CARACAS, Venezuela, Aug 29 (Reuters) – Venezuela’s Congress on Tuesday approved an increase in income tax to 50 percent from 34 percent on four Orinoco heavy crude projects amid government efforts to gain a majority stake in the ventures.
The government of leftist President Hugo Chavez has launched a broad effort to boost government revenue and increase state control over energy operations in the world’s No. 5 oil exporter, helping to spur a wave of Andean natural resource nationalism.
"This bill forms part of Venezuela’s oil sovereignty," said legislator Rodrigo Cabezas, using a phrase coined by Chavez, during the discussion of the reform.
The move comes after energy authorities this year created a new tax that effectively boosted royalties to 33.3 percent from 16.6 percent, less than two years after ending a nine-year 1 percent royalty holiday.
The government this year also announced it wants to up the stake of state oil company PDVSA from an average of 40 percent to at least 51 percent in all four ventures.
The four multibillion-dollar projects produce around 620,000 barrels per day (bpd) of heavy crude that is upgraded to synthetic oil. Companies affected by the measure include Exxon Mobil, Chevron, ConocoPhillips, BP, France’s Total and Norway’s Statoil.
Companies contacted by Reuters either did not respond to requests for comment or did not want to speak about the issue.
Acting Energy and Petroleum Minister Bernard Mommer said the reform was likely to generate around $800 million in additional tax revenue.
But Cabezas, the legislator, told Reuters that the new tax rate would not take effect until 2007, since oil companies pay income tax annually. This means the government would probably not receive the additional revenue until 2008.
The income tax measure applies to the entire oil sector, but mostly affects the Orinoco projects because most other operations already pay 50 percent income tax.
"Now, everyone that produces petroleum in Venezuela will pay a royalty equivalent to one third and income tax of 50 percent," Mommer told reporters before the measure’s approval. Several profit-sharing deals signed during the 1990s will also be affected by the change.
The reform also removes an 8 percent income tax deduction for new investments by oil companies and a 10 percent deduction for environmental conservation investments.
UPPING THE STAKES
Venezuela has led a region-wide push to increase tax revenue and boost control over oil operations as global crude prices have soared in the last four years.
Mommer earlier told reporters that Venezuela expects PDVSA to hold a majority stake in the Orinoco joint ventures by the end of the year as part of an effort to give PDVSA control over all upstream oil ventures.
PDVSA is negotiating with the partners to "migrate" existing joint ventures to state majority joint ventures described in the nation’s hydrocarbons legislation.
"This process of migration has already started and it is going to accelerate," said Bernard Mommer, acting Minister of Energy and Petroleum, in comments to reporters. He added that he expected the process would be completed "this year."
Venezuela’s national tax authority has billed more than $700 million in back taxes to oil companies following an exhaustive audit of 32 oilfield subcontracting deals.
Last year Venezuela ordered companies to convert these deals to state majority joint ventures, and PDVSA is now negotiating to obtain a majority share in the Orinoco projects as well.
The four Orinoco projects are Ameriven, Cerro Negro, Petrozuata and Sincor. The ventures were negotiated in the 1990s with a tax rate of 34 percent and royalties of 1 percent for nine years at a time of slumping oil prices.
Rising profits as a result of booming oil prices led Venezuela to demand a greater share of the revenues. Bolivia has followed Venezuela’s nationalist lead, seizing the nation’s gas fields in May with active support from Chavez.
Venezuela is focusing heavily on the Orinoco Belt for future production opportunities, and is currently working with companies like China’s CNPC and Russia’s Lukoil to certify the area’s total reserves. Venezuela says the Orinoco Belt holds some 235 billion barrels of extra heavy oil.
PDVSA profits total US$6.2bn thru July
(BNAmericas.com) Venezuela’s state oil firm PDVSA reported net profits of US$6.2bn for the first seven months of this year, up from the same months of 2005, according to a company statement on its preliminary results.
Revenue for the period totaled US$33.8bn and operating profit was US$15.8bn, the company said without providing 2005 figures.
Costs and expenses came to US$7.8bn, according to the results, which do not include operations abroad. Royalties paid to the Venezuelan government totaled US$10.2bn during the period.
PDVSA spent US$5.6bn on social works in the period.
The oil company has not published its 2005 and 2006 audited financial results due to a 63-day strike in 2002-03. External auditors are reviewing the 2005 results, which must go through the national assembly before being published.
The company reported net profits of US$5.00bn in 2004, up more than 52% from US$3.28bn in 2003.
PDVSA is South America’s largest oil producer.