The Energy Regulation and Markets Review - Stikeman Elliott

Venezuela
The modification of the oil and gas legal framework in 2002, along with
the increase in oil prices during this period, caused the government to begin a long
process aimed at adapting the then-existing contractual arrangements to becoming one
appropriate for the new legal framework.
Through a migration process, the Venezuelan government ‘negotiated’ by 2006
and 2007 the conversion of operating service agreements and association agreements for
majority government-owned joint ventures. More specifically, in 2005, the Ministry of
Petroleum and Mining (‘the MEP’) instructed the conversion of the existing operating
agreements to a regime of joint ventures, in which Petróleos de Venezuela SA (‘PDVSA’), 3
through its subsidiary CVP, was to hold between 60 per cent and 80 per cent stock
ownership. During 2006, 19 operating agreements were converted into joint ventures,
and exploration and production in new areas (profit-sharing agreements) 4 and strategic
associations to produce crude oil in the Orinoco Belt 5 (encompassed as association
agreements) were converted into joint-venture projects controlled by the government. 6
As a consequence of this process, several private companies remained as minority
private participants in such joint ventures. In effect, the model contracts developed to
implement such migration were signed by several oil and gas companies such as BP,
Chevron, Shell, Total, Statoil, Eni, Petrobras, Repsol, CNPC, Sinopec, Anadarco,
Hocol, Perenco, Tecpetrol, Compania General de Combustibles, Teikoku and Harvest
Natural Resources. Only Exxon Mobil and Conoco initiated arbitration proceedings
3 PDVSA is the largest vertically integrated company in Latin America and the fourth largest
vertically integrated oil company in the world, measured by a combination of operational data,
including volume of reserves, production, refining and sales. PDVSA carries out exploration,
development and production operations in Venezuela as well as the selling, marketing, refining,
transport, infrastructure, storage and shipping operations in Venezuela, the Caribbean, North
America, South America, Europe and Asia. PDVSA indirectly owns 100 per cent of CITGO,
a refiner and marketer of transportation fuels, petrochemicals and other industrial oil-based
products in the United States. PDVSA has a refining capacity of approximately 3 million
barrels per day (or mmbpd), and other feedstock in Venezuela and abroad in a number of
products, including gasoline, diesel, fuel oil and jet fuel, petrochemicals and industrial products,
lubricants, waxes and asphalt (Petroleum Intelligence Weekly).
4 The following are the joint ventures operating the former profit sharing agreements: Petrolera
Paria SA, operating the Golfo de Paria Este project; Petrosucre SA, operating the Golfo de Paria
Oeste project; Petrolera Güiria SA, operating the Golfo de Paria Central project; and La Ceiba
field is operated directly by PDVSA Petróleo.
5 On 26 February 2007 Decree 5,200 established the timeline and general guidelines for the
transfer of such association agreements (previously controlled by private entities) to joint
venture projects controlled by the government. Under this decree, the associations of Hamaca,
Sincor and Cerro Negro became joint ventures.
6 The current joint ventures operating the Orinoco Oil Belt are: Petropiar SA joint venture,
operating the Hamaca project; Petrocedeño SA joint venture, operating the Sincor Project;
Petromonagas SA joint venture, operating the Cerro Negro Project; and Petrolera Sinovensa SA
(Petrosinovensa) joint venture, operating the Carabobo.
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