Venezuela Breaks Up Oil Monopoly Under New Regulations

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(Bloomberg) — Venezuela’s interim government published long-awaited oil regulations on Thursday that effectively end the decades-long control of national oil company Petróleos de Venezuela SA, or PDVSA, over the country’s lifeblood industry. 

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Spanning 29 pages in the Official Gazette, the regulations lay out rules for the private sector to operate, from wellhead to fuel pump, as well as fiscal terms, with a range of taxes reflecting the risk profile of assets, from brownfield deposits to offshore operations.

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The new oil norms, the South American country’s first comprehensive ones since 1943, notably make no mention of PDVSA, once seen as a thriving state oil company that deteriorated from years of mismanagement and corruption. 

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“I think that opening up the market is a good thing, if you think about where PDVSA is, they are cash strapped, they haven’t been functioning well for years,” said Samantha Gross, director of energy security at The Brookings Institution.

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Although PDVSA had already ceded managerial control over oil production to Chevron Corp. and other private-sector companies starting in 2022, the new regulations significantly expand the opening to include oil refining, marketing and distribution.

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The regulations, published on Tuesday and circulated on Thursday, are tied to a groundbreaking reform of Venezuela’s oil law approved in January, at the dawn of a US-backed interim administration led by Acting President Delcy Rodríguez who is overseeing major economic reforms.

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The industry’s opening is aimed at attracting desperately needed investment as the US unwinds sanctions, an objective that last month’s catastrophic earthquakes have made more urgent. 

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Opening the market to private companies is only the first step, Gross said in an interview. Refineries in Venezuela will also need significant restoration after years of neglect, which may give companies pause before going back into the country, she said.

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“Refurbishing those and getting them back into good operating order is going to cost some money,” Gross said. “And so the question is do companies think that they can get sufficient returns over time to make those good investments?”

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In a signing ceremony broadcast on state television on Wednesday, Rodríguez called the new regulations a “historic step” aimed at “using reserves for the country’s development.” 

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In a separate resolution this week, the government published rules for the determination, declaration and payment of taxes and royalties payable by companies engaged in oil upgrading, refining, industrialization and marketing as well as specialized oil field services.

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(Adds expert commentary and separate tax resolution starting in fourth paragraph. Earlier version corrected date of publication of regulations in sixth paragraph.)

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