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Venezuela's new upstream oil
deals hinge on oil law reform

Venezuelan oil output

- Pdv's (PDVSA) well reactivation drive faces serious obstacles - not least opposition from within the ruling party and uncertainty over the US response

By Argus

CARACAS
Petroleumworld 05 31 2021

Venezuela's state-owned PDVSA has signed upstream reactivation contracts with around two dozen companies, but activity is unlikely to take off before more legal safeguards and political assurances are in place, government officials tell Argus .

The new productive services agreements (ASPs) which PDVSA started signing last year in conjunction with an anti-blockade law would give the firm's new partners operational and financial control and a mechanism to recover past debts, in exchange for covering capital and operational spending. With the private sector in control, in theory the ventures would not be subject to US oil sanctions on PDVSA, but it is unclear whether Washington would tolerate them.

Another potential sticking point is commercial. While PDVSA's new partners would have marketing rights, the sanctions and looming tax changes in China would limit destination options.

A strategy of reactivating thousands of dormant or underperforming wells is not new. PDVSA and the political opposition have both drawn up plans to harness underutilised local expertise to revive output, and in recent years the firm has signed limited contracts with obscure companies that faded with little tangible result. This newer crop of deals is more concrete, engaging more established partners and covering oil and gas fields in PDVSA's eastern and western division as well as the Orinoco heavy oil belt.

Among the western companies closely monitoring the process is Chevron, which is awaiting the renewal of a restricted sanctions waiver, and Spain's Repsol and Italy's Eni, which have limited oil and gas operations inside the country. Chinese state-owned firms with long-standing PdV ties are also quietly engaged.

Legal backing

Although the ASPs are in place, some of PDVSA's new partners a mix of local contractors and foreign interests are reluctant to execute the contracts until Venezuela's oil law that mandates a majority PDVSA stake is reformed to give the private sector a greater role. While the 2020 anti-blockade law permits the private sector to take the reins, it was approved by the now-defunct National Constituent Assembly rather than the National Assembly, giving it weak institutional standing. The latter is now in government hands after a term controlled by the US-backed opposition, but some lawmakers who belong to President Nicolas Maduro's ruling PSUV party are crying foul, alleging that the directly awarded contracts are a stealth privatisation of the national oil industry.

"PDVSA and its Venezuelan oil services contractors are ready to start working immediately, but until the assembly reforms the oil law, the ASPs lack a legal framework needed to reassure the companies, their investors and equipment suppliers that the ASP terms and conditions are legally transparent and binding for all parties," an oil ministry official says. "Potential investors with much larger capitalisation bases and experience are closely following the government's push to reform the oil law before deciding whether the risks going forward are acceptable."

PSUV legislators Jesus Farias, who chairs the assembly's economy and finance commission, and Angel Rodriguez, head of the petroleum and energy commission, have rejected the government's entreaties to reform the oil law during several meetings with oil minister Tareck El Aissami and PDVSA chief executive Asdrubal Chavez since February, demanding the assembly approve the anti-blockade law first. PDVSA is producing around 500,000 b/d of crude, far from the 3mn b/d of the 1990s. A senior aide to Maduro tells Argus that the ASPs will not achieve the scale of investment PDVSA needs unless the oil law reforms are approved by the assembly. "The anti-blockade law is not enough," the aide says.

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