Hydrocarbons law reform act

BENSON, PEREZ MATOS, ANTAKLY & WATTS

FOUNDED 1953
ATTORNEYS – CONSULTANTS
www.bpmaw.net

Caracas, March 23, 2026

EXECUTIVE REPORT

HYDROCARBONS LAW REFORM ACT

1. RULE

The Extraordinary Official Gazette No. 6.978, dated January 29, 2026, marks a milestone in Venezuelan energy policy by shifting the centralized model toward a robust public-private collaboration framework. The reform aims to incentivize foreign and domestic investment through three pillars: contractual economic equilibrium, operational autonomy for the private partner, and jurisdictional shielding.

2. KEY POINTS

A. Promotion of Economic Equilibrium (Stabilization Clauses)

The reform explicitly recognizes the long-term nature of oil projects and the risk of “changes to the rules of the game.”

  • Preservation of Conditions: It is guaranteed that the originally agreed financial balance is unalterable. Any subsequent benefit that improves profitability is automatically integrated into the contract.
  • Restitution of the Economic Equation: In the event of legal, fiscal, or regulatory changes (“Sovereign Act” or Hecho del Príncipe) that substantially affect cash flow, the State is mandated to adjust:
    • Fiscal Variables: Reduction of royalty rates and the Integrated Hydrocarbons Tax..
    • Operational Variables: Extension of contractual terms or modification of service fees.
    • Income Tax: Adjustments to the corporate tax burden to neutralize adverse impacts.

B. Role of Private Companies in Primary Activities

The fundamental change lies in the transition from a “passive partner” to a “real operator.”

  • Direct Management of Operations: The state company’s operational monopoly is broken. Private partners (including minority shareholders) may assume technical and operational management of the fields under agreed conditions.
  • Autonomy in Marketing: The reform allows joint ventures (empresas mixtas) to directly manage crude oil sales. This eliminates administrative bottlenecks and allows for more efficient cash management for the payment of dividends and services.
  • National Participation: The creation of consortiums with domestic private capital is encouraged, facilitating their integration into the exploration and extraction value chain.

C. New Dispute Resolution Mechanisms

The law introduces conflict resolution mechanisms aligned with international standards.

  • Arbitration Outside Ordinary Jurisdiction: Contractual disputes are no longer exclusively limited to national courts. The use of alternative dispute resolution methods of any nature, including mediation and arbitration, is permitted. OFAC regulations on venue and applicable law are of particular importance.
  • Investor Security: This legal shielding is vital for international bank financing, as it offers a neutral forum for the interpretation of hydrocarbons contracts.
  • Reversion Mechanisms: While assets revert to the State upon contract expiration, the law guarantees that this transition occurs under rules of economic equilibrium, protecting unamortized investment.

3. STRATEGIC RECOMMENDATIONS FOR OUR CLIENTS

  1. Audit of Current Contracts: Review existing contracts to identify opportunities for migration to the new “Direct Management” scheme.
  2. Equilibrium Protocols: Rigorously document the current economic basis of your projects to have a clear picture in the face of future requests for adjustment due to regulatory changes.
  3. Governance Analysis: Redefine shareholders’ agreements in joint ventures to take advantage of the new management powers granted to minority partners.
  4. Environmental Compliance: Although the law facilitates operations, the requirements for reversion of assets imply that environmental liabilities must be properly managed to avoid contingencies at the end of the project cycle.

Cordially Yours,
BENSON, PÉREZ MATOS, ANTAKLY & WATTS

Angela C. Antakly de Cabrera

All rights reserved. This document is a contribution of BENSON, PEREZ MATOS, ANTAKLY & WATTS to its clients on legal matters of their interest, aiming at counseling on the matter under discussion. It must not be construed as a specific legal opinion. The information contained herein may not be distributed without the express consent of this Law Firm.