Companies sign agreement to continue operation in Venezuela.

Faced with the threat of being forced to abandon operations in energy-rich Venezuela, eight oil companies signed an agreement with Venezuelan state-owned Petroleos de Venezuela (PDVSA) that will force the companies to adopt a new royalty and tax structure endorsed by President Hugo Chavez.

The new agreement-signed by China National Petroleum Corp., Spain's Repsol, and other foreign producers--will cancel out operating service pacts signed during the 1990s that had allowed the companies to control production. In 2001, Chavez said those deals were a giveaway to the companies and proposed the (Venezuela) Hydrocarbons Law.

In May, Venezuela Energy Minister Rafael Ramirez said the nation would shut down firms that did not pay 16.6 percent royalties and 50 percent income taxes. Ramirez said Venezuela would renegotiate operating agreements with foreign firms into joint ventures with PDVSA. Ramirez also serves as president of PDVSA, which is the parent company of Houston-based Citgo. In February, Venezuela hinted that it might sell Citgo's eight U.S. refineries (in Venezuela). The United States relies on Venezuela for 15 percent of its oil imports.

Last month, the country's tax authority, Seniat, said contracts held by 22 foreign energy firms allow(ed) illegal preferential income tax rates. The agency (has now) issued bills for nearly $2 billion in unpaid back taxes.

"This is a victory for the Venezuelan government because these eight companies have agreed to tougher terms," said Roger Tissot, an analyst with PFC Energy. "The remaining companies may be trying to negotiate a better deal but I don't see anyone disputing what appears to be a fait accompli, and I certainly don't see a stampede out of Venezuela."

Faced with the option of signing the new operating agreements or leaving the country, officials have said larger companies such as Shell and Chevron will soon sign the deal. The two companies declined to comment last week.

(Excerpts for this article were reprinted from Greenwire with permission from Environmental & Energy Publishing LLC. www.eenews.net, 202-628-6500.)