Venezuela's Latest Oil Reforms Bring Optimism, Caution - EUROPE SAYS
Still reeling from a pair of powerful earthquakes last month, Venezuela’s government is pushing forward with reforms to the country’s oil and gas sector aimed at attracting more international investment into. . .
Still reeling from a pair of powerful earthquakes last month, Venezuela’s government is pushing forward with reforms to the country’s oil and gas sector aimed at attracting more international investment into a critical industry. While the quakes had little direct impact on upstream operations in Venezuela, they add a new layer of complexity to US-led efforts to revitalize and grow a sector that Washington hopes will drive an economic recovery after its ouster of President Nicolas Maduro early this year. The policy reforms announced last week address some key concerns around production taxes and state-owned PDVSA’s role in oil and gas operations, but experts are unsure if the changes are enough to drive an influx of capital from international oil companies (IOCs). In January, Venezuela’s government passed a landmark new Hydrocarbon Law, the first step in reforming a sector that Exxon Mobil CEO Darren Woods had deemed “uninvestable” at the time. It has taken more than five months of wrangling among key stakeholders — including Washington, Caracas and IOCs — since then to agree on various amendments and policy changes to make the law more amenable to potential investors. The Regulation for the Organic Hydrocarbons Law, which was published in the Official Gazette after being signed last week by Delcy Rodriguez, Venezuela’s acting president, contains a new upstream fiscal regime and covers every sector of Venezuela’s oil and gas industry, with a pair of accompanying ministerial decrees that add more specificity to the regulatory changes. The new regulations introduce a project-based fiscal model: Instead of a fixed royalty, there will now be a flexible rate combining a royalty plus an “integrated hydrocarbons tax” payable by oil and gas producers, determined by the specifics of each project (see table). The new reforms also reduce the rate of corporate income tax payable on greenfield projects to 34% from 50%, allow for accelerated depreciation for up to seven years and provide mechanisms to request additional fiscal adjustments. Taxes can be paid in cash or with a share of production. Consultant Jose Pereira, a former executive at refiner Citgo, called the changes among “the most significant developments for Venezuela’s energy sector” but noted that they will “not necessarily” trigger a massive inflow of capital given ongoing legal, financial and political risks in the country. Tags:ConflictsVenezuela