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Chavez Tax Targets Foreign Oil Companies

Posted on: Monday, 8 May 2006, 18:05 CDT

By NATALIE OBIKO PEARSON

CARACAS, Venezuela - Venezuelan President Hugo Chavez is targeting foreign oil companies again - this time with a new tax aimed at lucrative projects in the oil-rich Orinoco River basin.

The measure announced over the weekend comes shortly after Chavez's ally, Bolivian President Evo Morales, nationalized his country's natural gas sector and as both governments increasingly seek a larger share of soaring energy prices.

"Venezuela is at the vanguard ... of an oil policy in defense of the interests of producer nations," Oil Minister Rafael Ramirez said Monday.

Chavez said Sunday that a new 33.3 percent tax on extraction would be applied to all oil operations in the country. Companies will be allowed to deduct what they pay in royalties from the new tax, Ramirez said at a news conference.

For foreign companies, that effectively means the measure will affect those extracting heavy crude in the Orinoco tar belt, including BP PLC, Exxon Mobil Corp., Chevron Corp., ConocoPhillips, France's Total SA and Norway's Statoil ASA. Those companies now pay a 16.6 percent royalty tax, meaning they will pay the difference - an additional 16.7 percent.

Companies operating elsewhere in the country in joint ventures with state-run Petroleos de Venezuela SA, or PDVSA, already pay a 33.3 percent royalty, eliminating the need to pay the new tax.

Chavez also said the Orinoco projects will see their income tax rate raised to 50 percent from 34 percent, confirming a long-expected move.

Venezuela expects to earn an extra $2 billion in revenues annually from the new tax measures, Ramirez said. He indicated the new policies are not open for negotiations.

"We don't have anything to discuss with the companies," he said. "The companies have to adjust."

Norway's Statoil indicated it would accept the new terms.

"Statoil is respectful of the government's decisions on fiscal matters," said Susana Brugada, a company spokeswoman in Caracas.

Exxon Mobil said it had not been notified of the contractual changes, while BP, Total and Chevron declined to comment. ConocoPhillips had no immediate response.

The changes will shortly be presented to congress for approval, and the new law should go into effect within 15 days, Ramirez said.

The tax measures come as soaring energy prices have given Chavez and Morales the upper hand as they seek to squeeze a larger share of profits.

Venezuela has the largest proven oil reserves outside of the Mideast and the second-largest natural-gas reserves in the Western Hemisphere. Its Orinoco tar belt also is believed to hold an additional 270 billion barrels of unconventional extra-heavy oil, which could make Venezuela home to the world's largest crude reserves if certified and proved commercially viable.

Earlier this year, Venezuela took majority control of oil fields that private companies had previously operated independently under contract.

Ramirez said the state was evaluating taking similar control of the four Orinoco projects, which convert the extra heavy crude in the region into some 600,000 barrels a day of synthetic crude using specialized refineries.

Ramirez also said "other measures are coming" to ensure all projects are brought in line with a 2001 law requiring a 51 percent government stake in new oil exploration and development projects.

Analysts say the increasingly bold measures are to be expected in the tight energy market, and that Venezuela is in a strong bargaining position.

"Venezuela has considerably more leverage than Bolivia," because companies have already invested heavily and are keen to unlock the untapped Orinoco reserves, said Patrick Esteruelas with the Washington-based Eurasia Group.

"Bolivia does not have those luxuries," he said, noting natural gas is more difficult to extract and transport, and fetches lower prices. Bolivia's natural gas reserves are second only to Venezuela's in South America.

Source: Associated Press/AP Online

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