Venezuela is moving to introduce a new hydrocarbons law and associated fiscal changes aimed at drawing in investment and lifting output, including proposals that would expand private participation and allow companies to market crude directly. While the details are still evolving, our earlier assessment of Venezuela’s cost-of-supply outlook highlights that the key question for international investors is not the size of the resource base, but whether reforms can materially improve project economics once above-ground risk is reflected in return requirements.
Venezuelaโs reform push: Can fiscal changes shift oil project Economics enough to attract capital?
A meaningful share of todayโs production base sits in the โlow-costโ bracket, broadly around $30โ40/bbl economics, which helps explain why there is near-term upside at current prices. The harder hurdle is restoring production toward historical peaks. That is a different capital and risk proposition, and in many cases requires >$80/bbl-type economics, often closer to $100/bbl once higher return expectations are applied to reflect Venezuelaโs constantly shifting environment and significant above-ground risks.
This is where the proposed fiscal levers matter. Before the latest reform push, we tested how changes to royalties and corporate income tax could shift breakevens for representative Orinoco Belt discovery projects. The clearest lever is royalties: reducing effective royalties from 20% to 15% and 10% lowered breakevens by roughly 6% and 11%, respectively. Corporate income tax reductions from 50% to 40% and 30% delivered smaller standalone gains, typically around 1โ4%, but become more meaningful when paired with royalty relief under higher discount-rate assumptions.
Operational improvements can compound these effects, particularly in the opex-intensive Orinoco system. In our sensitivities, a 10% reduction in opex lowered breakevens by around 4โ8%, rising to roughly 5โ12% at a 15% opex reduction. When fiscal and opex improvements are combined, illustratively a 15% royalty rate, 30% corporate income tax and a 15% reduction in opex, breakevens improve by around the high teens (~18โ19%) across cases. With additional capex efficiencies, total breakeven reductions can move into the low-to-mid 20s (~22โ27%), depending on field characteristics and risk assumptions.
The takeaway is that Venezuela does have levers. Adjustments to fiscal terms and improved operating performance could reduce breakevens by roughly $5โ20 per barrel, materially shifting the range of what is investable.
However, the โwho investsโ question remains at least as important as the โwhat priceโ question. Even with better terms on paper, large-scale, long-cycle reinvestment depends on credibility and enforceability. In practice, we may see structured, opportunistic entry first, capturing near-term barrels under defined terms, before a broader reinvestment story can take hold.
Author:
Radhika Bansal
Vice President, Upstream Research
radhika.bansal@rystadenergy.com
Disclaimer: The opinions expressed in this article are solely those of the author and do not necessarily represent the views or beliefs of Rystad Energy.ย
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