Venezuela's Congress soon will debate legislation that would open the country to foreign oil exploration for the first time in decades.
Although the issue is politically charged, given the fact Venezuela ejected foreign oil companies 20 years ago, there is solid reason to believe Congress will approve the measure.
Through the energy ministry, Petroleos de Venezuela SA (Pdvsa) has proposed a model contract that would allow its subsidiaries to form joint ventures with foreign investors.
PDVSA'S GOAL
Pdvsa has chosen 10 areas for leasing, with the goal of developing 7-23 billion bbl of oil reserves. The state company said it would take $810 billion and 40 years for it to develop those areas on its own.
Goal of the leasing will be to boost Pdvsa's productive capacity to nearly 5 million b/d by 2003 from the current 2.9 million b/d. As much as 800,000 b/d of that could come from the new joint ventures (OGJ, Aug. 29, p. 29).
Exploration risk contracts would be awarded bidders who offer the government the biggest share of potential profits from production after income taxes, which are 67.7% of operating profits, and royalties. Terms would be for 20 years with a 10 year extension option.
Foreign firms would be required to spend about $50 million on exploration and bear all costs until oil was found. After a discovery they would sign joint ventures with Pd%,sa subsidiaries, which would assume as much as a 35% interest.
Venezuela has issued regulations to allow the foreign firms to repatriate profits.
Rather than the normal 16.7% royalty Pdvsa has proposed a sliding scale royalty of 1-16% for the joint ventures to ensure the tax burden will not be too great to permit development of smaller fields.
That provision may prove controversial in Congress. Opponents argue that existing law requires a 16.7% royalty unless a lower rate is needed to prolong the life of an existing field.
WHAT'S NEXT
If Congress approves the measure, Pdvsa will proceed with a call for nominations early next year and could be signing deals before the end of 1995.
That would be a historic development. Pdvsa has always been one of the best managed state oil companies in the world, capable of finding oil without foreign help.
But declining production and a series of economic crises have forced a new approach.
Oil accounted for 80% of Venezuela's revenues as recently as 1991, but next year's budget projects it will be only 45%.
And if the exploration joint ventures prove successful, they may be followed by measures to privatize other oil industry sectors.
Copyright 1994 Oil & Gas Journal. All Rights Reserved.
