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The head of ConocoPhillips said Venezuela’s initial steps to attract foreign oil companies that could help revive the nation’s production are falling well short of what’s needed to convince firms to invest.
The recent changes to Venezuela’s oil law intended to entice foreign drillers still give the government wide latitude to charge royalties of up to 30%, as much as 15% in taxes and other levies that could drive up the state’s take.
“They have a long ways to go,” ConocoPhillips Chief Executive Officer Ryan Lance said in an interview. “The current hydrocarbon law is not sufficient to attract a whole lot of investment. A 95% government take will not do it. So obviously they have a lot more work to do on their side of the equation.”
Whether Venezuela can offer generous enough terms to attract foreign companies is integral to President Donald Trump’s plan to revive the nation’s oil production following the capture of ex-President Nicolás Maduro. Some companies remain skeptical that Venezuela has fully moved beyond its legacy of autocratic control that drove billions of dollars of asset seizures under the nation’s late President Hugo Chávez. That includes some $12 billion in ConocoPhillips holdings nationalized in 2007.
Related: ConocoPhillips Sends Team to Venezuela to Evaluate Oil Prospects
Venezuela’s state oil company, Petróleos de Venezuela SA, recently began circulating a proposed contract to foreign oil companies that leans significantly in favor of the government when it comes to arbitration, taxes and termination of deals, according to people familiar with the document.
Also See: Venezuela Pitches Oil Contract to Kick Off Talks With Drillers
Based on what’s been made public about the proposed contract, Lance said the terms appear to hearken back to Venezuela’s past.
“It looks a lot like what we had before we got expropriated in 2007,” he said. “It doesn’t look like it’s anywhere near what it needs to.”
Oil industry executives have asked the Trump administration to address the issue in talks with Venezuela’s interim government, led by acting President Delcy Rodriguez, according to people familiar with the matter.
US Interior Secretary Doug Burgum, who also heads Trump’s National Energy Dominance Council, has pressed Rodriguez for changes that will entice foreign investment needed to boost oil output and jumpstart mining in the country.
“Delcy has expressed to me and to others across our administration that they want to be competitive, they want to be able to attract capital,” Burgum said in an interview. “They understand that they’re not going to revive their industry unless they can attract capital.”
Read More: Venezuela Circulates Draft of Oil Law Regulations for Companies
Ultimately, companies with the ability to invest globally will have leverage in talks with Venezuela, Burgum said, adding he that remains “very optimistic.”
“If they don’t like the terms, they’ll say no,” Burgum said. “That’ll put pressure on Venezuela to get to a spot where they become competitive for capital that can flow to different fields around the world.”
— With assistance from Patricia Garip and Fabiola Zerpa
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