Ministry Transfers PDVSA Contracts to CVP

Venezuela's energy and mines ministry has transferred state oil company PDVSA's 33 operating contracts, representing 54% of its production, or 1.5 billion barrels a day, to subsidiary Corporacion Venezolana de Petroleo (CVP), energy minister Rafael Ramirez said Tuesday, local press reported.

The idea is to hand over third party contracts to CVP, leaving PDVSA to focus on its own fields. But international oil companies are worried that the move means that they now hold contracts with a legal entity that lacks PDVSA's financial resources, a source at law firm Macleod Dixon told BNamericas. "There's going to be another counterpart in those contracts, and there may be issues about the creditworthiness of another company in the PDVSA group that's different from PDVSA Oil," the source said. "We were better off with a company that had substantial assets which was the case with PDVSA Oil," the source said, adding that "if you ever went to arbitration or if you have lender arrangements, you want to have a substantial counterpart who has the obligation to pay you the hundreds of millions of dollars as opposed to a company with virtually no assets."

CVP has taken over PDVSA Oil's 33 contracts signed during the first three bidding rounds in the 1990s, local press reported. CVP previously held eight exploration round contracts signed in 1996, but as the terms of those contracts were weighted heavily in favor of the state, five of the companies since returned the blocks, leaving CVP with only three contracts. CVP will now hold all of PDVSA's third party agreements, except for the four heavy crude upgrade projects, which were signed under separate 'special purpose vehicle' agreements. "You bid on a contract because [in the past] you had a company that owned almost 100% of Venezuelan production, and suddenly now your counterpart will be this company that just has the operating agreements, so in terms of number of assets you're dealing with a very different company even though it's part of the same group," the source said.

However, since CVP will receive the revenues from half of PDVSA's oil production, it will improve its financial situation, the source said, adding "presumably it will have substantial assets, but this is very recent so we have to wait."

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