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Framing the issue

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Venezuela’s hydrocarbon landscape

Despite Venezuela’s poor investment climate, several foreign companies continue to compete in the country’s hydrocarbon landscape. Of the five hydrocarbon basins in the country, recent interest has concentrated in the reserve-rich area of the Orinoco Belt, which is considered to harbour one of the world’s largest reserves of extra heavy crude oil and tar sands. Development of the Orinoco Belt became a priority during President Chavez’s second mandate, who approved the 2005-2030 Plan Siembra Petrolera (Plan to Seed the Petroleum - PSP) and passed legislation in 2007 requiring that all contracts be led by a mixed company with at least 60% participation from Venezuela’s state-owned company PDVSA.

However, challenges in Venezuela and the Orinoco Belt in particular may be increasing, putting long-term investment returns at higher risk. In addition to high risks associated with an extremely fragile business environment and regulatory framework, short to medium-term political risks are likely to increase in the context of uncertainty over Chavez’s health and the future of Chavismo. For instance, a prolonged absence of Chavez, coupled with a potential power struggle in the ranks of the ruling Socialist Party, could lead to severe delays in much-needed investment in physical infrastructure along the Orinoco River. Without adequate infrastructure, a move to the exploration and production phase may prove more lengthy and costly, in turn putting a further strain on Venezuela’s stagnating oil production.

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