PdV’s new upstream deals hinge on oil law reform

Venezuela's state-owned PdV has signed upstream reactivation contracts with around two dozen companies, but activity is unlikely to take off before more legal safeguards and political assurances are in place, Venezuelan government officials tell Argus .

The new Productive Services Agreements (ASPs), which PdV started signing last year in conjunction with an anti-blockade law, would give PdV's new partners operational and financial control and a mechanism to recover past debts, in exchange for covering capital and operational spending.

With the private sector in control, in theory the ventures would not be subject to US oil sanctions on PdV, but it is not clear whether the US administration would be willing to tolerate them.

Another potential sticking point is commercial. While PdV's new partners would have marketing rights, the sanctions and looming tax changes in China would limit destination options.

The plan to reactivate thousands of dormant or underperforming wells is not new. PdV and Venezuela's political opposition have both drawn up plans to harness underutilized local expertise to revive output, and in recent years PdV has signed limited contracts with obscure companies that faded with little tangible result. This newer crop of deals is more concrete, engaging more established partners and covering oil and natural gas fields in PdV's eastern and western division as well as the Orinoco heavy oil belt.

Among the western companies closely monitoring the process is Chevron, which is awaiting the renewal of a restricted sanctions waiver , and EU firms Repsol and Eni that have limited oil and gas operations inside the country. Chinese state-owned companies with longstanding PdV ties are also quietly engaged.

Reluctance to move forward without reforms Although the ASPs are in place, some of PdV's new partners — a mix of local contractors and foreign interests— are reluctant to execute the contracts until Venezuela's oil law that mandates a majority PdV stake is reformed to give the private sector a greater role. While the 2020 anti-blockade law permits the private sector to take the reins, it was approved by the now-defunct National Constituent Assembly (ANC) rather than the National Assembly, giving it weak institutional standing. The assembly is now in government hands after a term controlled by the US-backed opposition, but some sitting lawmakers who belong to President Nicolas Maduro's ruling socialist party (PSUV) are nonetheless crying foul, alleging that the directly awarded contracts are a stealth privatization of the national oil industry.

"PdV and its Venezuelan oil services contractors are ready to start working immediately, but until the assembly reforms the oil law, the ASPs lack a legal framework needed to reassure the companies, their investors and equipment suppliers that the ASP terms and conditions are legally transparent and binding for all parties," an oil ministry official said.

"Potential investors with much larger capitalization bases and experience are closely following the government's push to reform the oil law before deciding whether the risks going forward are acceptable," the official added.

PSUV legislators Jesus Farias, who chairs the assembly's economy and finance commission, and Angel Rodriguez, head of the petroleum and energy commission, have rejected the government's entreaties to reform the oil law during several meetings with oil minister Tareck El Aissami and PdV chief executive Asdrubal Chavez since February 2021.

"We believe that the assembly must approve the anti-blockade law to ensure it is legal and constitutional before allowing any debate on possible reforms to the oil law, which was last amended in 2006," Rodriguez said.

"Approval of the anti-blockade law by the assembly will institutionalize the legal guarantees of the ASPs and other oil and gas investments without requiring any oil law reforms," Farias said.

PdV is currently producing around 500,000 b/d of crude, far from the 3mn b/d of the 1990s.

A senior aide to Maduro tells Argus the ASPs are a "modest beginning that will not achieve the scale of investment PdV needs unless the oil law reforms are approved by the assembly. The anti-blockade law is not enough."

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