THE WALL STREET JOURNAL: 32 Oil Pacts Must Switch To New Venezuela Law: "ChevronTexaco, BP PLC, Repsol, Total, Petrobras, Royal Dutch Shell and China National Petroleum Corp., or CNPC, all operate projects that need to be migrated to the new law. Venezuela is the world's fifth largest oil exporter and holds the largest oil reserves outside of the Middle East." (ShellNews.net) Posted 15 April 05

DOW JONES NEWSWIRES

CARACAS -- Private oil firms operating 32 oil production areas in Venezuela have six months to switch the contracts to comply with a new law that includes higher taxes and majority participation from state oil company Petroleos de Venezuela (PVZ.YY), PdVSA President Rafael Ramirez said Thursday.

"Within six months, the operating agreements will be converted to mixed companies under the new law," Ramirez said during a press conference.

Ramirez said the projects will pay a 30% royalty tax, and PdVSA will hold a 51% stake in each project, all requirements included in the 2001 Hydrocarbons Law. Ramirez didn't specify the current royalty rates, but said many of the projects declare losses and pay no taxes.

If companies don't accept the new terms, Ramirez said other oil firms would be interested in taking over the projects under the new terms.

"We would like the partners to remain the same ... but we have alternatives," said Ramirez.

An executive at an oil major operating one of the contracts said the company will abide by the new regulations. The contracts were sold during three separate licensing rounds in the 1990s, under terms Ramirez described as "illegal."

"We will comply with whatever the law says," said the executive, who asked not to be named.

The Chavez administration has been pressuring oil firms to migrate to the new law for more than a year.

"This is not a surprise," said the source.

Ramirez said PdVSA will have enough money to invest in the projects and maintain output under the new partnership structure. PdVSA says the country is pumping more than 3.1 million b/d, but analysts put the figure closer to 2.6 million b/d, and say PdVSA isn't investing enough to ramp up production in the near term.

The operating contracts currently produce 500,000 barrels of oil a day in Venezuela, and Ramirez said the companies aren't paying enough in income taxes, causing losses to the state oil company. He said PdVSA suffered accumulated losses of $270 million last year due to the structure of the operating agreements.

President Hugo Chavez said Wednesday that some of the operators may have to pay back taxes, if a tax review reveals they underpaid.

Ramirez said the tax and partnership changes will not scare investors away from new projects in Venezuela. Venezuela hopes to sell natural gas and heavy crude licenses this year.

"The majority of companies understand this topic," said Ramirez.

He added that any new projects fall under oil and natural gas legislation written by the Chavez administration, which will not be changed.

Some observers say oil firms, desperate for new reserves to develop, will stomach the new changes and continue investing here.

"I don't think the industry is going to run away from Venezuela," said Roger Tissot, an analyst with PFC Energy, a consultancy.

"If there is one thing they should have known, it is that this was going to happen sooner or later."

He said ExxonMobil (XOM) is the only company involved in the operating contracts that may fight the change. Exxon is the only firm out of five that produces synthetic crude in the Orinoco tar belt that balked at a royalty hike last year.

"I wonder what ExxonMobil will do," said Tissot. "Basically, this is the second royalty hike, and they were already fighting the first."

Ramirez said he hopes no firms choose to take the contracts to international arbitration.

ChevronTexaco (CVX), BP PLC (BP), Repsol YPF SA (REP), Total (TOT), Petrobras (PBR), Royal Dutch Shell (RD, SC), and China National Petroleum Corp., or CNPC, all operate projects that need to be migrated to the new law.

Venezuela is the world's fifth largest oil exporter and holds the largest oil reserves outside of the Middle East.

-By Peter Millard; Dow Jones Newswires; 58-212-564-1339; peter.millard@dowjones.com

Click here for ShellNews.net HOME PAGE