Petrobras and Chevron Sign Joint Ventures with Venezuela’s PDVSA

Caracas , Venezuela, July 22, 2006 —Petrobras and Chevron this week became the latest companies to partner with Venezuela’s state owned oil company PDVSA in new joint venture contracts that are changing the way Venezuela deals with foreign companies.

These contracts give foreign investment a major role in industrial operations, but, unlike the previous contracts negotiated in the 1990’s, leave the Venezuelan state firmly in control of its own resources.

The deal with Petrobras gives the Venezuela Petroleum Corporation (CVP, a subsidiary of PDVSA, responsible for managing the joint ventures) a 60% controlling share of the business, Petrobras 36% and Williams International Oil & Gas (Venezuela) Ltd. 4%. The venture will operate in the Concepción field in Zulia state under the company name of Petrowayú S.A. Chevron has negotiated a similar agreement.

The President of CVP, Eulogio Del Pino said, “This is the first of the four contracts we expect to sign with Petrobras, one of the companies with which PDVSA has been developing important plans.”

Petrobrás is the Brazilian state owned petroleum corporation and the company’s President, Gerson Fernandes thinks the contract signifies more than a company to company agreement. “The signing ratifies the trust not only among the countries but also among the businesses and peoples,” said Fernandes.

However, this is not an exercise in Latin American integration. Shell (UK/Netherlands), Perenco (France), and Tecpetrol (Argentina) already signed contracts earlier this month and in all there will be twenty-one agreements with eighteen different, mostly non-South American, companies. The contracts do, though, mean a significant shift in the balance of power between companies and the Venezuelan state.

Under the old “Operating Agreements” negotiated during the period known as “The Opening” (Apertura) of the 1990’s, Venezuelan oil fields were in the hands of trans-national corporations. They paid no royalties and only paid 36% tax on their profits. This was agreed without consulting the National Congress and was inconsistent with the Nationalization Act which prevented the hand over of the hydrocarbon industry to private capital.

The new agreements are consistent with both the new Venezuelan constitution and the new Organic Law on Hydrocarbons (OLH). Under the constitution all hydrocarbon fields within Venezuelan territory are and must remain the property of the state and the OLH requires that any business unit must be more than 50% state run.

Under the joint ventures companies have to pay a royalty of 16.6% and taxes of 50% and the state will hold between 60% and 80% of the newly formed businesses.

There have been few complaints, in public at least, from the corporations about these changes. Upon signing its agreement, Chevron said that their strategy was in line with Venezuelan oil politics and the President of Shell Venezuela said, “This company has been operating in Venezuela for more than ninety years and could continue another ninety more. The potential of the oil industry here can be taken to other areas, working with PDVSA.”

Not all companies found the new relationship and costs so easy to accept. Total Oil and Eni failed to reach agreement with the government and Eni threatened legal action for a breach of contractual rights. That was in April, however, and nothing has materialized up till now.