Venezuela delays new oil contracts as investors wait

Two sources said that energy companies evaluating whether or not to invest in Venezuela were waiting for the OPEC nation’s oil ministry to release specific contract models which would provide terms and conditions to continue, expand,or start businesses in Venezuela.

The ministry announced that it would be releasing new models of joint ventures and production contracts in the near future, and working on separate tax legislation. This follows the approval of a major reform of Venezuela's oil law, which gave partners of the state company PDVSA autonomy to operate and to sell their output. These delays prevent the launch of an ambitious $100 billion US plan to rebuild Venezuela's stagnant and deteriorated energy sector, after the capture by the United States of Nicolas Maduro and the support for Delcy Rodriguez in the interim presidency.

To make an investment decision, many foreign and local companies are interested in crude oil fields, midstream projects and downstream projects. They need to see models. Since February, their current contracts are being reviewed.

The Ministry had originally hoped to complete the first stage of the review before the end March. A second and final phase was to be completed by April 30. The sources said that government officials had not finished the first task in time, and the tax regulations and 'contract models' were still not issued.

One source who advises businesses on operations and investment in Venezuela said, "We don't expect the contract review will be completed anytime soon." "Some companies are showing excessive interest, as they do not yet have the ability to assess the risks. However, even these companies will not invest a penny until they find counterparties with whom to negotiate and read the terms."

Venezuela's Oil Ministry and PDVSA have not responded to requests for comments. Sources said that companies operating under Maduro's administration's sharing production contracts are excluded from trading their oil production during the review.

More information is needed Some small foreign drillers are willing to start operations before all reforms have been approved. Other producers, however, want to see the final contract terms to determine what type of contract would be best for their project. Complete information can help producers decide whether to expand or start new greenfield projects based on taxation and partnership terms.

The oil law reform has given the Ministry the responsibility of discussing and signing contracts, but most officials in the'ministry and PDVSA' lack the authority to negotiate or provide specific information on oilfields and facilities.

According to the slides that were seen by, information presented at recent presentations was 'limited, vague, or outdated, and did not reflect what a country could offer to investors.

Sources said that even after companies have drafted their projects using metrics from the new framework, Washington will still be involved to ensure contracts are in compliance with the U.S. licenses, authorizations, and permits issued since January. Sources: (Reporting and editing by Marianna Pararaga, Nathan Crooks, and David Gregorio).

(source: Reuters)