Rebalancing Oil Contracts in Venezuela

By Garcia, Julian Cardenas | Houston Journal of International Law, Spring 2011 | Go to article overview

Rebalancing Oil Contracts in Venezuela


Garcia, Julian Cardenas, Houston Journal of International Law


I. INTRODUCTION

II. THE REGULATORY HYDROCARBON
       REGIME IN VENEZUELA AND ITS CURRENT MAJOR
       ISSUES
       A. The Establishment of a Legal Framework Based
          on State Control
          1. The Takeover of Upstream Operations and
             Windfall Profit Tax (2005-2008)
          2. The Takeover of Service Companies and the
             Windfall Profit Tax Reform (2008-2011)
       B. Imbalances in the Contractual Framework for
          Mixed Companies
          1. Controls over Management and Oil Sales
          2. Contractual Restrictions of Investors' rights in
             Light of BITs

III. METHODS OF AWARDING CONTRACTS AS A SOURCE OF
       BALANCE IN THE VENEZUELAN'S PETROLEUM
       CONTRACT REGIME FOR ORINOCO BELT PROJECTS
       A. The Tender of the Carabobo Area
          1. The Inflexibility of the Original Contractual
             Conditions
          2. The Incentives Granted and the Auction Results.
       B. The Practice of Direct Negotiation of the Junin
          Area Blocks
          1. Incentive Mechanisms Granted through Direct
             Negotiation
          2. Most Favored Nation (MFN) Clause towards
             Orinoco Belt Projects

IV. CONCLUSION

I. INTRODUCTION

This Article is based on research of the regulatory framework for oil contracts in Venezuela, conducted during visits to Caracas in July and August 2009 and January 2010. (1) The study included reviewing Venezuelan legislation, petroleum contracts, and interviewing Venezuelan government officials, international oil companies (IOC) executives based in Venezuela and experts in the Venezuelan case. (2) Initially, the research concentrated on assessing the impact of the Carabobo tender on the contractual conditions for oil ventures in Venezuela. This was for two reasons: 1) The 2009-2010 auction of the Carabobo Project, located in the Orinoco Belt, was highly relevant to the pattern of Venezuelan oil contracts to exploit the vast reserves--estimated at 127.9 billion barrels--of heavy crude oil, (3) and 2) the reduction of the government's bargaining power when oil prices collapsed in 2008, and foreign investment in new projects was vital to increase oil production. (4)

Based on the dates for the tender approved by the Venezuelan Ministry of the People's Power for Energy and Petroleum (MPPEP) in early 2009, the research was conducted first in Caracas during a period that permitted observation of the auction's outcome, scheduled for August 14, 2009. (5) Nevertheless, on July 28, 2009, the Minister of Energy and Petroleum and President of Petroleos de Venezuela S.A. (PDVSA), Rafael Ramirez, announced the halt of the bidding process "without providing new dates." (6)

The delayed auction thwarted the initial attempt to assess the overall consequences for the contractual regime, but it brought new elements to light: 1) the existing contractual imbalances, which have limited the presentation of bids, (7) 2) the instability of the fiscal regime with the introduction and reform of new taxes, 3) the simultaneous implementation of both competitive bidding and direct negotiation to award contracts, (8) and 4) the shift in the government's position towards approving economic incentives, providing greater substantive investment protection rights, and granting access to international arbitration to encourage the participation of foreign companies. (9)

To improve the understanding of Venezuela's current oil-sector investment framework, Part II of this Article reviews the major issues of the Venezuelan hydrocarbon legal regime. This review will demonstrate that during a period in which the government has increased its oil-sector control, the government's overbearing position has created contractual imbalances, which should be assessed in light of the investor's rights under Bilateral Investment Treaties (BIT). Given the evolving negotiations between oil companies and the Venezuelan government, Part III of this Article will show how the heavy crude oil projects awarded after the February 2010 Carabobo Area tender, and the existing practice of directly assigning blocks in the Junin Area, also in the Orinoco belt, have led to a new balance in the contractual conditions which, if respected, might contribute in an influx of investment in the Venezuelan oil sector. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Rebalancing Oil Contracts in Venezuela
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.