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I. VENEZUELA
A. Introduction to Venezuelan Energy Sector
VENEZUELA, a founding member of the Organization of Petroleum Exporting Countries ("OPEC"), is one of the most important energy producers in the world. It has the largest proven oil reserves in South America1 and the seventh largest in the world,2 is the seventh largest petroleum exporter in the world,3 and is the fourth largest net exporter.4 Venezuela also has Latin America's largest natural gas reserves and the eighth largest gas reserves in the world.5 It is also the home of the world's most important refining complex (Paraguaná) and the second largest hydroelectric complex (Raúl Leoni).6 The national oil company, Petróleos de Venezuela, S.A. ("PDVSA"), is indisputably one of the most important oil companies in the world. Finally, the oil and gas sector accounts for more than three-quarters of total Venezuelan export revenues, approximately one-half of total government revenues,7 and around one-third of total gross domestic product ("GDP").8
Although some analysts place the start of the Venezuelan oil industry at the blast of the Zumaque I well in Mene Grande in the State of Zulia in western Venezuela in 1914, the inception of the industry can be traced back even earlier to 1878, when La Petrolio, the first Venezuelan oil industry company, was formed.9 Later, around 1890, the commercial exploitation of asphalt in Venezuela started. Although this industry did not last, it did help attract the oil sector to Venezuela.10 Royal Dutch Shell was the first major foreign oil company to enter Venezuela in 1910 via its participation in Caribbean Petroleum,11 the company that drilled the above-mentioned Zumaque I well.
After the success in Mene Grande, Standard Oil, Gulf, Texaco, and Union were some of the major oil companies that entered Venezuela in the following years.12 During the first three decades of the twentieth century, known as the "Concessionaries' Era," many concessions for the operation of oil companies were granted by Venezuelan president Juan Vicente Gomez, who ruled the country until his death in 1935. By 1928, Venezuela was the largest oil exporter and second largest oil producer in the world. Relative to today's standards, the concessions and underlying legislation of that era imposed significantly lower taxes on production.
In 1943, a new Hydrocarbons Law was enacted,...