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Oil Firms Brace for Venezuelan Tax Increase
DOW JONES NEWSWIRES
April 20, 2005; Page A14

CARACAS, Venezuela -- Oil firms in Venezuela are bracing for more taxes as
President Hugo Chavez seeks to maximize oil revenue amid record crude
prices.

Private firms, which pump about 40% of Venezuela's oil, will be forced to
pay a 50% income tax rate instead of a 34% preferential rate, Oil Minister
Rafael Ramírez said over the weekend. That could reduce the value of
foreign energy companies' portfolios in the country by about 20%, or $4.3
billion, estimated consulting firm Wood Mackenzie. It said companies with
the highest exposure are ConocoPhillips and Total SA, which could see $1.2
billion and $1 billion in value wiped out, respectively.

Mr. Ramírez didn't specify when the new rate would be applied. In addition,
many oil companies with operating agreements in Venezuela declare losses,
citing high costs and heavy investments, and pay no taxes.

Still, the move is the latest in a series of oil-tax increases. Last year,
Venezuela raised the royalty tax on 600,000 barrels a day of heavy Orinoco
crude to 16.6% from 1%. Last week, it said firms running 32 operating
agreements will have to migrate contracts to the 2001 Hydrocarbons Law,
which has a 30% royalty tax rate, up from 16.6% in previous legislation.
And Mr. Chavez has launched an investigation of operations declaring
losses, threatening to charge them with back taxes if found dodging
payments.

Mr. Ramírez said a company producing oil will have to pay 50% income tax,
the rate that applies to oil activities. When many signed contracts in the
1990s, oil firms were registered as contracted help for state oil company
Petroleos de Venezuela SA, making them eligible for the 34% industrial rate.

"This announcement is the latest -- but biggest -- move by the Chavez
administration to extract a greater rent from the upstream oil industry in
Venezuela," said Gero Farrugio, head of Wood Mackenzie's Latin America
Upstream team.

Venezuela is seeking to increase revenue to fund social programs ranging
from adult-literacy and job-training programs to subsidized food prices at
a state-run grocery chain, now the country's largest.

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