Rosneft Cool On Venezuela’s Sweeter Gas Terms, For Now

(Argus, 6.Nov.2019) — Venezuela is offering sweeter fiscal terms to Russia’s state-controlled Rosneft for two offshore natural gas fields that are well-positioned to supply nearby Trinidad and Tobago, but the company has yet to make an investment commitment.

The National Constituent Assembly (ANC), a rubber-stamp entity controlled by Venezuelan president Nicolas Maduro, issued a decree on 29 October that ratifies a state-to-state agreement signed in July that creates tax incentives for Rosneft to tap the Patao and Mejillones shallow-water fields.

The agreement exempts Rosneft and Russian suppliers from all value-added and import tax liabilities related to the development and operation of the deposits.

During a visit to Moscow in December 2017, Maduro granted Rosneft a 30-year concession to tap Patao and Mejillones.

Rosneft is sole owner and operator of the Patao-Mejillones gas venture under Venezuela’s 2001 gas law and a concession contract signed in Moscow in 2017. Unlike Venezuela’s oil law that mandates a majority stake to state-owned PdV in all oil joint ventures, the gas law allows companies to hold up to 100pc of gas projects, with PdV permitted to farm in up to 35pc. European firms Repsol and Eni control the Cardon 4 gas joint venture that covers the Perla offshore field, with no PdV participation.

The Patao and Mejillones gas fields form part of PdV’s Mariscal Sucre offshore gas complex that also includes the Dragon and Rio Caribe fields. Mariscal Sucre’s combined gas reserves total over 14.7 trillion cubic feet, with Patao and Mejillones holding a combined 9 Tcf.

Shell is party to a stalled 2018 agreement with PdV and Trinidad’s state-owned NGC to develop Dragon and a flow line into its Hibiscus platform off Trinidad. The project was supposed to have started delivering a preliminary 150mn cf/d of gas to Trinidad this year, offsetting a decline in the Caribbean country’s domestic gas output, but the project never got off the ground.

Russian officials tell Argus that Rosneft has studied various development options including floating LNG and pipeline supply to Trinidad, but is not likely to make a decision before the end of 2020 because of Venezuela’s economic decline and political turmoil. Moscow pushed successfully for the tax breaks but further investment incentives are pending, they say.

The 10 July tax break deal has been folded into the framework of three state-to-state agreements on which Venezuela-Russia energy cooperation and the security of Rosneft’s investments are based, a Russian diplomat said.These bilateral pacts include a mutual investment protection treaty and a bilateral energy cooperation agreement signed in November 2008, and a joint strategic projects development agreement from September 2009.

Venezuela’s US-backed political opposition regularly warns foreign companies that any agreements not authorized by the National Assembly, which it controls, are invalid. In this case as well, the ANC decree ratifying Rosneft’s tax breaks is illegal and unconstitutional, two assembly deputies said.

Oil focus

Rosneft is primarily focused on Venezuelan oil. Since the US imposed oil sanctions on Venezuela in late January 2019, the Russian company has emerged as the leading lifter of Venezuelan cargoes, mostly bound for its Indian refiner Nayara Energy. The supply goes toward servicing oil-backed loans to PdV.

Rosneft’s commercial role has expanded as traditional buyers from the US, China and India have largely bowed out because of the sanctions.

Upstream in Venezuela, Rosneft owns 40pc stakes in three Orinoco heavy crude joint ventures led by PdV: PetroMonagas, PetroMiranda and PetroVictoria. Only PetroMonagas, which was originally developed by ExxonMobil as Cerro Negro in the 1990s before the Orinoco projects were nationalized in 2007, is operating, but only sporadically.

Rosneft also holds stakes of 40pc in the PetroPerija joint venture in Zulia state and 26.67pc of the Boqueron venture in Monagas state.

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