Seniat Could Hike Taxes on Orinoco Projects to 50%



Venezuela's tax authority Seniat could increase the tax rate for Orinoco oil projects producing some 600,000 barrels a day of synthetic crude to 50% from the current 34%, according to an article in Tuesday's edition of Caracas daily El Universal.

The article adds that natural gas E&P projects could also see their tax rates increased to 34% from the current 20%. The increases, if Seniat decides to implement them, will be included in an upcoming reform of the tax law. However, any changes to that law would require approval by the national assembly.

There is already a proposal being studied to increase the royalty rate on the Orinoco heavy crude projects to 30% from 16.7%, which would bring the projects squarely into the "80:20" formula, meaning 80% of profits for the host country and the remaining 20% for the company.

In early 2005, the royalty rate for the four existing Orinoco projects was increased to the current 16.7% from 1%. The rate was set at 1% in the mid-1990s to attract fresh investment in the then new field of extra-heavy crude upgrading.

State oil firm PDVSA has a sizable stake in each of the four projects: Ameriven, where it partners with US oil majors ConocoPhillips (NYSE: COP) and Chevron (NYSE: CVX); Cerro Negro, where it partners with ExxonMobil (NYSE: XOM) and the UK's BP; Sincor where it partners with France's Total (NYSE: TOT) and Norway's Statoil: and Petrozuata, again with ConocoPhillips.

In the 1940s during the brief revolutionary government of writer Romulo Gallegos, Venezuela became the first oil country to institute the 50:50 ratio for profit sharing between the state and private companies, which stood for almost half a century as a watermark in the economic relations between oil companies and host countries.

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