PDVSA, Venezuela’s state oil company, presented a contract model for energy companies interested in operating in the country, in a key step to try to revive oil production.
The document sets out the conditions for PDVSA to work with companies in the resumption of oil wells, drilling in new areas and commercialization of production. The state-owned company began sharing the contract model late last week with industry executives, consultants and other members of the industry.
According to industry insiders familiar with the document, who requested anonymity due to the confidential nature of the information, the model likely represents a more rigid initial stance by PDVSA in negotiations.
Oil companies that already have preliminary production agreements with PDVSA had been waiting for weeks for the definition of this contractual milestone to start formal negotiations. However, as lawyers and consultants analyze the 90-page document, the sector’s reaction indicates that turning the agreements into operational contracts may take longer than expected.
A more investor-friendly joint venture model, created from the 2022 historic agreement between PDVSA and Chevron, had fueled expectations in the sector that Venezuela would move past its history of natural resource nationalism and would begin to encourage more foreign investment after years of tough sanctions. However, the new operating contract favors the Venezuelan government, especially on issues such as arbitration, taxes and contract termination, in addition to bypassing the United States sanctions rules, according to people familiar with the document.
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In case of a contractual dispute, the text provides for mediation by the International Mediation Organization, based in Hong Kong. If no agreement is reached, the dispute would be forwarded to an arbitral tribunal in Paris, administered by the International Office of the Permanent Court of Arbitration.
The arbitration clause contradicts licenses from the U.S. Treasury Department that regulate the easing of sanctions on Venezuela promoted by the Trump administration since the beginning of the year, since American rules require that agreements be governed by U.S. law and U.S. arbitration.
The contract also provides that Venezuela may unilaterally rescind an agreement if any person connected with the operating company participates in “acts of political destabilization,” providing limited compensation if the contract is unilaterally canceled for “public interest” reasons in the first six years.
Another clause grants broad freedom to the State to define taxes and royalties. While concerns about tax conditions are common in the oil sector, in the Venezuelan case business interests mingle with broader political and economic issues, while the Trump administration seeks to accelerate investments in a country that has some of the world’s largest oil and gas reserves.
The document is signed by the president of PDVSA, Héctor Obregón, a remnant of Nicolás Maduro’s government and the target of international sanctions.
Neither PDVSA nor Venezuela’s Ministry of Information responded to requests for comment. The U.S. Treasury Department also did not respond.
The PDVSA base agreement comes at a time of high oil prices and rising internal pressure on the U.S.-backed Venezuelan government, coming from nationalist groups remaining from the old Maduro regime, captured by American forces in January.
