Alternatives Under Discussion for Orinoco Royalty Hike

Talks between Venezuela's energy and oil ministry and partners over a royalties hike in the country's extra-heavy crude upgrade projects continue without reaching agreement, a PDVSA source close to the negotiations told BNamericas.

However, compensation in the form of licenses is already being discussed to appease project partners, the source said.

Last October President Hugo Chávez raised the royalty to 16.7% from 1% within existing legal and contractual rules. Companies did not welcome the move: ConocoPhillips (NYSE: COP) said in October that it could cut its Venezuelan oil production by 7.5 million barrels of oil equivalent a year. Meanwhile ExxonMobil started negotiations with the ministry this month over the issue and has threatened to sue for breach of contract, according to the source.

Foreign oil companies in the upgrade projects will get licenses for new energy ventures as a form of compensation for the royalty hike and that the increase itself will definitely happen, the source said. "The royalty will not go back down, they are dead set about that around here"

The office of deputy hydrocarbons minister Bernard Mommer did not return calls from BNamericas seeking comment on the issue.

ExxonMobil and Venezuela's state oil company PDVSA each own 41.6% of Cerro Negro and the UK's BP holds the remaining 16.6%. ConocoPhillips owns 40% of the Hamaca project, in which PDVSA and ChevronTexaco each have 30%. ConocoPhillips owns 50.1% of Petrozuata and PDVSA has 49.9%. France's Total owns 47% of the Sincor project, PDVSA has 38% and Norway's Statoil 15%.

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