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Between 1967 and 1975, the big transnational oil companies operating in the country paid the State an average 22% of the extraction price of each oil barrel extracted from Venezuelan soil. And according to statistics gathered by the Ministry of Labor during those nine years, the average price of a barrel of crude oil was 4.16U$, while total production totaled 1.17 million bpd (barrels per day).

Then -immediately after the nationalization of the oil industry and the creation of the state company Petróleos de Venezuela (Pdvsa)- the percentage assigned to the nation as the owner of its natural resources, dropped another 7%, despite the increase of both oil production (an average 2.08 million bpd between 1976 and 1992 ) and its prices (18.32U$ per barrel).

But this phenomenon did not come to a halt at this point. Royalties dropped even further during the oil business overture process carried out in the nineties.

At that moment, it was an argument among the structures of political and economic power -Executive power, Legislative power, Judiciary power, labor unions of the private sector and oil companies, including the executive board of Pdvsa- that in order to encourage extra-heavy crude oil projects in the Orinoco Belt, the State should give up oil royalty charges, to make these projects profitable.

Therefore, the companies that formed the so-called strategic associations, were granted several tax exemptions, including a 1% royalty rate for a period from seven to nine years.

Such was the situation (until a few days ago, before the most recent Aló Presidente, president Chavez’ weekly television program) that this exemption was valid for Sincrudos de Oriente, Cerro Negro,Petrozuata, and Ameriven, operators whom the State had already granted several forms of fiscal benefits, in order to render feasible, several projects that were deemed unlikely 10 years ago, because of their enormous financial requirements and technological demands.

From now on, these companies will have to pay the national treasury a 16 and 2/3 percent royalty for every extra-heavy barrel of crude oil produced.

Pdvsa participates with each of these operators. In Petrozuata, it is an associate of the U.S. ConocoPhillips. In Cerro Negro, it goes hand in hand with the U.S. ExxonMobil and the German Veba Oël. In Sincrudos de Oriente, Pdvsa shares its activities with the French Total and the Norwegian Staoil; and in Ameriven it is associated with the U.S. ConocoPhillips and ChevronTexaco.

The strategic associations mentioned above elaborate high value synthetic crude oil out of extra-heavy oil (9º API) from the Orinoco Belt, with a high sulfur and metal content. The four associations represent investments nearing 14 billion U$. Their current production is over 500.000 bpd, and it is expected to rise to 600,000 next year. As for the quality of these barrels, it ranges from 16º API (heavy oil) to 32º API (light oil).

Televised Surprise

President Hugo Chavez’ announcement of the royalty raise for the businesses described above was literally a scoop, a surprise to almost all of the viewers, including the executives of the transnational companies.

Sources of the private oil sectors commented that this decision had never been set forth in the several meetings, that for several months they had been holding with the Ministry of Energy and Mining, Pdvsa, and the Venezuelan Petroleum Corporation (a Pdvsa subsidiary), in order to reach agreements on economic and fiscal conditions to be applied in some of the future expansions of the present projects and in the new ones expected in the Orinoco Belt.

It is relevant to point out that different governmental spokesmen have announced bidding processes for the seven blocs of improved crude oil production, a proposal that has already received a positive response from the Anglo-Dutch firm Shell.

Until the moment the measure was put into effect, three of the four project operators (Sincor, Petrozuata and Cerro Negro) had been paying the national treasury nearly 0.2U$ per barrel, thanks to the 1% royalty rate. For its part, Pdvsa cancels 30% (nearly 6 U$). All of these calculations are made at a price of 20U$ per barrel of extra-heavy oil extracted.

With the new royalty rate, collection by the government is expected to rise from 46 million U$ to over 600 million a year, since the increase of the royalties to 16 2/3 percent, at 20U$ per barrel will represent a 3.33 U$ per barrel gain for the country.

The government’s arguments have been clear: the economic conditions have changed, oil prices have triggered, as well as the productivity of the wells, which minister Rafael Ramírez says has increased by 300%.

It is paradoxical that although 10 years ago, the scenarios considered in the association contracts between Pdvsa and the international operators (in order to guarantee that the conditions of the association would not be altered) seemed impossible, they have indeed come true.

One of them was the 20 U$ per barrel top price for extra heavy oil, which is the current price. But it is also absurd -says Ramírez- to accept the payment of a 1% royalty when there are associations that sell their products at 50 U$ per barrel, like the case of Sicor, whose improved crude oil is equivalent to the West Texas Intermediate light oil.

Published in Quantum N.36