THE NEW YORK TIMES: Oil Companies in Venezuela Face More Control by State: “BP, Shell and ChevronTexaco, all of which have contracts that would be affected by the new policy, could not be reached for comment” (ShellNews.net) 15 April 05

By BRIAN ELLSWORTH

Published: April 15, 2005

CARACAS, April 14 - In a new revenue-raising measure, Venezuela's energy ministry said Thursday that private oil companies operating in the country would have to convert to joint ventures with the government within six months.

The energy minister, Rafael Ramírez, said at a press conference Thursday that the operating agreements would have to be swapped for ventures that are 51 percent state-owned and pay royalties of 30 percent. The fields in question produce roughly 500,000 barrels of oil a day of Venezuela's total production of 2.6 million barrels a day.

The energy ministry, along with the national oil company, Petróleos de Venezuela, "will begin a process of discussion with the 32 operating agreements so that we can reach the objective of the migration of these contracts to the existing law," Mr. Ramírez said.

He added that this would benefit the Venezuelan government as well as "the companies that want to continue operating in our country."

Thursday's decision would eventually end contracts struck in the 1990's, when the price of oil was far beneath its current record levels and Venezuela was seeking to entice private investors to marginal fields. Under half the contracts, Mr. Ramírez said, Venezuela pays more than 67 percent of the value of each barrel pumped by the companies, despite the fact that the price of oil has skyrocketed over time. He did not say how much the other contracts cost.

Mr. Ramírez said that Venezuela had lost $260 million on half these contracts in the past year, and blamed previous administrations.

In the past, he said, Petróleos de Venezuela "was run by an elite technocracy that operated behind the back of the country. We want to increase the transparency of what was once a black box."

BP, Shell and ChevronTexaco, all of which have contracts that would be affected by the new policy, could not be reached for comment.

Besides the lost revenues to the government, Mr. Ramírez said the contracts were illegal when they were signed and they needed to comply with the hydrocarbons law decreed by President Hugo Chávez in 2001. The move comes after nearly two years of failed discussions between the government and private companies about converting these contracts to joint ventures. Mr. Chávez and cabinet leaders have been highly critical of oil contracts approved by previous administrations, arguing they were overly generous to foreign investors.

Just six months ago, Venezuela unilaterally raised royalty rates from 1 percent, a virtual tax holiday, to 16.6 percent on four heavy crude upgrading projects in the Orinoco Belt that were also approved during the 1990's.

Venezuela's tax collection agency is also investigating possible evasion under the 32 operating agreements, estimating the total unpaid taxes at close to $2 billion since 2000.

Analysts said, however, that oil companies would probably not leave Venezuela because of the new arrangements, as oil is becoming harder and harder to find.

Roger Tissot, director of countries and markets at PFC Energy, a consultant group based in Washington, said that oil production in "business-friendly" countries is quickly declining, meaning that companies will have to work under increasingly changeable conditions.

"Nothing upsets an oil executive quite as much as having a contract changed," Mr. Tissot said, "but the problem that private oil companies face is there just aren't that many production areas available for them."

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