Hydrocarbons Association Seeks More Flexible Royalties

Venezuela's government should make the hydrocarbons law more "flexible" in terms of royalties for private participation in oil exploration and production contracts, according to the country's hydrocarbons association (AVHI).

The 1999 national gas law allowed for the full opening of the natural gas industry to private investment, but the 2002 hydrocarbons law should be modified to allow private companies to negotiate different royalties on each project, AVHI president Luis Grisanti told BNamericas.

The hydrocarbons law opened up the country's refining and light-medium crude exploration business to private investment, but limits private participation to 49% in contracts, and sets royalties at 20-30%, Grisanti said.

According to Grisanti, the law should be changed to permit lower royalties for mature fields and high-risk fields in the Orinoco belt. "This would contribute significantly to improving the investment climate and the flow of investments," he said. "Depending on the profitability of a certain project, the level of royalties should match the profitability and allow the adequate amount of investment," he added. The government and state oil company PDVSA could be "receptive" to the changes if royalties were negotiated separately for each project, Grisanti said. "Making the hydrocarbons law more flexible would not only improve the investment climate, but also increase the flow of investment in the future in the Venezuelan oil sector with its multiple positive effects," Grisanti said.

PDVSA recently announced its 2003-2008 plan, which calls for US$43bn hydrocarbons sector investment, of which about 40% would come from private sector sources, Grisanti added.

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