Rebalancing Oil Contracts in Venezuela

During the last decade, the Venezuelan government has pursued a reform of the legal regime of hydrocarbons tailored to its interests as an oil producing country. However, the ongoing consequences of the global economic recession which negatively impacted the Venezuelan economy, call into question the suitability of such scheme. Confronting the challenge of attracting foreign investment, the methods of awarding contracts used by the Venezuelan Government have contributed to the approval of a series of incentives which are rebalancing the contractual conditions for new oil ventures. Royalty and tax reductions, access to international arbitration and the protection granted through bilateral investment treaties are producing major changes in the regulatory framework of oil contracts. This scenario may lead to a new investment cycle in the Venezuelan oil industry for the development of heavy crude oil projects in the Orinoco belt. Nevertheless, the incentives may result in an effective decision only if some fiscal and contract stability is granted to foreign investors.