Chapter 3

Venezuela

Venezuela is the most recent Latin American country to have nationalized its petroleum industry--a point well-known by several of the world's leading petroleum companies. Several of these companies thought they were undercompensated for their petroleum assets absorbed during 1975 by Venezuela's nationalization process {see Endnote 56}. Although Venezuela's liberalization of its petroleum industry is more substantial than Mexico's, it still falls short of Argentina's complete privatization. Venezuela approved a new profit-sharing concessionery program in July 1995 under which private domestic and foreign companies may bid for joint ventures with Petroleos de Venzuela (PDVSA). PDVSA is Venezuela's state oil company and the world's fifth-largest producer of crude oil and the fourth-largest refiner. Heavy oil investment carries tax concessions, as do enhanced-oil-recovery projects, which lower the statutory tax rate to 34 percent from 70 percent {see Endnote 57}. Further, on January 7, 1996, Venezuela's congress passed a law allowing larger new projects with substantial exports and foreign investment to retain export earnings abroad {see Endnote 58}. Although privatization of PDVSA does not seem likely, company president Luis Giusti recently noted that, "it would be very healthy to have 15 percent [of shares] in the capital market." {see Endnote 59} Venezuela also auctioned exploration rights to eight tracts but received no bids for two other tracts {see Endnote 60}.

The most notable result of Venezuela's opening its petroleum industry is its awarding of the first exploration license to foreigners since its nationalization twenty years ago. The initial license was awarded to a consortium of Veba (Germany), Mobil, and Nippon Oil (Japan), which outbid 11 others, including the second-place consortium of Exxon and Royal Dutch/Shell, for a western onshore oil field{see Endnote 61}. Other significant projects opened to foreign companies include the $5.6-billion Cristobal Colon LNG export project of a consortium including Exxon and Lagoven, a PDVSA affiliate. This venture is the first foreign ownership of Venezuelan hydrocarbon reserves since the 1975 oil law that nationalized the petroleum industry and created PDVSA was passed {see Endnote 62}. However, the venture was suspended, awaiting higher natural gas prices. Another project is a joint venture between Conoco (United States) and Maraven (a PDVSA affiliate) to produce heavy oil, which will then be upgraded and refined into products at Conoco's U.S. refineries {see Endnote 63}.

Other foreign companies are either discussing joint ventures, or have formed joint ventures and are awaiting congressional approval to proceed, including:

ARCO and Corpoven, a PDVSA affiliate, are discussing a heavy oil production and upgrading project.
Chevron agreed to do a feasibility study of a base lubricant manufacturing plant joint venture with Citgo, PDVSA's U.S. affiliate, and Maraven.
Conoco is a member of a consortium awaiting congressional approval of a joint venture with the PDVSA affiliate Bitor to produce and market the boiler fuel orimulsion.
Enron is studying the feasibility of a joint venture with Maraven to produce petrochemicals.
Mobil is studying the feasibility of two different heavy crude upgrading joint ventures, one with Maraven and the other with Lagoven.

Foreign companies also are undertaking ventures governed by service contracts with PDVSA and equity ventures that do not require congressional approval. Chevron and Maraven have created a heavy crude production joint venture with an operating contract, while Mobil is a member of a consortium to evaluate exploration and development opportunities in the new areas opened for exploration by Venezuela during 1995. Mobil bought 50 percent of Nacional de Grasas which operates the largest lubricants blending plant in Caracas and is the largest lubricants company in Venezuela {see Endnote 64}. Canadian Occidental has formed a joint venture to bid on exploration and development contracts PDVSA is expected to offer during 1995. Occidental signed a 20-year agreement with Maraven to increase oil production.

Although Venezuela's privatization efforts have lagged those of other Latin American countries, PDVSA has long been an internationally oriented petroleum company. For instance, PDVSA's U.S. subsidiary, Citgo, is the largest retail marketer of gasoline in the United States {see Endnote 65}. In terms of U.S. refining capacity, PDVSA ranks third among foreign-owned companies behind Royal Dutch/Shell and British Petroleum {see Endnote 66}. PDVSA also owns substantial refining operations in Europe and the Caribbean.