The Black Gold Rush Of '96

Oil tracts for sale-but the bidders face a huge tax bite

Ever since the heady days of Venezuela's last oil bonanza in the 1950s and 1960s, a gathering place for petroleum executives has been Caracas' Hotel Tamanaco, with its sweeping view of the city. At the peak of that boom, foreign companies led by Exxon Corp. and Royal Dutch/Shell Group pumped close to 3 million barrels of oil a day. Now, two decades after Venezuela nationalized its oil industry, the Tamanaco is about to become the venue for one of the world's biggest auctions of oil reserves, drawing international heavyweights back to Caracas.

For the past four months, execs have been poring over information packages costing $50,000 each and covering 10 parcels of territory, from the savannas bordering Lake Maracaibo to the Orinoco River delta. Mostly working in consortiums, they are preparing bids to search for new oil reserves that could total 23 billion barrels--to add to Venezuela's current 65 billion. In auctions at the Tamanaco over five days starting on Jan. 22, the state-run oil monopoly, PDVSA, will award one tract each morning and afternoon. "Anybody who is anybody is here and is looking at the scheme very closely," says Juan M. Quevedo, manager of Texaco Venezuela.

HOMEMADE SLICE. For PDVSA, reopening oil fields to foreigners will help achieve PDVSA's target production of 5.7 million barrels a day by 2005, up from 3.2 million today. Winners of blocks, if they find oil, will form joint ventures with PDVSA to produce it. The risks are high, though, because the terms of the auction are likely to put a drastic squeeze on profit margins: Tracts will be awarded to bidders that offer to pay the highest "profitability bonus," a variable tax that, along with others, could result in a total tax bite as high as 88%.

Despite the tough terms, 75 companies from the U.S., Japan, European nations, and elsewhere have gotten a green light to submit bids. With the stakes so high, PDVSA says it chose the Tamanaco for the auctions so there would be ample meeting places for consortiums and phone lines for executives to consult home offices. The competition for oil could make it seem almost like old times at the venerable hotel.

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