by ensuring that all measures comply with Venezuela's Constitution.

As for the modifications to the current tax regime, a 30% royalty for the State is maintained on the volumes of hydrocarbons extracted from any deposit. However, the National Executive, currently headed by Delcy Rodriguez, may reduce the royalty to 20% or 15% if it is demonstrated that a project to exploit a deposit is not economically viable with the 30% royalty.

The legal reform includes the leasing of state-owned PDVSA's assets.

"Companies wholly owned by the Republic or their subsidiaries, when signing contracts with private companies domiciled in Venezuela, may lease their assets and materials to the operating company, ... as well as grant the use of the operational area and the delimited area, authorized by the Ministry with jurisdiction over hydrocarbons, during the term of the contract," the memorandum said.

Once the contract has expired, the operating company must return the leased assets and transfer ownership.