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27/05/2005 | Venezuela: Venezuela's Energy Minister Attends National Assembly Hearing on Operating Contracts

WMRC Staff

Rafael Ramirez, Minister of Energy and Petroleum and head of state-oil company PDVSA, yesterday issued a sharp condemnation of the old 'PDVSA' in a speech to the National Assembly.

 

Global Insight Perspective

Significance

Since the strike, the Chavez government has increased control over the state-oil company and is currently trying to maximise revenues from the private sector as well.

Implications

With state-oil company PDVSA struggling to increase its production capacity to meet its OPEC quota, Venezuela has become increasingly dependent on the private sector to make up the shortfall in order to maintain output levels. For this reason, the uncertainty triggered by a review of operating contracts and an investigation by the tax agency has raised concerns about new investments by the private sector and its effect on future production.

Outlook

Plans for investments in new projects by the private sector should take some of the pressure off PDVSA, but most companies are targeting new investments at the heavy-oil and natural-gas sectors, rather than conventional oil production, which means that it remains difficult to see how Venezuela will meet its target of expanding the country's oil production capacity to 5 million b/d by 2009.

Energy Minister Addresses National Assembly

Yesterday, Rafael Ramirez, Minister of Energy and Petroleum and head of state-oil company PDVSA, spoke to legislators in the National Assembly who are conducting an investigation into the opening of the oil industry in the 1990s. The investigation will include a probe into the operating agreements signed with foreign companies during this period, as well as the four strategic associations created in the Orinoco belt. The National Assembly probe follows the opening of an investigation into the operating contracts by the tax agency as well as pressure from the governments of foreign companies that signed these contracts to move over to joint ventures under the 2001 hydrocarbons law. The commission is headed by legislator Rodrigo Cabezas, who is a supporter of President Chavez.

Venezuela's PDVSA to Take a 30% Stake in Sincor Extra-Heavy Oil Project

Ramirez said in the speech that surplus production from the Sincor extra-heavy crude-upgrade facility in the Orinoco Belt would face royalties of 30%. In March, President Chavez said that he had approved the start of talks with France's Total over the construction of a second extra-heavy crude-upgrade facility at its Sincor project, which would have a 200,000-b/d processing capacity and would double its production from the Orinoco Belt. Total's partners in Sincor are Statoil and PDVSA. President Chavez announced last October that the government was increasing royalties on production by foreign companies operating in the Orinoco heavy-oil belt from 1% to 16.6% earlier than expected. Companies are aware that any new project will have to comply with the 2001 hydrocarbons law, which requires new ventures to pay higher royalties than those initially agreed for the first four strategic associations in the Orinoco Belt, as well as to give PDVSA a controlling stake in the project. Ramirez also told legislators that the four associations had 'legal problems', Reuters reports.

Venezuela's Oil Sector Sees Sluggish Growth in Q1

The Central Bank announced this week that the Venezuelan oil sector expanded in the first quarter of 2005 by just 1% year-on-year, as PDVSA continues to struggle to increase oil output at a time when oil prices have reached record highs. Total GDP growth was 7.9%. The low growth figure in the oil sector appears to confirm that the oil sector has still not fully recovered from the strike and could also increase pressure from opposition legislators for greater accountability in the government's use of PDVSA revenues. These calls follow declarations by the director of the Central Bank Domingo Maza Zavala to legislators earlier this month that there was a US$20-million-per-day shortfall in the oil-export revenues declared by the state-oil company PDVSA to the Central Bank between January and April 2005. PDVSA itself has denied the allegations and accused the opposition of orchestrating a campaign of misinformation with regard to the performance of the oil sector. Nonetheless, even the government has hinted recently that there are some internal problems at PDVSA. Unfortunately, conflicting output figures and insufficient transparency with regard to the company's accounts make it hard to assess the true state of the Venezuelan oil sector. PDVSA's 2003 annual results are expected to be submitted to the US Securities and Exchange Commission (SEC) in June, one year behind schedule. There is no date for the submission of the 2004 results.

PDVSA claims that its production averaged 3.240 million b/d between January and April 2005, of which 2.623 million b/d corresponded to output by PDVSA and operating contracts and 617,000 b/d corresponded to the strategic associations in the Orinoco belt. Meanwhile, industry observers put production at between 2.6 million b/d and 2.7 million b/d.

Outlook and Implications

Operating contracts were signed in the 1990s with companies such as Repsol-YPF, Total, BP, Eni, ChevronTexaco, ConocoPhillips and Statoil. They currently produce around 500,000 b/d, and PDVSA has become increasingly dependent on foreign-operated projects to increase production in order to offset the fall in its own production capacity following the strike. The government is therefore taking a risk in putting pressure on these companies to move over to joint ventures and pay higher taxes at a time when foreign investment is needed in the oil sector. Nevertheless, all of the companies involved in the strategic associations in the Orinoco Belt, with the exception of ExxonMobil, have agreed to pay higher royalties for existing extra-heavy oil projects. Alongside the joint venture deal reached with Repsol-YPF, this suggests that a group of core investors will probably be prepared to accept less favourable fiscal terms in order to maintain their investments in Venezuela, especially since new opportunities for investment in other significant oil-producing countries in the world are limited.

However, there are signs that the government might be prepared to offer companies incentives in return for agreeing to migrate to new contracts that would allow the state to take a larger share of revenues. The memorandum of understanding (MoU) signed by PDVSA and Repsol-YPF to form a joint venture will allow Repsol-YPF to increase its reserves and production in Venezuela .

WMRC (Reino Unido)

 


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