As well as changing the current nature of foreign participation in its oil sector, Venezuela has begun a campaign to collect taxes retroactively on foreign operators. According to Semit, the Venezuelan tax agency, foreign oil companies owe $4 billion in back taxes through 2001, the farthest date in the past that Venezuelan law authorizes Semit to collect taxes. When Venezuela authorized the OSA projects in the 1990s, it classified the foreign operators as contracted help, therefore eligible for a 34 percent income tax rate, rather than the 50 percent income tax rate levied on oil operations. Semit announced in 2005 that this original classification was illegal, therefore OSA operators owned some $3 billion in back taxes. In a similar vein, Semit claimed that foreign partners in the strategic associations owed $1 billion in back taxes. Some foreign companies operating OSA projects in Venezuela have reported that PdVSA has begun to make chronically late payments for oil produced by the projects. For example, in June 2005, U.S.-based Harvest Natural Resources reported that PdVSA had not paid it $64 million for oil delivered in the first quarter of 2005. PdVSA stated this and similar delays in payments to other companies were the result of a new policy of paying for some of the OSA expenses in bolivars, the local currency, rather than paying for all expenses in dollars, the previous practice; according to PdVSA, it needed additional time to calculate the proper mix of bolivars and dollars in the payment. It is unclear how these recent events will influence foreign investment in Venezuelas oil sector. For example, while the foreign companies taking part in the strategic associations disputed the legality of the royalty hike, they acquiesced to the governments demands: in light of the increasing efficiency of the projects and prevailing high world oil prices, they held that the hike will only have a small impact on the profitability of their operations. Further, OSA participates complained that the new JV structure and higher tax and royalty rates would make their projects unprofitable. However, all 22 companies operating OSA projects agreed to pay at least part of the back taxes demanded by Semit. In addition, eight of the 22 companies had already moved to the new JV structure by the end of August 2005.
Venezuela has four major sedimentary basins: Maracaibo, Falcon, Apure, and Oriental. The crude oil held in these fields has an average API gravity of less than 20 degrees, making Venezuelas conventional crude oil heavy by international standards. As a result, much of Venezuelas oil production must go to specialized domestic and international refineries.
PdVSA- Oil Exploration and Production
It is difficult to assess how much oil PdVSA actually produces. Independent industry analysts estimated that the company produced 1.3 million bbl/d of crude oil in 2004, while PdVSA executives place the companys 2004 production at 1.9 million bbl/d. With production by OSA projects and strategic associations estimated at a total of around 1.2 million bbl/d, PdVSA therefore is responsible for 50-60 percent of Venezuelas national oil production. The Maracaibo basin contains slightly less than half of PdVSAs oil production. The fields in this area are very mature, requiring heavy investment to maintain current capacity. Centers of production in the area include Tomoporo, Lagunillas, and Tiajuana. In late 2004, PdVSA completed an expansion project at the Tomoporo field that increased production to 116,000 bbl/d from 100,000 bbl/d. PdVSA stated that Tomoporo contains over one billion barrels of recoverable reserves, and the company hopes that future expansion will increase production at the field to 250,000 bbl/d by 2008. Adjacent to Tomoporo, PdVSA is also conducting exploratory operations in the Franquera field, which it believes contains 500 million barrels of reserves. PdVSA hopes to increase production from the Tiajuana field from its current 312,000 bbl/d to 527,000 bbl/d by 2012. In order to mitigate steep decline rates in the Maracaibo Basin, PdVSA re-injects natural gas into the reservoirs in order to increase pressure. In general, the fields in the Oriental basin are less mature than those in the west, and they were some of the first fields brought online after the 2002-2003 strike. PdVSA planned to launch addition exploration in 2005 at the El Tejero and Cotoperi fields, near the existing El Carito and El Furrial fields in Monagas state. In November 2004, the company announced that it had discovered sizable deposits of medium crude oil in the Travis field, also in Monagas state.
According to industry estimates, OSA projects produced 600,000 bbl/d in 2004. The Venezuelan government announced that all OSA projects must convert to JVs under the new 2001 Hydrocarbons Law by the end of 2005 (see above). Despite the aforementioned protests from OSA operators about the switch to the new JV structure, some OSA operators have commented that they welcome the change: they will now have ownership of some of the oil produced by these projects, whereas the existing arrangements force them to sell it all to PdVSA at a predetermined price. One of the largest firms participating in OSA projects is Brazils Petrobras. The company operates the Oritupano-Leona field, with Anadarko holding a 45 percent equity stake. Petrobras planned to drill 15 development wells and work over 50 existing wells in the field. Petrobras also won a tender in February 2005 to develop 20 mature fields in the country. In August 2005, PdVSA reportedly signed an agreement with the China National Petroleum Corporation (CNPC) to jointly develop the Zumano area of eastern Venezuela, which contains an estimated 400 million barrels of crude. PdVSA has also discussed joint ventures with Russias Lukoil.
Of the eight RPSA contracts originally awarded by PdVSA, three resulted in the discovery of significant amounts of oil reserves: La Ceiba, Golfo de Paria Este and Golfo de Paria Oeste (West). ConocoPhillips, the operator of the Golfo of Paria Oeste block, plans to bring the 55,000-bbl/d Corocoro field onstream, along with equity partners PdVSA (35 percent) and Eni (26 percent). Originally slated for start-up in 2006, first production will now likely not occur until 2007. ConocoPhillips is also actively exploring in its Golfo de Paria Este block.