Venezuela is making a fresh pitch to foreign oil companies: this time, if things go sideways, you may not have to fight it out in Caracas.
Oil Minister Paula Henao said Tuesday that Venezuela’s new hydrocarbons framework will allow contract disputes to be resolved outside the country, offering international arbitration options in what appears to be an effort to tackle one of the industry’s biggest concerns: legal certainty.
Because when executives say they want “stability,” what they often mean is: if a multi-billion-dollar project blows up, we want confidence that the matter will be settled in a neutral court or arbitration panel.
“On the issue of legal certainty, which I know many of you are looking for, the law incorporates all of that,” Henao said at an energy conference in Texas.
The comments arrive as Venezuela suddenly finds itself back in fashion. After years spent in sanctions limbo and political isolation, international oil majors have been reappearing across the country at surprising speed.
Shell and BP are advancing offshore gas developments. Repsol has signaled plans to sharply increase production. Eni recently signed agreements tied to the massive Junin-5 heavy oil project. Even U.S. firms are beginning to edge back into the Orinoco Belt.
Exports are already moving in the right direction. Venezuela shipped 1.23 million barrels per day in April, the highest level in more than seven years, as flows to the United States, India, and Europe rebounded.
Oil companies clearly see an opportunity. Venezuela sits on the world’s largest crude reserves and remains one of the few places where giant resource discoveries are no longer necessary because the barrels are already there.
The challenge has been everything other than geography.
Earlier this year, some analysts still described Venezuela as effectively uninvestable because of legal uncertainty, infrastructure deterioration, and years of sanctions-related complications. Heavy crude production in the Orinoco Belt also requires substantial spending and specialized infrastructure.
So Venezuela appears to be addressing one of the industry’s oldest concerns: contract risk.
By Julianne Geiger for Oilprice.com
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