WATCHING GOVERNMENT OPPORTUNITY IN VENEZUELA

April 17, 1995
With Patrick Crow from Washington, D.C. After a visit to Caracas, U.S. energy officials are enthusiastic about Venezuela's attitude toward plans to permit American and other companies to explore there. Deputy Energy Sec. Bill White said Venezuelan officials predicted their Congress will debate legislation this summer to allow joint venture exploration in 10 areas. The presence of foreign oil companies is a lingering political issue in Venezuela, which ejected foreign oil companies 20 years

After a visit to Caracas, U.S. energy officials are enthusiastic about Venezuela's attitude toward plans to permit American and other companies to explore there.

Deputy Energy Sec. Bill White said Venezuelan officials predicted their Congress will debate legislation this summer to allow joint venture exploration in 10 areas.

The presence of foreign oil companies is a lingering political issue in Venezuela, which ejected foreign oil companies 20 years ago (OGJ, Nov. 28, 1994, p. 34).

But foreign firms have returned to help with liquefied natural gas export and heavy oil development projects. Venezuela needs an infusion of foreign investment for expansion of its oil sector. A persistent recession has made it only more anxious.

CONFERRING ON PETROLEUM

White and Reginal Spiller, deputy assistant Energy secretary for gas and petroleum technology, met with Petroleos de Venezuela SA (Pdvsa), energy ministry, congressional, and oil company officials during a visit early this month.

White said those officials were unanimous in wanting the legislation passed. Most predicted congressional action in June, and all were enthusiastic about foreign participation.

"This is a particularly good time for Venezuela to be considering opening its oil sector," White said. "Venezuela is a substantial net purchaser of crude oil, about 460,000 b/d, to feed its considerable refining capacity

"And they would like to expand their production as their Organization of Petroleum Exporting Countries quota increases. They would like to produce 4.2 million b/d in 2003, up more than 1 million from where they are today.

"We believe it would be good for the U.S. to see relatively more of the incremental world oil supply coming from this hemisphere, as opposed to coming from countries such as Iraq and Iran that have extreme militarism.

"And of course, U.S. oil companies are enthused about being able to drill on some of the undeveloped acreage."

Venezuela has many unexplored areas. Even in existing fields there is potential for deeper production and tests of undrilled acreage.

One drawback may be taxes. Venezuelan tax rates for foreign companies and Pdvesa are very high relative to those in the U.S.

White said, "Pdvsa, one of the three biggest oil companies in the world, has a 72% net tax burden. Unlike American firms, it does not pay dividends. But we analyzed American and European oil companies, and Pdvsa's tax bite is still very high.

"We urged Venezuelan officials to consider lowering taxes if they wanted to create the environment for a major drilling boom down there."

AN OPPORTUNITY

Spiller said the high tax rate makes Venezuela's profit sharing agreements more attractive. The tax rate is only 34% for heavy oil production.

He said a number of Venezuelan companies are seeking partnerships with U.S. companies with expertise in various aspects of the oil business. "This is a great opportunity for medium sized companies."

Spiller, a former producer who has worked in a number of countries, said Venezuela is sending a strong message to the U.S. oil industry: "We want to develop our reserves, and we 11 will give you incentives to help us.

Copyright 1995 Oil & Gas Journal. All Rights Reserved.