Presented by: Evelyn Parra
December 2010
Managing Director, Energy Welfare Training Ltd, Scotland, UK
Honorary Associate, Centre for Energy, Petroleum Mineral Law and Policy
(CEPMLP) - University of Dundee, Scotland, UK
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Experience sharing and analysis of
Government Take for one of the former
largest vertically integrated extra-heavy
oil projects of the Orinoco Belt in
Venezuela:
Energy Welfare Training Ltd - Evelyn Parra 2010
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Why crude oil is key to Venezuela?
Evolution of Venezuelan oil and gas industry
Types of oil opening contracts
First extra-heavy oil joint ventures
Comparison between general oil and gas taxation
versus extra-heavy oil tax regulations
The creation of mixed companies: a new
nationalization tool?
EHO Government /Company take statistics
Orinoco belt proven reserves certification activities
2008-2010 extra-heavy oil bidding processes:
Carabobo project, results and analysis.
Energy Welfare Training Ltd - Evelyn Parra 2010
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Venezuela is one of the world’s largest
exporters of crude oil and the biggest in
the western hemisphere.
In 2007, the country was the 7th largest
net oil exporter in the world.
The oil sector accounts for:
More than 75% of total Venezuelan
export revenues.
About 50% of total government revenues.
Around 40% of total gross domestic
product (GDP).
As a founding member of the
Organization of Petroleum Exporting
Countries (OPEC), Venezuela is an
important player in the global oil market.
www.eia.doe.gov. Venezuela energy data, statistics and
analysis. Oil, gas, electricity, coal.
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1870 first evidence of crude oil on land
1883 first concession contract
1886 first drilling activities
1899 first government contract dispute with an IOC
1943 first hydrocarbon law
1960 Venezuela promotes the foundation of the OPEC
1971 nationalization of gas activities
1975-1976 nationalization of the oil industry and creation of PDVSA
1990 decade: oil opening to foreign investments
2001 new hydrocarbon law
2002 PDVSA strike and consequent dismiss of 18,000- 20,000 (around 40%
payroll).
2004 - 2008 modification of oil opening conditions
2008-2010 new extra-heavy oil bidding processes over the Orinoco belt
areas
Sources:
o
Montiel Ortega, L. 1984 and 1999. Guia para estudiantes sobre petroleo y gas.
o
http://www.pdvsa.com/index.php?tpl=interface.sp/design/readmenuprinc.tpl.html&newsid_temas=88
o
http://www.mem.gov.ve/repositorio/imagenes/secciones/pdf_pode/pode_2006/PODE2006.pdf
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Operating service contracts: PDVSA signed 32 of these agreements
with 22 foreign oil companies to operate oil fields at a fee and purchased
the produced crude at a price pegged to market rates.
Risk/profit sharing contracts: PDVSA also offered 8 blocks under
which PDVSA had an option to purchase up to a 35% equity stake in the
project if the foreign operator discovered commercial quantities of oil in
the exploration phase.
Extra- heavy oil joint ventures: Through the so called “Strategic
Associations” PDVSA signed 4 joint venture agreements with international oil
companies to explore, produce, transport, upgrade and commercialize
upgraded crude from extra-heavy oil from within the Orinoco belt for a period
of 35 years. PDVSA held financial and operative interests from 30% to
49.9%.
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Energy Welfare Training Ltd - Evelyn Parra 2010
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CERRO NEGRO
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Crude oil
prices started
to escalate in
year 1999.
In year 2001
the
Venezuelan
legislative
chamber
approved a
new
Hydrocarbon
Law.
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In October 2004, the government
announced a new oil policy called:
Petroleum Full Sovereignty.
Several months later, during a National
Assembly’s session held on 25/05/05
the Minister of Energy and Petroleum
and President of PDVSA, asked to
investigate the oil opening in the
understanding that such process
harmed the economic conditions of the
nation. Being necessary to take proper
measures to restore the control of the
hydrocarbon industry as per the terms
of the 2001 Organic Hydrocarbon Law.
Energy Welfare Training Ltd - Evelyn Parra 2010
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General fiscal regime for oil
activities
Extra-heavy oil tax
conditions
Changes to extra-heavy
oil tax conditions (year)
Corporate income tax
rate
67,7%
34%
50% (2006)
Royalty rate
16,67%
1% from first commercial lifting of
upgraded crude oil until max. 9
years or when gross income
reached 3 times investment,
whatever happens first (“R” factor)
16,67% (2004) then (30%
(2005) + 3,33% Extraction
tax) (2006)
Windfall tax (special
contribution tax)
Did not exist
Did not exist
When monthly Brent exceeds $70
a Bbl average the special
contribution per barrel will be 50%
of the difference ($70 - $XX) *
50%. When exceeds $ 100:
($100-$XXX) * 60% (2008)
Superficial tax (land
rental)
Note: This tax was paid
directly by PDVSA
Escalates from 5 to 30 Bs. Per
hectare (0.01 km2 or 10,000
m2) per year
Idem general terms for oil
activities
For year 2007 the calculation for
1Km2 is = Bs. 37,632*100 = Bs.
3,763.200 the equivalent of US$
1,750 per Km2 without
considering the 2% or 5%
subsequent annual increases
(2001)
Value added tax (VAT)
General tax rules. VAT could
only be recoverable once
exports begin (0% rate)
General tax rules. VAT could be
recovered from the preoperative
phase or during construction,
continuing with exports
No significant change other
than further delays in the
recoup mechanisms
Science, technology and
innovation mandatory
cost
Did not exist
Did not exist
2% of yearly gross income to be
dedicated to own or other
companies innovative activities
(2005)
Investment tax credit
and environmental tax
credit (deducted from
corporate income tax)
8% + 4% (if investments were
dedicated to new oil recoverable
techniques; upstream , transportation
and downstream, and gas
optimization and liquefaction)
10% new investments +
10% new environmental
investments
Voided (2006)
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Orinoco Belt Strategic Associations
Project Name
(Old Name)
Petroanzoategui
(Petrozuata)
Petromonagas
(Cerro Negro)
Petrocedeno
(Sincor)
Partners
(percent)
PDVSA (100)
PDVSA (83.34), BP
(16.66)
PDVSA (60), Total PDVSA (70),
(30.3), Statoil (9.7) Chevron (30)
Startup Date
October 1998
November 1999
December 2000
October 2001
Extra-Heavy
Crude Production 120,000; 9.3°
(bbl/d; API)
120,000; 8.5°
200,000; 8-8.5°
200,000; 8.7°
Syncrude
Production
(bbl/d; API)
105,000; 16°
180,000; 32°
190,000; 26°
104,000; 19-25°
Petropiar
(Hamaca)
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The 2001 Organic Hydrocarbon Law incorporated:
 Mixed company agreements: where PDVSA had a minimum share of 50%
 30% royalty rate
 The right and obligation of oil liftings and export sales
Joint Venture Agreements
participation
Mixed companies ownership (MOU
signed on June 26, 2007)
Petrozuata (1993): formerly owned by
ConocoPhillips 50.1% and PDVSA 49.9%.
Petrozuata (Renamed PetroAnzoategui):
Mixed company: PDVSA 100%
Ameriven (1997): formerly owned by
ConocoPhillips 40%, Texaco 30% and PDVSA
30%.
Ameriven (Renamed PetroPiar):
Mixed company: PDVSA 70%, y Chevron 30%.
Cerro Negro (1997): formerly owned by
ExxonMobil 41.67%, PDVSA 41.67% and
Veba Oel 16.66%.
Cerro Negro (Renamed PetroMonagas):
Mixed company: PDVSA 83,37%, British
Petroleum 16,67%.
Sincor (1993 and 1997): formerly owned by
Total 47%, PDVSA 38% and Statoil 15%.
Sincor (Now PetroCedeño):
Mixed company: PDVSA 60%, Total 30,3% y
Statoil 9,7%.
Note: ConocoPhillips and ExxonMobil did not accept the new terms.
Energy Welfare Training Ltd - Evelyn Parra 2010
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Government take: the
total amount of
revenue that a host
government receives
from oil activities.
This amount include
taxes, royalties and
government
participation for the
entire life of the
project.
Company take:
represents the
percentage of
revenue from
production that a
private investor
receives during a
whole business cycle.
EXO Oil
opening
conditions
Gross revenue
EHO New
fiscal
policy
100%
100%
1%
33%
Net revenue
99%
67%
Less: Estimated costs
35%
35%
Profit before tax
64%
32%
Less: Corp. Income Tax (Oil opening
= 34%, New policy=50%)
22%
16%
Company cash flow
42%
16%
Company take
65%
25%
Government take
35%
75%
Less: royalty gross revenue
With NOC participation:
38%
60%
16%
10%
Company cash flow after
participation
26%
6%
Company take after NOC part.
40%
9%
Government take after NOC part.
60%
91%
Energy Welfare Training Ltd - Evelyn Parra 2010
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EXO Oil opening
conditions
Gross revenue
EHO New fiscal
policy
Sensitivity # 1
17% Royalty
Sensitivity # 2
30% Royalty
100%
100%
100%
100%
1%
33%
17%
33%
Net revenue
99%
67%
83%
67%
Less: Estimated costs
35%
35%
35%
35%
Profit before tax
64%
32%
48%
32%
Less: Corp. Income Tax (Oil opening
= 34%, New policy=50%)
22%
16%
16%
11%
Company cash flow
42%
16%
32%
21%
Company take
65%
25%
49%
32%
Government take
35%
75%
51%
68%
Less: royalty gross revenue
With NOC participation:
38%
38%
60%
38%
16%
10%
12%
8%
Company cash flow after
participation
26%
6%
20%
13%
Company take after NOC part.
40%
9%
31%
20%
Government take after NOC part.
60%
91%
69%
80%
Compounded Gvt for original project fiscal conditions: ((60%*9 years)+(69%*26 years))/35 years = 67%
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Magnitude of petroleum fiscal changes
As indicated in the graph,
Venezuela for the extraheavy oil projects has one of
the highest government take
percentages in the world
only exceeded by Libya
(EPSA IV-2) and Iran
Buybacks.
These calculations do not
include the Windfall tax
introduced in 2008 which
elevates the Gvt. take to the
top of the scale when Brent
prices in a given month are
in average above $70 Bbl.
Energy Welfare Training Ltd - Evelyn Parra 2010
Johnston, D. J World Energy Law Bus 2008 1:31-54; doi:10.1093/jwelb/jwn006
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To further develop the Orinoco
Belt PDVSA in 2005 started a
certification program to increase
the amount of oil proven reserves
held by Venezuela.
With these activities the country
estimates to certify at least an
additional 236 billion barrels of
extra-heavy crude oil. Placing
Venezuela among the top oil
owners of crude reservoirs in the
world.
http://www.pdvsa.com/
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16 blocks
are being
studied
together
with 18
foreign
NOCs and
IOC’s (15
different
countries).
http://www.pdvsa.com/
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http://www.pdvsa.com/planes_estrategicos/default.htmhttp://www.eia.doe.gov/cabs/Venezue
la/Oil.htm
• In October 2008, Venezuela
launched its latest oil bid round
•This round specifically focused on 7
blocks in the Carabobo area
consistent of 3 projects.
• PDVSA would take a majority stake
in each mixed company, using
technically PetroCedeño’s (former
SINCOR project) model.
• Auction ended in January 2010
after a complicated clarification
process. 7 companies ended the
process out of 21.
• Only 2 out of 3 consortiums won
the bidding round (Carabobo 1 and
3).
• Carabobo 2 will be developed by
PDVSA with its own resources.
• In parallel other foreign oil groups
directly negotiated with PDVSA
additional blocks (China Petroleum
Company, Russian/BP consortium
and ENI).
Energy Welfare Training Ltd - Evelyn Parra 2010
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Final bidders
Geographic
areas
Partici
pation
PDVSA
part.
Bonus
Investment
Construction
and start up
period
Estimated
production
Fiscal terms
Consortium 1:
Repsol (Spain),
Petronas
(Malaysia) and
Oil and Natural
Gas
Corporation,
Oil India
Limited and
Indian Oil
Corporation
(India)
Carabobo 1
(Centre) and
Carabobo 1
(North).
Upgrader will
be located in
Soledad,
Anzoátegui
state.
40%
60%
$1,050
US
million
From $12
to $20
billion
(to
carried by
the
Consortiu
m)
5 to 6 years.
Start up:
2016
480,000
Bbl/day
(To
convert 8
grades API
to 32
grades
API)
Royalty:
30% (+
3,33%)
could be
reduced to
20% if
profitability
is affected.
Corporate
Income
Tax: 50%
Consortium 2:
Mitsubishi and
Inpex (Japan),
Chevron (USA)
and
Suelopetrol
(Venezuela)
Carabobo 3 (2
South),
Carabobo 3
(North) and
Carabobo 5.
Upgrader will
be located in
Soledad,
Anzoátegui
state.
40%
60%
$500
US
million
From $12
to $20
billion
(to be
carried by
the
Consortiu
m)
5 to 6 years.
Start up:
2016
Between
400,000
and
480,000
Bbl/day
(To
convert 8
grades API
to 32
grades
API)
Royalty:
30% (+
3,33%)
could be
reduced to
20% if
profitability
is affected.
Corporate
Income
Tax: 50%
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Key questions:
1)
Do excessively high fiscal terms stopped foreign investment in
Venezuela?
2)
How negotiable were tax conditions in the Carabobo project round?
3)
Did political risk, contract and fiscal instability halt foreign investments
even for projects that require from 2 to 3 times higher costs in
Venezuela?
4)
Were the recent Orinoco oil bidding activities 100% successful?
5)
What are the main drivers of economic investment decisions for oil
projects with high government take?
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How countries use fiscal policy reforms
acknowledging capacity strengths and
weaknesses as well as consequences for
all parties determine success or failure in
subsequent oil and gas project
developments.
Energy Welfare Training Ltd - Evelyn Parra 2010
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THANK YOU !
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