PdV, energy ministry at odds over joint ventures

State-owned PdV issued a statement to its joint venture partners today guaranteeing their investments in Venezuela are "legally secure" one week after energy minister Nelson Martinez voiced support for proposals to constitutionally "strengthen" state ownership and control over all crude and gas ventures.

PdV's statement obtained by Argus said the company "guarantees legal security to investors, partners, and others. In the case of joint ventures, PdV has honored and will continue to honor the legal norms that allow the possibility of doing business with private companies."

In a further offensive, PdV board director and finance vice president Simon Zerpa chaired investor conference calls today arranged by the company's financial adviser BancTrust to assure bondholders and other foreign investors that it will not change any terms of its existing joint ventures with foreign oil companies and will not default on over $43bn of outstanding bond debt, a company finance executive told Argus.

PdV chief executive Eulogio Del Pino was not on today's calls.

PdV's efforts were designed to allay investor fears of a total nationalization of the oil industry. In his address to a ministry-sponsored local energy forum, Martinez said he supports constitutional reforms to "perfect full oil sovereignty" and urged PdV's over 150,000 workers to vote on 30 July to elect a constituent assembly that will consolidate majority state ownership and control of all existing and future joint ventures.

Martinez said Articles 302 and 303 of the existing 1999 Bolivarian constitution drafted during the first year in power of late president Hugo Chavez omit all mention of gas which is "a fundamental and strategic resource for the country."

The existing 1999 constitutional articles on the energy sector "do not contemplate the subsidiaries, strategic associations and companies linked to the development of PdV businesses with respect to economic sovereignty, leaving the letter open for privatization and denationalization," Martinez added.

His call for stronger constitutional controls over oil and gas were echoed at last week's forum by PdV executive vice president Admiral Maribel Parra and external board members Yurbis Gomez and Ricardo Leon, according to video and printed transcripts of the forum seen by Argus.

Self-styled constitutional and oil experts at the forum including attorney Herman Escarra, Fernando Travieso and David Paravisini – all are considered close associates and advisers to Venezuelan president Nicolas Maduro – said the constitution will be reformed to legally mandate PdV majority stakes in all current and future oil and gas ventures including the Cardon 4 offshore venture owned equally by Spain's Repsol and Italy's Eni.

Travieso added constitutional language will be drafted requiring a review of the foreign policies of foreign governments where PdV's joint venture partners are headquartered. Governments implementing policies harmful to Venezuela should be sanctioned by stripping foreign oil companies of their existing stakes, Travieso said.

The constituent assembly to be elected on 30 July will remain in session "indefinitely" and will have "constitutional primacy over all other constitutional branches of government including the legislature and courts," a senior presidential palace official said.

Efforts by energy minister Martinez, the current armed forces high command and radical factions of the ruling United Socialist Party (PSUV) to expand Venezuelan state control over oil and gas ventures run counter to a new PdV initiative to offer select foreign partners including Russia's Rosneft, China's CNPC and India's ONGC expanded stakes in existing Orinoco joint ventures.

Existing oil legislation amended in 2006 requires that PdV own a controlling stake in all upstream and downstream crude joint ventures of more than 50pc. In practice all of PdV's 45 existing joint ventures in the Orinoco oil belt and conventional oil regions are based on a 60:40 equity structure in which PdV is the majority partner.

But in an effort to reduce its operating and investment costs, PdV in the past month has quietly offered ONGC, Rosneft and CNPC an additional 9pc stake in existing joint ventures such as PetroIndovenezolana, PetroVictoria, PetroMiranda, PetroMonagas, PetroUrica and crude blending venture Sinovensa, according to senior energy ministry and PdV executives with direct knowledge of the offers.

Several local executives with PdV's existing joint venture partners tell Argus that the state-owned company has invited their firms to increase their stakes from 40pc up to 49.5pc. The foreign oil companies are considering the offers, but no decisions will be made in the face of an increasingly uncertain political outlook surrounding Maduro's planned constituent assembly, the executives say.

Maduro has the backing of the PSUV-controlled supreme court and CNE electoral authority. But attorney general Luisa Ortega Diaz and the opposition-controlled legislature maintain that the constituent assembly is illegal and unconstitutional. The opposition is holding an informal plebiscite on 16 July to repudiate the assembly.