Financial Times: Oil majors to accept Venezuela’s new terms: “Rafael Ramirez, Venezuela’s energy minister, said in an interview with the FT that companies, including the Anglo-Dutch Royal Dutch Shell, BP of the UK, France’s Total, and ExxonMobil and Chevron of the US, had agreed to give Pdvsa, Venezuela’s state-owned oil company, majority ownership of their concessions and sign new contracts that will subject them to higher taxes.”: Posted Friday 16 December 2005
By Carola Hoyos in Mina abd Allah, Kuwait
Many of the world’s biggest international oil companies will cave in to Venezuelan demands this week and sign new, less lucrative contracts rather than lose billions of dollars of investment and leave the largest oil exporter in the Americas by the end of the year.
Rafael Ramirez, Venezuela’s energy minister, said in an interview with the FT that companies, including the Anglo-Dutch Royal Dutch Shell, BP of the UK, France’s Total, and ExxonMobil and Chevron of the US, had agreed to give Pdvsa, Venezuela’s state-owned oil company, majority ownership of their concessions and sign new contracts that will subject them to higher taxes.
BP confirmed it had already agreed to the transition to a new, joint-venture contract. Chevron, ExxonMobil, Shell and Total chose not to comment on their negotiations. Many of the smaller foreign oil companies have already signed, but the big international energy groups until now have fought against the new measures.
Venezuela’s government, under Hugo Chávez, the nationalist president, has battled for more than a year to rewrite contracts that were signed by the previous government in the 1990s when it was keen to open its oil industry and attract international companies. The Chávez government threatened that the companies would lose their concessions – producing 500,000 barrels of oil a day – if they did not agree to the changed contracts by December 31. In the past year Pdvsa has trained its management to take over 100 per cent of the companies’ operations if they did not accept the government’s demands. Venezuela is one of the largest suppliers of oil to the US, with a 15 per cent share.
With the rise in oil prices, big oil companies are having to accept new, tighter and less lucrative conditions in many oil-producing countries. However, with high prices and a lack of other opportunities, the companies tended to agree reluctantly to the tougher terms. With elections due in several leading oil- and gas-producing countries, including Mexico, Ecuador and Bolivia, in coming months, oil company executives fear the result could be governments keen to assert more control over their oil and gas resources.
At the close of this week’s meeting of the Organisation of the Petroleum Exporting Countries, the cartel of which Venezuela is a founding member, Mr Ramirez said: “The problem with the service contracts was that their condition was more like a concession. We lost a lot of money and they paid taxes designed for non-oil activities, which were only 34 per cent, rather than 50 per cent. And the government didn’t have any control.” Meanwhile, the companies were able to deduct their costs, which rose as the oil price increased. With oil prices soaring in the past three years “what we had to pay for the barrels was more than we got”, Mr Ramirez said.
Though the details of the new contracts are still to be agreed with the 22 international companies affected, Pdvsa will now have at least a 51 per cent stake; the rise in oil prices will no longer be linked to costs, and taxes will be closer to 50 per cent, Mr Ramirez said.
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