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- Missed deadlines for contract review delay investment decisions
- Some firms await contract details before moving forward
- Meetings with officials yield limited information
(Reuters) – Energy companies evaluating whether to invest in Venezuela are waiting for the OPEC nation’s oil ministry to release contract models that will provide specific terms to continue, expand or start businesses there, two sources close to the matter said.
Following the approval in January of a sweeping reform of Venezuela’s main oil law that gave autonomy to partners of state company PDVSA to operate and sell their output, the ministry told executives it would soon issue new models for sharing production contracts and joint ventures, while working on separate tax legislation. The delays are hindering the kickoff of an ambitious $100 billion plan drafted by Washington to rebuild the South American country’s deteriorated and stagnant energy sector, following the U.S. capture of deposed President Nicolas Maduro in January and its support of Delcy Rodriguez as interim president.
Many foreign and local companies interested in crude and gas fields, midstream and downstream projects need to see the models to make investment decisions. Their current contracts have been under review since February.
The ministry had initially aimed to complete the first phase of the review by the end of March, with a second and final phase to be completed by the end of April. But government officials have not completed the first task on time and the contract models and tax regulation have not been issued, the sources added.
“We are not expecting the contract review to finish any time soon,” said one source, who advises companies on operations and investments in Venezuela. “Interest is excessive from some companies that do not have the means yet to measure the risks, but not even they are putting a dollar until finding counterparties to negotiate with and reading the terms.”
Venezuela’s oil ministry and PDVSA did not reply to requests for comment. Companies operating under sharing production contracts awarded by Maduro’s administration continue to be excluded from the trading of their oil production while the review takes place, the sources said.
MORE INFORMATION NEEDED
While some small foreign drillers have been willing to begin operations without waiting to have all reforms approved, other producers want to first see the final terms to determine which type of contract would better fit their projects. The complete information could help them decide between expansions or fresh greenfield projects, depending on partnership terms and taxation.
Another challenge: Most officials from the ministry and PDVSA lack individual authority to negotiate terms or provide specific information about oilfields and facilities, even though the oil law reform put the ministry in charge of discussing and signing contracts.
At recent public presentations by Rodriguez and her team, the information has been limited and often vague or outdated on what the country has to offer investors, according to slides seen by Reuters.
Even after the companies draft their projects with metrics from the new legal framework, another layer of complications is expected with Washington, to ensure that contracts are in line with what is allowed under U.S. licenses and authorizations issued since January, the sources said.
Reporting by Marianna Parraga; Editing by Nathan Crooks and David Gregorio
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