Venezuelan Oil Minister Ali Rodriguez said on November 6th that foreign investors with existing oil production contracts will be offered revised fiscal terms under a new hydrocarbons law.
Rodriguez said that: “A clause (of the new law) will establish voluntary conversion to all previously signed agreements to the new fiscal regime.” The new law, which would raise royalties leveled on oil production and lower income taxes, is expected to be decreed by President Hugo Chavez in the coming months after obtaining Congressional approval.
The changes would benefit the Venezuelan government because royalty is a more reliable income than profit tax, but would raise production costs for the foreign firms. Rodriguez said that: “We lack a system of fiscal control, so we have to go towards more simple schemes which are easier to handle. That’s why we want to increase the royalty, because it’s a simple calculation.”
Under the new legislation, the royalty is to increase from 16.7percent to 20 percent, while income tax would be lowered from 67.7 percent to 34 percent.
From 1993 to 1997, Venezuela had signed 33 oil production contracts with foreign firms, most of which offered reduced royalty terms. The contracts were for marginal and ageing fields and provided for the private companies to increase output while recouping investment costs from sales.
The 33 fields currently produce around 500,000 b/d at an average price of $7 a barrel, compared to the Venezuelan average of $3 a barrel.