LatAmNRG: Heard on the Street 1Q:15

(Energy Analytics Institute, 30.Mar.2015) – Information in this section, provided by Energy Analytics Institute editors and reporters, is hearsay and thus should be treated as such.

REGARDING COLOMBIA

* A small group of Venezuelans are interested in acquiring an interest in Colombian oil company Pacific Rubiales.

REGARDING VENEZUELA

* To stimulate investments in the oil sector, Venezuela has allowed almost all of the companies sell part of their dollars at the new Simadi Fx rate, which most recently closed at 191 bolivars per dollar.

* In 2014, Malaysa’s Petronas released its 11 percent interest in the PetroCarabobo heavy oil joint venture back to the Venezuelan government. PDVSA has assumed the interest in the meantime. Partners in PetroCarabobo include: PDVSA, Spain’s Repsol, and Indian companies ONGC, Oil India and Indian Oil Corp.

* Former PDVSA President Rafael Ramírez supposedly wants to run for the presidency of Venezuela.

* Venezuelan social programs are at risk unless there is an increase in the price of crude oil or there is a change by the Venezuelan government to reduce its reliance on oil income to sponsor its social programs.

* Supply of dollars unable to satisfy dollar demand thus forcing government to reduce allocation of dollars to importers and other seeking dollars.

* Russian president Vladimir Putin is expected to visit Venezuela soon to discuss bilateral trade between the countries.

* After the longest oil sector boom period in recent history in Venezuela, the country has no money set aside in a strategic oil fund or others to weather the pull back in oil prices.

* Parliament elections could take place in early December 2015.

Discussions between AVHI, PDVSA, and Venezuela’s Oil Ministry

Complaints from oil companies operating or contemplating operating and/or investing in Venezuela include, but are not limited to the following:

* The need to access the new competitive foreign exchange rate for all investments (CAPEX) and costs and expenses (OPEX) required by the mixed enterprises, licenses and PDVSA.

* The need for diluents for the projects in the Orinoco Heavy Oil Belt or Faja; application of the proposed extension to the Special Contributions Law.

* The need to be granted fiscal incentives (royalties, income taxes, etc.) according to results from basic engineering studies; the need to revise the payment of LCE over royalty volumes; the need to revise natural gas royalty payments for re-injected volumes; and the need to define a mechanism for CERTs.

In response to these stated issues, Venezuela’s Oil Ministry Asdrubal Chávez responded as such:

* We recognize this is a difficult situation and we want to work together with AVHI more intensely to find solutions to the problems.

* We acknowledge the effects of the foreign exchange system over production costs; progress has been made to solve this issue (i.e. Sicad I and Sicad II), but we need to make proposals to the government to reach a solution.

* Vice-Minister Angel González has been designating with this assignment to determine a reasonable value for a foregin exchange rate applicable to the petroleum industry.

* We are going to continue granting autonomy to the mixed enterprises or joint ventures.

* We need to work together to improve production costs, and become more efficient; it’s critical to adjust service companies’ costs.

* We want to form joint AVHI-oil ministry-PDVSA executive working groups, tasked with maintaining more regular meetings and studying proposals to solve issues of common interest.

* We are working in the oil ministry to solve the issues related to production of diluted crude oil mixed with naphtha.

In response to these stated issues, PDVSA’s President Eulogio Del Pino responded as such:

* Within our competences, we have been taking measures to solve issues discussed in the AVHI-oil ministry-PDVSA institutionalized dialogue mechanism.

* In terms of the agenda presented by AVHI, we recognize the critical issues of the foreign exchange regime and the decline in oil prices and their impact over the economic viability of the oil industry.

* We can advance information regarding the new foreign exchange system announced by President Nicolas Maduro and we plan to announce that new investments and exports from these investments will be exchanged at the new floating, market rate.

* All the resources stemming from financing and from exports from new projects will be exchanged at a new floating rate (new foreign agreement to be announced soon).

* Reviewing the previous meetings’ minutes of the AVHI-oil ministry-PDVSA dialogue, we have progressed in most of the issues discussed: increasing financial authorization levels, adapting the mixed enterprises’ structure to develop major projects, a mixed payments scheme for natural gas licenses (agreement with YPERGAS), drilling rigs and personnel managed by mixed enterprises, delegation of procurement activities to mixed enterprises, diluent availability to Faja’s new developments, internal auditing process of our HSSE policies and activities, payments of dividends to partners.

* In the Faja’s Boyacá division, we are proposing the creation of a National Strategic Development Zone aimed at the development of exploration and production activities: the objective will be to provide incentives to improve the economic viability of the projects. Some of the possible fiscal incentives applicable to the projects are: accelerated depreciation, carry-over of ten-years of losses (for income tax calculations), shadow tax exemption, royalty reduction to twenty percent, and petroleum exports exchanged at the Sicad II rate.

* We need to improve our communication with our partners; we want to enhance cooperation and use the capabilities and best practices of AVHI member companies.

* One of our main objectives is to regulate all of the activities and contracts with mixed enterprises.

* We want to maintain and reinforce this institutionalized dialogue mechanism with AVHI: we support the proposal of a joint workgroup that can agree on proposals and present them at our quarterly meetings.

***

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