Oil & Gas Comparative Guide

• Published date: 21 January 2022
• Subject Matter: Energy and Natural Resources, Oil, Gas & Electricity
• Law Firm: D'Empaire Reyna Bermudez Abogados
• Author: Mr Roland Pettersson and Carlos Oma'a

1 Legal and regulatory framework

1.1 What role does the national state play in the oil and gas industry in your jurisdiction? Are oil and gas rights owned by the state or is private ownership allowed?

The regulatory framework for Venezuela's oil and gas industry - and the role played by the state within that context - has been subject to several structural shifts and changes over the past 100 years. Since 1975, the Venezuelan state has played a starring role in the country's oil and gas industry. On the one hand, it legislates, regulates and taxes the sector; and on the other, it is in charge of upstream and midstream activities and international marketing. The Venezuelan state has adopted several regulatory and legislative reforms in the context of a long-term policy known as 'oil sovereignty', including:

• the 2001 Organic Hydrocarbons Law, partially reformed in 2006; and
• the Organic Gaseous Hydrocarbons Law, passed in 1999 ('Gas Law').

More specifically, upstream activities are reserved to the state and are undertaken by the national oil company, Petróleos de Venezuela, SA (PDVSA), either through its affiliates or through majority-owned, public-private incorporated joint ventures ('mixed companies'), in which Corporacion Venezolana de Petroleo, SA (CVP) - itself a PDVSA affiliate - holds a controlling stake. There are no such restrictions for upstream activities under the Gas Law, which allows even total private ownership of licensed operators.

New refineries can be operated by private sector entities, but the international marketing of crude oil and derivatives is currently reserved to PDVSA and its affiliates.

Hydrocarbon deposits are reserved to the public domain and state ownership, pursuant to Article 12 of the Venezuelan Constitution.

1.2 Which national legislative and regulatory provisions govern the oil and gas industry in your jurisdiction?

Oil activities in Venezuela are governed mainly by the Hydrocarbons Law, as well as by a handful of key constitutional provisions, which lay the foundations of the industry.

The framework for the natural gas industry is primarily set out in the Gas Law and the Regulations to the Gas Law, enacted in 2000.

1.3 What other national legislative and regulatory provisions have relevance for oil and gas activities in your jurisdiction?

In addition to the Hydrocarbons Law, other relevant oil sector provisions can be found in the following laws, all of which were instrumental to the structural shift from the joint operating agreement model of the mid-1990s to the joint venture model currently in place:

• the Private Participation in Upstream Activities Regularisation Law (2006);
• the Orinoco Oil Belt's Operating Agreements and Shared Risks and Profits Agreements Migration to Mixed Enterprises Law (2007);
• the Law on the Effects of the Migration from the Orinoco Oil Belt's Operating Agreements and Shared Risks and Profits Agreements to Mixed Enterprises (2007);

Another key statute is the Organic Law Which Reserves to the State Assets and Services Related to Hydrocarbons Upstream Activities (2009).

In 2020 a state of emergency was declared for the energy and oil and gas sector through Presidential Decree 5, which has been further extended until at least 19 February 2022. The decree (see the recitals to its February 2020 extension) makes reference to the Anti-Blockade Constitutional Law for the National Development and Guarantee of Human Rights - a statute passed in late 2020 by Venezuela's Constituent National Assembly (a parallel body established between 2017 and 2020 to counter to the opposition-controlled National Assembly elected in December 2015), which allows the executive branch to directly undertake measures to incentivise the participation, management and operation of the private sector in the development of the national economy.

1.4 Are there any regional treaties or laws that need to be taken into account?

There are no sector-specific treaties that directly affect the Venezuelan oil and gas sector. However, Venezuela does have international commitments and quotas that arise from its participation in regional and international initiatives such as Petrocaribe and the Organization of the Petroleum Exporting Countries.

1.5 Which national regulatory bodies are responsible for enforcing the applicable laws and regulations? What powers do they have?

Oversight powers over both oil and gas activities in Venezuela fall to the Ministry of Petroleum, which has ample discretionary powers to regulate both industries, including its direct control over PDVSA (and, indirectly, its affiliates).

Additional oversight powers specifically for the gas industry are conferred upon Ente Nacional del Gas, which functions as an industry watchdog and development-promoting entity; although in practice its relevance has been rather limited.

Pursuant to Presidential Decree 5 (see question 1.3), a presidential commission - the Alí Rodríguez Presidential Commission - was appointed to oversee the reorganisation and restructuring of the oil and gas industries. This commission has ample discretionary powers over hydrocarbon activities in general, including the exercise of direct control over PDVSA's operations. Notably, the commission is chaired by the vice president of economy and not by the minister of petroleum.

Finally, the Anti-Blockade Constitutional Law for the National Development and Guarantee of Human Rights (see question 1.3) created the International Centre for Productive Investment, which will function as a single, centralised coordination agency to oversee private investment in different industries, without any exclusions or carve-outs in relation to oil and gas.

1.6 What is the national regulators' general approach in regulating the oil and gas industry?

The regulatory activity carried out by the Ministry of Petroleum - as well as by the national legislature and executive - tends to be rather reactive and responds to particular circumstances, contingencies and temporary issues as they arise - in particular, those potentially affecting domestic upstream activities and international markets, such as cyclical downturns. However, in the past couple of decades, executive orders and regulations have tended to be consistent with underlying long-term strategies in connection with the Oil Sovereignty Plan, under which the local energy industry has strayed further from engagement with international oil companies and private investment.

On the other hand, no comprehensive plans to attract foreign investment and develop further capital-intensive projects (eg, the Carabobo project in the Orinoco Oil Belt and offshore non-associated gas projects) are currently in place.

1.7 What role do provincial, state and/or other local government regulatory bodies play in the regulation of the oil and gas industry?

State and municipal authorities have virtually no oversight, taxing or regulatory powers over the oil and gas sector, because these powers are reserved to the state (ie, the national government). For its part, under the revenue-sharing provisions of the Constitution, PDVSA and the national government are obliged to appropriate portions of the national tax income and royalties to the local and authorities in the annual budgets.

2 Oil and gas industry

2.1 How mature is the oil and gas industry in your jurisdiction?

The Venezuelan oil industry dates back to the early 20 century, when prospectors drilled the first wells in western Venezuela, in the Lake Maracaibo basin.

The industry is thus mature and well developed, having undergone different phases during which the balance between the involvement of private international oil companies (IOCs) and state intervention has continually shifted.

Given the relevance of oil revenues to Venezuela's fiscal income and the country's reliance (dependence, even) on such revenues to leverage economic development, the country's economy has expanded in sync with oil output. Thus, ancillary financial, engineering, technical and legal services are well tailored to serve and support Venezuela's energy sector.

The gas industry lacks the same level of industrial development, making the stranded-asset risk for natural far greater than it currently is for liquid hydrocarbons. For example, Venezuela currently does not have liquefied natural gas export facilities.

2.2 What are the key oil and gas products which are produced in your jurisdiction and where are activities typically based?

Venezuela holds the largest crude oil reserves in the world, with around 303 billion barrels of proved oil reserves. Oil activities are generally divided between western Venezuela (the Lake Maracaibo basin) and eastern Venezuela (including the deposits in...