Venezuela's interim government has fast-tracked sweeping changes to the country's hydrocarbon law in a bid to attract foreign capital to its battered oil industry, but major US producers remain reluctant to commit billions of dollars amid persistent legal uncertainties and the absence of security guarantees from Washington.
The legislative reform, approved in its first reading last week following the capture of President Nicolás Maduro by US special forces, marks the first substantial overhaul of Venezuela's oil sector since Hugo Chávez's 2006 nationalisation. Under the proposals, private firms would gain authority to market their crude directly, joint venture minority partners would secure enhanced technical and operational control, and the government could slash royalty payments from the current 33% rate to a minimum of 15%.
Yet the changes fall short of what international oil executives say is needed to justify large-scale investment in a country whose industry has been crippled by decades of mismanagement, corruption and underinvestment, according to lawyers and company officials quoted by Reuters.
"This is sufficient enough for the transition, until there is a permanent government in Venezuela," Ali Moshiri, chief executive of Amos Global Energy Management, told the news agency. Moshiri, whose firm holds stakes in Venezuelan energy projects, cautioned: "If you don't make this [industry] more attractive, the entire progress we want to make is going to come to a halt."
The legislation would codify a model for production-sharing agreements that has existed informally under Maduro, giving participating companies greater operational independence in managing their oilfields. Several firms already work under such arrangements, which would continue alongside traditional joint ventures where PDVSA maintains majority control.
But scepticism runs deep, stemming from concerns about Venezuela's dismal institutional track record. "The past seven decades of Venezuela's oil industry are marked by broken contracts and resource nationalism," Francisco Monaldi, director of the Latin America Energy Program at Rice University's Baker Institute, wrote in Americas Quarterly. "No agreement has survived to maturity without significant deterioration of terms."
Industry associations and legal advisers have flagged imprecise wording in the latest bill and conflicting provisions regarding commercial operations, fiscal terms and recognition of international arbitration. The reform gives Venezuela's oil ministry broad discretionary powers to approve contracts and lower royalties without consulting the National Assembly, prompting criticism from the few remaining opposition lawmakers who received the text only hours before parliamentary debate began.
Legal experts warn that additional legislative changes would be necessary to secure the $100bn that the US says Venezuela requires to revitalise its ailing energy infrastructure. Modifications to income tax legislation and the removal of so-called shadow tax provisions, which guarantee the state receives no less than half of each barrel's value, remain pending, according to six lawyers and executives who spoke to Reuters.
The caution among international majors reflects both operational and political risks. Major US producers including ExxonMobil and ConocoPhillips have outstanding legal claims over assets seized during earlier nationalisations, with Conoco's three arbitration cases valued at up to $12bn. President Donald Trump has urged claimants to drop their cases, but the unresolved claims will not vanish on their own and still compound investor wariness.
In fact, past disputes over contractual terms continue to shape their calculations. After Chávez consolidated control over PDVSA during the early 2000s, he replaced much of the state company's qualified management and engineering staff with party loyalists before imposing revised agreements that increased fiscal burdens and mandated state majority stakes. Conoco and Exxon rejected the renegotiated terms and withdrew, initiating arbitration proceedings. Chevron remained under the new arrangements, though Monaldi notes that Chávez and Maduro subsequently "kept reneging on deals with foreign investors, driving most of them out of the country."
The gap between Trump’s encouraging rhetoric and Washington’s limited policy support has also added to the uncertainty. "Oil and gas companies operate all around the world in all different settings, they're well versed in those challenges," Energy Secretary Chris Wright said in a Bloomberg TV interview, ruling out security guarantees for firms operating in Venezuela.
The American Petroleum Institute has said policy changes, security arrangements and investment protections are prerequisites for significant industry engagement. Mike Sommers, the group's president, outlined these conditions earlier this month as US refiners began purchasing Venezuelan crude at steep discounts through trading houses.
Some analysts expect the largest US producers to remain on the sidelines until clearer reforms emerge and a more representative National Assembly takes office.
“This law is a law of ambiguity, designed to avoid openly breaking with Chavez’s oil legacy,” said Jose Guerra, former director of research at Venezuela’s Central Bank, according to Al Jazeera. “It is not emphatic about private participation.”
In a similar vein, Monaldi argues that meaningful recovery requires more than legal reforms. "Venezuela needs stable, constructive relations with the US and Europe, and a permanent end to oil sanctions," he wrote. "Investors must see genuine political stability and a durable consensus among the country's leadership and society to reopen the sector to foreign participation.”
Venezuela holds roughly 17% of the world's proven oil reserves, predominantly extra-heavy crude suited to certain US Gulf coast refineries. Yet output has plummeted from 2.5mn barrels per day in the mid-2010s to approximately 1mn b/d currently, following years of sanctions, capital flight and operational deterioration.
Acting president Delcy RodrÃguez, Trump’s handpicked successor to rule the country following Maduro’s ouster, has said the reform would preserve national sovereignty whilst enabling Venezuela to emerge as a major hydrocarbon producer backed by private capital. She recently met with executives from oil companies including Repsol, Chevron and Shell at PDVSA's Caracas headquarters as part of a public consultation process required before the bill can clear parliament. Investment in the oil and gas sector is projected to reach about $1.4bn this year, up from nearly $900mn in 2025, she told oil executives.
Following the meeting, Chevron's representative said the US company was prepared to continue contributing technology and expertise, pointing to its longstanding partnership in the country. In contrast, Halliburton, the US oil services company that departed Venezuela in 2019, said commercial and legal terms must be clarified before it considers re-entering a market that previously generated approximately $500mn in annual revenue.
Monaldi suggests Chevron has an extra edge because it is already on the ground with contracts offering significant development potential, allowing it to reinvest some cash flow. Spanish oil firm Repsol and perhaps Italy’s Eni could add more modest production increments. But he warns that "major projects requiring substantial fresh capital and long maturity will remain out of reach" without deeper institutional change.
In the near term, Venezuelan barrels are re-entering global markets through discounted spot trades rather than upstream investment. Refiners including Valero and Phillips 66 have bought cargoes through trader Vitol at discounts approaching $9 per barrel below Brent benchmark prices, attractive economics for Gulf Coast facilities designed to process heavy sour grades.
Venezuela's reserves present significant technical challenges. The country's largest deposits contain ultra-heavy crude that requires specialised and expensive extraction methods, and commands substantial discounts in global markets. Industry analysts say such projects would need oil prices considerably higher than current Brent levels near $50 to $55 per barrel to become economically attractive.
Production growth forecasts suggest output might increase by 200,000 to 250,000 b/d annually over four to five years, assuming investment of $10bn per year. Major oil companies, however, face difficult allocation decisions, particularly during a period of subdued prices when financial discipline typically takes precedence.
Venezuela's National Assembly, still dominated by the ruling socialist bloc despite Trump's claims of maintaining oversight following Maduro’s removal, is now expected to approve the reform after brief public consultations. The bill must still undergo article-by-article debate before enactment.
But Big Oil remains in no rush to re-enter Venezuela. The tepid response from executives at a White House meeting with Trump earlier this month laid bare the industry's hesitancy. Most brazenly, ExxonMobil chief executive Darren Woods told the gathering the oil-rich nation remained "uninvestable" after the company had its assets seized twice previously. "To re-enter a third time would require some pretty significant changes from what we've historically seen and what is currently the state," he said. Trump "didn't like" his response and threatened to keep Exxon out of the country.
While smaller independent producers expressed eagerness to pursue opportunities, major oil companies are leaning against deploying the vast sums needed for meaningful production growth without physical security guarantees, legal certainty and competitive fiscal terms – conditions that Venezuela's US-mandated reform has yet to convincingly deliver.
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