Harvest considers arbitration in tax dispute with Venezuela

Aug. 15, 2005
Harvest Natural Resources Inc. is considering going to international arbitration over tax evasion claims that the Venezuelan government has made against the Houston independent oil company, its top executive said.

Harvest Natural Resources Inc. is considering going to international arbitration over tax evasion claims that the Venezuelan government has made against the Houston independent oil company, its top executive said.

“We’ll proceed to international arbitration on all claims in full if we deem it necessary,” Chief Executive Officer and Pres. Peter Hill said during an Aug. 1 conference call about second-quarter earnings. “It’s not our preferred route, but we’re prepared to take it if we have to.”

Seniat, the Venezuelan tax authority, said on July 25 that Harvest owed $94 million in back taxes for the 2001-04 period. Harvest has until mid-August to either pay the claim or dispute it.

Other oil companies with Venezuelan operating contracts also received retroactive tax bills. Seniat said Royal Dutch Shell PLC owes $131 million.

Harvest is reviewing the tax bill, Hill said, vowing that the company will challenge any claim not supported by law.

“We need full, fair value for existing contracts,” he said. The tax questions concern an agreement made in 1992, Hill said.

Venezuela’s intentions to increase corporate income tax on oil companies threatens to slash the values of international companies operating there (OGJ, Apr. 25, 2005, p. 48). Aberdeen consultant Wood Mackenzie Ltd. has said the government wants to take a greater share of the profits from oil production.

Harvest operates in Venezuela’s South Monagas oil fields, although the company suspended its drilling program in January because of a dispute with state-owned Petroleos de Venezuela SA. The drilling program remains suspended, Hill said.

PDVSA missed a payment deadline for Harvest’s oil deliveries. Hill said the payment eventually was made but was less than Harvest had expected.