Venezuela Revises Oil Contract Terms to Entice Wary Investors

PDVSA's El Palito refinery in Venezuela. Photo by Manaure Quintero /Source: Bloomberg

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(Bloomberg) — Venezuela has revised a proposed contract for energy companies to work in the nation’s oil fields after drillers complained the initial draft gave too much leverage to Caracas and was out of sync with US license rules.

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The new roughly 90-page draft eliminated a clause in the initial version that would have let Venezuela terminate contracts for reasons of “public interest” with limited compensation for companies, according to people familiar with the matter who asked not to be identified because they were not authorized to speak publicly about it. The clause was an impediment to negotiations, the people said.

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Companies are anticipating that any discrepancies between the proposed contract and the terms of US Treasury Department licenses — including issues of arbitration and US law — will be addressed in individual negotiations, one of the people said.

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The proposed contract is a starting point for production-sharing negotiations between state-owned Petróleos de Venezuela SA, or PDVSA, and private companies interested in helping revive dilapidated oil fields and boost output after years of sanctions, mismanagement and neglect.

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Venezuela’s Information Ministry and PDVSA didn’t immediately reply to requests for comment.

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Also See: ConocoPhillips Says Venezuela’s Bid to Woo Oil Firms Falls Short

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At the moment, the only active producers in Venezuela besides PDVSA are a handful of companies including Chevron Corp. Some smaller firms have already started negotiations to lock in deals as the war in Iran drives up oil prices, the people said. 

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Still, oil companies remain cautious. The revised terms in the latest version of the proposed contract are more competitive but still fall short of commercial and sanctions-related expectations, the people said. Even for companies willing to take on significant risks, the terms aren’t generous enough to justify significant spending given Venezuela’s uncertain political environment, they said.

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The Trump administration has seized control of Venezuela’s oil revenue and is working with acting President Delcy Rodríguez to encourage US companies to help rebuild the nation’s oil fields under Treasury licenses issued after the US capture of former leader Nicolás Maduro in January. 

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—With assistance from Fabiola Zerpa.

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