Venezuela Oil Group Seeks Incentives to Lure More Foreign Moneyby
Group says royalties should be reduced amid low oil prices
Recommends single foreign exchange for oil sector transactions
Venezuela’s main hydrocarbon association has proposed measures aimed at attracting more investment from international oil companies as prices drop to the lowest in more than a decade.
Incentives would include reducing royalties and extraction taxes to 20 percent from 30-35 percent, applying a single exchange rate for the oil industry and granting more decision-making powers to joint venture partners. The measures, presented yesterday to the President’s National Council for Productive Economy, are needed to support oil-sector investments, according to a document outlining the proposals.
“There have to be changes in the oil sector, and not just a more competitive exchange rate for the sector,” Asdrubal Oliveros, director of consulting firm Ecoanalitica, said during a meeting yesterday with foreign press at Bloomberg’s office in Caracas. “Until we have a collapse and change in this model, we will not see more oil sector investments.”
Venezuela is seeking ways to attract more investments from foreign partners in joint ventures with state oil company Petroleos de Venezuela SA. Private companies have held back investments amid currency controls that include three official exchange rates, surging inflation and late payments for services. Low commodity prices raise concerns that Venezuela may default on dollar debt as foreign currency reserves fall and the economy contracts.
The average price of Venezuela’s oil basket, which comprises 95 percent of the nation’s exports, closed at $21.63 a barrel on Jan. 22, the lowest level in 13 years, according to data compiled by Bloomberg. At these oil prices, projects in the country’s main crude-producing region aren’t profitable once royalties as high as 33 percent are paid to the government, said Oliveros. Venezuela’s Orinoco heavy oil belt is home to the largest non-conventional accumulation of heavy and extra-heavy crude in the world.
“We have to learn to work more each day with the joint ventures,” Oil Minister Eulogio Del Pino said in a statement on PDVSA’s website on Jan. 25. “We need to overcome the myths and prejudices that oil companies have about working together, sharing in risks, operations and decisions,” said Del Pino, who also serves as president of PDVSA, as the company is known.
Venezuela’s Information Ministry and the media department at PDVSA didn’t respond to e-mails seeking comment. AVHI, as the main hydrocarbon association is known, wouldn’t comment beyond the proposals presented publicly to the state.
Foreign oil companies operating in Venezuela include Chevron Corp., Repsol SA, Statoil ASA and China National Petroleum Corp., among others.