Venezuela raises oil tax on multinationals to 16.6 percent

CARACAS (AFP) - Venezuela raised royalties paid by oil multinationals to 16.6 percent from one percent, with immediate effect, spreading uncertainty over future output.
Venezuelan President Hugo Chavez said the increase would generate an extra 1.27 billion dollars from the Orinoco Belt, one of the world's richest reserves.
The Orinoco Belt, a stretch rich with bitumen and heavy oil deposits along the Orinoco River, holds an estimated 235 billion barrels of heavy crude, according to Venezuela.
The decision to raise royalties could cloud the production outlook over the longer term, however, analysts said.
"The tax hike will likely renew uncertainty about the safety of contracts and investments in the oil sector, possibly causing international oil companies to review recently announced plans to invest in the Venezuelan oil sector," Credit Suisse First Boston analyst Jan Dehn said in a report.
"In turn, this could affect future oil production, though we think the ownership of private oil companies in Venezuela is safe for now. We believe that the Venezuelan government is mainly trying to exploit current favorable market conditions to obtain better terms from oil companies."
In New York, where crude oil prices reached fresh records because of strikes in Norway and Nigeria, traders said the world market was now so high that an increase in Venezuelan royalties was unlikely to cut output.
"I do not think it will have an adverse impact on production," said New York-based Refco market analyst Marshall Steeves.
"At these prices, even with an increase in royalties it still makes economic sense because Venezuelan production is certainly cheaper than a lot of other potential production streams."
The oil majors -- including ExxonMobil, ConocoPhilips, Total and Statoil -- had been exonerated from all but one percent of the tax in the 1990s by a previous Venezuelan government keen to lure investors.
"I have decided to use the powers of the National Executive to raise the (oil) exploitation tax, which had been lowered, and return it to its original level because we consider the reasons given for this measure no longer exist," Chavez said on Sunday during his live weekly radio and television address.
Chavez said the measure -- part of the government's "total oil sovereignty" plan -- was designed to correct the "aberrations" that existed in oil contracts signed with the multinationals in the early 1990s, when Venezuela began privatising its state-owned oil sector.
"There is no reason why they should continue to be exempt from paying royalties. This is a national tax and it's going to be paid," Chavez said, adding that the money would be allocated to social projects.
But he told the multinationals: "We will continue working together and producing oil."
Energy and Mining Minister Rafael Ramirez said separately the tax hike would be implemented with immediate effect and he did not believe it would affect the viability of oil projects in the Orinoco Belt.
The four oil blocks affected are Hamaca, Cerro Negro, Sincor and Petrozuata, where ExxonMobil, Veba Oil, Total, Statoil, ConocoPhillips and ChevronTexaco operate in conjunction with Venezuela's state oil company PVDSA.
Venezuela, a member of the Organization of Petroleum Exporting Countries, produces 2.9 million barrels of oil per day.