Key takeaways
- Brief legal reforms would encourage some expansion by current partners and limited new entrants, but would not on their own draw the roughly $100 billion U.S. officials say is needed to overhaul Venezuela’s oil industry.
- The proposed law would reduce PDVSA’s monopoly by granting joint-venture partners greater control over operations and sales, and would formalize a production-sharing contract model alongside existing joint ventures.
- Lawyers and industry executives warn the proposal contains ambiguous and discretionary clauses on taxation, trading and oversight that could deter large international energy companies until those issues are resolved.
The Venezuelan government’s draft overhaul of its hydrocarbon law has convinced some companies already operating in the country to consider expanding their activities and has opened the door for a limited number of new investors to start deploying capital, according to foreign and local oil executives and legal advisers who have reviewed the plan. At the same time, these sources say the changes fall short of the deeper legal and fiscal reforms that would be necessary to attract the scale of investment U.S. officials assert is required to revive the nation’s energy industry.
The U.S. has assumed control of Venezuela’s oil exports and related revenue flows following a military incursion aimed at capturing President Nicolas Maduro earlier this month, and it has implemented a naval blockade intended to stop oil shipments on sanctioned vessels since December. Oil remains the principal source of government revenue in Venezuela, and Washington has stated its intention to exercise indefinite oversight of the country’s energy resources and proceeds to align Caracas with its stated foreign policy objectives.
U.S. President Donald Trump has publicly urged American oil firms to invest heavily to reverse decades of underinvestment and mismanagement in Venezuela’s dilapidated oil sector. Yet many potential investors point to Venezuela’s long-standing legal framework, which has given state-run PDVSA a near-monopoly on project operations, as a central barrier to committing large-scale capital.
Interim President Delcy Rodriguez put forward a broad revision to the hydrocarbon statute last week. Venezuelan authorities held consultations on Monday with members of the legislature and executives from firms active in the country, including U.S. producer Chevron and India’s ONGC, according to individuals familiar with the discussions. The reforms were expected to be approved on Tuesday following these brief consultations. Chevron did not respond to a request for comment and ONGC was not immediately reachable after working hours.
The proposed law would grant PDVSA’s joint-venture partners augmented autonomy over project operations, offer them direct access to proceeds from oil sales and provide more flexible operating terms. Existing partners - which encompass Chevron alongside European, Chinese and Russian companies - have been seeking many of these adjustments for years. PDVSA is currently the majority stakeholder in more than 40 joint ventures, a structure that emerged after a wave of nationalizations about two decades ago prompted several companies to leave the country.
Executives and industry associations describe the fast-tracked reform as a step toward dismantling parts of PDVSA’s monopoly. Yet they caution that the text contains vague language and several contradictory provisions, particularly around trading rights and tax treatment, which will need to be clarified if the law is to generate confidence among large international energy companies.
Ali Moshiri, CEO of Amos Global Energy Management, which holds interests in Venezuelan projects, emphasized the pragmatic element of the change. "You got to deal with what you have," he said, adding that without making the industry more appealing, any momentum from current operators could stall. "There is no option other than this... If you don’t make this (industry) more attractive, the entire progress we want to make is going to come to a halt, including current operators."
New contract model and operational shifts
The reform is set to formalize a production-sharing contract (PSC) structure that President Maduro had previously promoted with limited success. Under the expected framework, roughly half a dozen companies would be able to operate certain oil fields under PSCs. These contracts would be loosely regulated and designed to coexist with current joint ventures, while granting minority partners in existing joint ventures greater latitude to manage their share of production and, in some cases, to sell PDVSA’s allotment if they negotiate sales prices that exceed those agreed by the state firm with its customers.
One of the notable fiscal changes in the proposal would allow the government, at its discretion, to lower royalty rates to as low as 15% from the 33% level currently in place. Industry participants have flagged the present government take as among the highest in Latin America and a deterrent to investment. The reform would also make it easier to pursue independent arbitration for disputes, although the proposal leaves unclear whether arbitration could be taken to international courts.
International companies have long sought the right to carry out equity lifting - the ability to load and export the portion of oil corresponding to their stake and to market it independently. The draft law would enable PDVSA partners to undertake loading and selling operations for their share, which proponents argue would bring Venezuela’s contractual arrangements closer to common practices in other oil-producing jurisdictions.
"As long as the law allows equity lifting, that would be as good as for any place else, like a typical joint venture," Moshiri said.
Executives and local company sources say the PSC model could be particularly attractive to small and mid-sized firms, offering an interim approach "sufficient enough for the transition, until there is a permanent government in Venezuela," according to Moshiri.
Legal uncertainties and institutional concerns
Despite the reforms’ potential to stimulate some investment, many legal experts and industry executives raised alarms about the broad discretionary powers the draft law vests in the executive branch. Under the proposed rules, the government could approve contracts, set royalty cuts and transfer commercialization rights to PDVSA partners without seeking approval from Venezuela’s National Assembly. Some critics argue this would further erode legislative oversight.
"(This reform’s) aim is to keep undermining the National Assembly’s oversight capacity," said lawmaker Henrique Capriles. "What’s behind this hydrocarbons law? The oil business won’t change with a new law," he added, pointing to corruption as one of the sector’s most intractable problems.
Other experts highlighted that the reform leaves important questions about joint-venture partners’ rights unresolved - including project ownership, investment obligations and trading mechanics. The draft does not address a structural crisis at PDVSA, which many see as central to the industry’s collapse. Boston-based lawyer Jose Ignacio Hernandez concluded in a recent report that the proposed changes do not materially strengthen Venezuela’s already fragile regulatory framework and therefore fail to provide the legal certainty necessary for industry reconstruction. "The regulation of new oil contracts is confusing and ambiguous," he wrote.
Several lawyers and executives, speaking anonymously because of the sensitivity of the topic, said additional legislative changes would be required to make Venezuela competitive with other oil-producing nations. They cited the need for income tax reform and the elimination of a statutory "shadow tax" provision that effectively guarantees the state at least 50% of the value of each barrel produced.
Some executives welcomed a clause that would give the oil ministry priority over Congress and other ministries on tax and ownership matters for projects, viewing it as a mechanism to accelerate project approvals. Others were wary, noting that an incoming government could later reverse such delegated authority.
Outlook for major international firms
Even as smaller producers and current partners may find the revised legal environment workable for limited expansion, many analysts and company executives expect the largest U.S. producers to remain on the sidelines of the new contract model until the reforms are clarified and formally vetted by their legal teams. They also expect some to wait for a National Assembly with more robust opposition representation before committing to significant long-term contracts.
Sources in Washington told analysts that while the U.S. oil industry initially expressed support for the proposal, it remains skeptical about the law’s long-term durability and the legal certainty necessary for major investments.
Venezuelan authorities have argued the reform will boost output and open the door to companies willing to explore previously untapped fields. For now, industry observers say the measure is likely to prompt a cautious, stepwise response from existing partners and a potential influx of smaller operators, while major capital flows will probably require deeper, clearer legal and fiscal changes.
Reporting limitations: Multiple industry participants asked for anonymity due to the political sensitivity in Venezuela. Several points in this article reflect statements and assessments provided by executives and lawyers consulted during briefings and do not represent legal advice.