The Energy Regulation and Markets Review - Stikeman Elliott

Venezuela
By law, companies performing primary hydrocarbon activities are considered
‘operating companies’. 30 Therefore, upstream petroleum-related activities are reserved to
the state and private participation is limited.
The rights to perform primary activities are granted by a procedure under which
the Executive, through the MEP, assigns the geographical area where the primary
activities will be developed. The Decree is then issued by the transfer by the Executive to
the operating company of the rights to perform primary activities.
In contrast, the creation of the JVs and the conditions under which they will
perform primary activities require the approval of the National Assembly, including
further modifications to such conditions. 31
The conditions under which the JVs will perform the primary activities must at
least include the following: (1) a maximum term of 25 years; (2) a description of the
area where the activities will be performed; 32 (3) the land and equipment to be kept
in good conditions and working order to be delivered to the state free of liens, in case
of termination of the rights for any reason; and (4) that any dispute arising from the
performance of the activities will be decided by the courts under Venezuelan law. 33
Under Article 57 of the Hydrocarbons Law, the marketing of natural hydrocarbons
can be performed only by wholly state-owned companies. Therefore, JVs producing
‘natural hydrocarbons’ can only sell their production to PDVSA Petróleos SA.
Midstream and downstream activities
In contrast with the legal treatment of upstream activities, midstream or refining activities
may be legally carried out by private companies, not subject to government control. The
performance of such activities would require the granting of a licence, however, although
these activities do not have limitations on private investment, existing refineries and
facilities were reserved to the state, 34 therefore these private investments would be feasible
only in new facilities.
Currently, there are no private entities (e.g., entities that are majority-owned
by private parties) undertaking refining activities in Venezuela and it is not currently
anticipated that there will be any private refineries in the foreseeable future. In effect, the
government seems intent on pursuing a policy in which most of its future oil and gas
plans will be carried out through JVs under its control.
The marketing of hydrocarbon by-products is also open to private investment
(including foreign investment) without limitation; however, the Hydrocarbons Law sets
out that the Executive may determine by Decree that the marketing of by-products can
be performed only by wholly state-owned companies. This power of the government to
30 Id.
31 Provided such modifications have the favourable opinion of MEP and the Permanent
Commission of Energy and Mines of the National Assembly (Article 33 of the Hydrocarbons
Law).
32 Article 23 of the Hydrocarbons Law.
33 Article 33 of the Hydrocarbon Law.
34 Id, Article 10.
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