NATIONALIZATION OF OIL AND GAS ENTERPRISES: NEW TRENDS AND STRATEGIES

• Jurisdiction: Derecho Internacional

International Mining and Oil & Gas Law, Development and Investment
(Apr 2009)
CHAPTER 13D
NATIONALIZATION OF OIL AND GAS ENTERPRISES: NEW TRENDS AND STRATEGIES
Victorino Tejera-Pérez ¹
Macleod Dixon
Caracas, Venezuela

Victorino J. Tejera Pérez received his law degree in 1996 from Universidad Católica Andrés Bello (Caracas - Venezuela). He received his Master of Laws (LL.M) from Tulane University Law School (Louisiana - USA) in 1999, where he also obtained a certificate in advanced studies in commercial arbitration. He is currently writing his thesis on "Investment Arbitration in Venezuela" as a candidate for a Master's Degree in Private International and Comparative Law from Universidad Central de Venezuela (Caracas). He teaches Alternative Dispute Resolution at Universidad Metropolitana (Caracas). After working at other firms, Victorino joined Macleod Dixon in 2000 as an Associate. In January 2008, he became a Partner in the litigation and arbitration practice group. He focuses his practice on commercial and investment arbitration, domestic and international litigation, conflicts of law and commercial law. During his career, Victorino has participated in numerous commercial arbitrations, both domestically and internationally. Domestically, he has participated in ad hoc arbitrations, arbitrations under the rules of the Caracas Chamber Arbitration Center and CEDCA. Internationally, he has participated as counsel in arbitrations conducted under the rules of ICC, AAA, LCIA as well as in ad hoc arbitrations. He has also broad experience advising clients in the area of investment arbitration, where he has been able to develop his expertise during the process of nationalization of several industries in Venezuela during recent years, particularly in the oil and gas industry.

I. Forced Contract Renegotiation

a. The call by a Host State to amend the initial terms of a contractual relationship with a private investor under threats of:

i. Unilateral amendments of key economic terms

ii. Suspension or termination of the contract,

iii. Exclusion from future contracts, and/or

iv. Outright expropriation.

b. State-Investor Bargaining Power:

i. Sunk Capital

• Contracts to Explore & Develop Oil and/or Gas Reserves require substantial investment in project infrastructure, with profits obtained from long-term use of the facilities

ii. Obsolescing Bargaining:

• Once the infrastructure is in place, the host State has an increased incentive to modify or breach the Contract

iii. Exposure to external risks

• The longer-term the Contract is, the more vulnerable it is to external risks that may call for the amendment of the initial terms of the bargain.

II. The Venezuelan Experience: From "Oil Opening" to "Full Petroleum Sovereignty"

a. The "Apertura Petrolera"

i. 32 Operating Agreements

ii. 8 Exploration at Risk and Profit Sharing Agreements

iii. 4 Strategic Association Agreements

iv. One Association Agreement for the Production of Orimulsión

b. The 2002 Organic Hydrocarbons Law ("OHL")

i. Upstream Hydrocarbons Activities & Primary Activities

• May only be carried out through incorporated joint ventures in which the state has more than 50 percent equity ownership and decision-making control.

• "Primary Activities" include exploration, extraction in natural state, gathering, transport and initial storage of liquid hydrocarbons and associated gas.

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ii. Refining and Industrialization

• May be carried out jointly or separately either by the state or by private entities.

iii. Hydrocarbon Commercialization Activities

• Such activities are reserved and may be carried out exclusively by 100 per-cent state-owned companies.

c. Dismantlement of the Oil Opening: The...