Venezuela’s Hydrocarbons Law Reform: What Businesses Need to Know

In Brief

On January 29, 2026, the newly enacted partial reform of the Organic Hydrocarbons Law was published in the Special Official Gazette No. 6.978, with the aim of reactivating the oil industry, attracting private investment, and modernizing the legal framework of the sector.

In more detail

Further to our earlier alert regarding recent developments in Venezuela’s regulatory framework for oil and associated gas, the reform (the “Reform”) or partial amendment of the Organic Hydrocarbons Law (“OHL”) was submitted and approved in second discussion by the National Assembly of Venezuela on January 29. Importantly, the OHL regulates only crude oil and associated gas (“Hydrocarbons”). The OHL does not apply to non-associated natural gas, which remains governed by a separate legal framework.

The Reform seeks to expand the private sector’s participation in upstream or primary oil activities, and establishes a more favorable framework for private sector companies. Primary activities, as defined in the OHL, include exploration, extration, collection, and initial transportation and storage of Hydrocarbons (“Primary Activities”). Article 1 of the Reform establishes that these activities shall be governed by the principles of energy sovereignty, public ownership of the hydrocarbons deposits, progressive maximization of revenue, legal certainty, contractual transparency, environmental protection, and alignment with the energy transition.

The Reform establishes several key changes, including, among others:

• Expanding and making more attractive the legal mechanisms for the private sector to participate in Primary Activities by (i) creating a new contractual system for private companies domiciled in Venezuela to undertake such activities under contract, at their own and exclusive cost, account and risk; and (ii) amending the rules governing mixed companies (companies where the Republic or a state-owned entity owns more than 50% of the shares –“Mixed Companies”), so that the private sector minority shareholder(s) may undertake Primary Activities and assume certain functions;
  
  
• Introducing alternative dispute resolution mechanisms, such as mediation and arbitration;
  
  
• Changing the system of taxes, special contributions and royalties that apply, in order to make it more flexible and attractive for private sector investors;
  
  
• Establishing a transition period of 180 days, computed as of the effective date of the Reform (January 29, 2026), for the Mixed Companies incorporated before the effective date of the Reform, as well as the Production Sharing Agreements (Contratos de Participación Productiva) entered into before the effective date of the Reform (the validity and effectiveness of which are explicitly recognized), to be adjusted to the parameters set forth in the Reform;
  
  
• Establishing mechanisms for maintaining the economic financial balance of the agreements with Mixed Companies and Private Sector Companies (as defined below);
  
  
• Repealing several laws and legal provisions that were in effect under the previous system.

These changes are described in more detail below.

Private sector participation in Primary Activities

A major change introduced by the Reform is the possibility for local or foreign companies domiciled in Venezuela and owned or controlled by non-state-owned companies or entities (“Private Sector Companies”) to assume the execution of Primary Activities under an agreement. Another major change is the amendment of the Mixed Companies system, in order to make it more attractive for a Mixed Company’s private sector minority shareholder(s).

Previously, under the old OHL, only state-owned companies—like PDVSA or its affiliates, including Mixed Companies—were permitted to conduct Primary Activities, which operated within a rigid framework. This change is significant for Venezuela's oil industry as it aims to promote greater competitiveness and attract local and foreign investment.

Under the Reform, companies of the private sector will be able to perform Primary Activities under two frameworks: (i) as a minority shareholder in a Mixed Company, duly authorized to carry out such activities; or (ii) as a Private Sector Company, assuming the execution of such activities under an agreement (e.g., a Production Sharing Agreement) executed with a company wholly owned by the Republic or its affiliates.

Maintaining the economic financial balance

The Reform further provides that in both cases (Mixed Companies and Private Sector Companies), the respective agreements must keep the economic financial balance originally agreed upon, as well as any subsequent benefits improving the original conditions, which must be preserved throughout the life of the agreement. Whenever changes to the legal, tax, regulatory or contractual system occur after the execution of the agreements, that negatively and substantially affect the economics of the project, the National Executive shall delegate to the Hydrocarbons Ministry the necessary adjustments to preserve the original economic financial balance. This could be achieved by modifying royalties, taxes, tariffs, contractual terms, economic conditions or compensation mechanisms, in order to place the affected operating company in the same economic position it would have been in if no changes had occurred.

Alternative dispute resolution mechanisms

The Reform introduces new options for resolving disputes, such as mediation and arbitration. These mechanisms allow parties to choose between them and local courts if an amicable agreement cannot be reached. This is a significant development for companies of the private sector since the previous OHL only allowed dispute resolution through local courts, which often hindered foreign investment in oil activities. Additionally, Venezuela has signed more than 20 international investment protection treaties that guarantee provisions such as full protection and security, national treatment, most-favored-nation clauses, no expropriation without compensation, fair and equitable treatment, and free transfer of funds.

Contractual system for Private Sector Companies

As mentioned above, the Reform makes it possible for Private Sector Companies, regardless of their place of incorporation (provided that they are domiciled in Venezuela), to perform Primary Activities under contracts with companies wholly owned by the Republic or their affiliates. They must demonstrate technical and financial capacity through a business plan approved by the Ministry of Hydrocarbons, and assume full management of these activities at their own and exclusive cost, account and risk.

Operating companies that are exclusively owned by the Republic or their affiliates are now able to transfer to Private Sector Companies, totally or partially, with the prior approval of the Ministry of Hydrocarbons, the rights to exercise Primary Activities that may have been granted to them by said Ministry.

Hydrocarbon deposits remain Republic property, and contracts with private companies do not transfer ownership. Unlike other jurisdictions with transferable mineral rights, the Reform ensures the Republic's continued ownership of Hydrocarbons. The Reform also exempts these contracts from the Organic Law on Public Contracting (“OLP”), previously used for selecting private companies to work with state-owned firms like PDVSA. With the Reform, PDVSA and the Ministry of Hydrocarbons are expected to establish their own, more flexible policies. In compensation for the execution of Primary Activities, Private Sector Companies will be entitled to: (i) a percentage participation over the audited hydrocarbons, which will be commercialized by the Private Sector Company once governmental obligations have been complied with; and/or (ii) a different type of participation in the benefits determined by the Ministry of Hydrocarbons.

Upon the conclusion of the effectiveness of the agreement for the development of Primary Activities, the Private Sector Company must return to the company wholly owned by the Republic or its affiliates, all assets incorporated, built or acquired during the term of the agreement, without this causing an obligation to pay or indemnify the Private Sector Company. This includes the data acquired, generated, processed and interpreted.

Increased flexibility in the Mixed Companies system

Key changes to the Mixed Companies system include:

• Elimination of the requirement for prior legislative authorization to create Mixed Companies, replacing it with an authorization granted by the President of the Republic and a simple notification to the National Assembly;
  
  
• A 25-year term for Mixed Companies, which may be extended for up to 15 additional years;
  
  
• A more flexible and beneficial royalty, tax and contributions system (which also benefits Private Sector Companies), as further described below;
  
  
• The Ministry of Hydrocarbons may authorize the minority shareholder, after evaluating its adequacy and capacity, to:
  
  (i) Commercialize all or part of the Mixed Company’s production, subject to the legal requirements;
  
  (ii) Open and manage bank accounts in any currency and jurisdiction, to use and manage the funds;
  
  (iii) Carry out the technical and operational management of the Mixed Company, directly or through a specialized service provider.

When authorizations referenced in the fourth item above are granted (i.e., commercialization, bank accounts and technical and operational management), they must be reflected in the relevant agreements between the shareholders.

Upon the extinction of the rights granted for any reason, the Mixed Company must transfer to the Republic the lands and permanent works, including the installations, accessories and equipment forming part thereof, as well as the data acquired, generated, processed and interpreted and any other assets obtained to carry out the activities.

Possibilities for Mixed Companies and Private Sector Companies to participate in commercialization activities

Generally, only wholly state-owned companies are permitted to commercialize natural Hydrocarbons and their derivatives. Under the Reform, the Ministry of Hydrocarbons may allow Mixed Companies and Private Sector Companies to commercialize all or part of the natural Hydrocarbons produced within a designated area. However, such direct commercialization can never result in a transfer of ownership of oil and associated gas deposits, nor does it permit mortgages on these deposits or sovereign rights.

Mixed Companies and Private Sector Companies authorized to carry out commercialization activities must:

• Ensure the sale prices are the same or higher than the prices obtained in the market by the wholly state-owned operating company or its affiliates;
  
  
• Comply with the commercialization plan approved by the Ministry of Hydrocarbons;
  
  
• Comply with the tax and environmental obligations arising from the direct commercialization activities;
  
  
• Comply with the internal supply requirements determined by the Ministry of Hydrocarbons.

Separately from the foregoing, as indicated before, the Reform provides that Private Sector Companies shall commercialize their percentage participation in the hydrocarbons produced, when all or part of their compensation is paid with such percentage participation.

Recognition of existing CPPs

The Reform recognizes full effectiveness and validity of Production Sharing Agreements (Contratos de Participación Productiva) executed under the 2020 Constitutional Anti-Blockade Law.
Flexibilization and reduction of Royalties, Taxes and other Contributions

Royalty:

The state is entitled to receive a royalty of up to 30% of the volume of extracted Hydrocarbons. The Ministry of Hydrocarbons, after hearing the opinion of the Finance Ministry, will determine the royalty percentage(s) applicable to each phase of each project. The Ministry of Hydrocarbons may modify the royalty percentage(s), within the aforementioned limit, in case it is necessary to guarantee the economic balance of the project. Payment may be required by the National Executive in kind or in cash, totally or partially.

Comprehensive Tax:

All operating companies (whether wholly stated owned or not) will be subject to a Comprehensive Tax of up to 15% of their gross monthly income (understood as the total value of extracted and not reinjected Hydrocarbons in the case of extraction projects). No deductions are allowed except for duly supported reimbursements, unconditional discounts agreed at the moment of the operation, and refunds due to invoicing errors or undue payments.

The Ministry of Hydrocarbons, after hearing the opinion of the Ministry of Finance, will determine the applicable percentage(s) of Comprehensive Tax to each phase of each project. The Ministry of Hydrocarbons may modify the Comprehensive Tax percentage(s), within the aforementioned limit, in case it is necessary to guarantee the economic balance of the project.

The Comprehensive Tax will be calculated and paid in advance monthly, but it will be finally determined and paid annually. Payment may be required by the National Executive in kind or in cash, totally or partially.

Income tax:

The rate remains unchanged at 50%. However, the Ministry of Finance, after hearing the opinion of the Ministry of Hydrocarbons, may reduce the income tax rate in case the reduction is required to guarantee the economic balance of the contract.

Shadow tax:

The Reform repealed the 2006 National Assembly Agreement that required Mixed Companies to pay a "shadow tax" ensuring the state received at least 50% of each barrel's value, as well as a 1% social investment payment based on pre-tax earnings. These changes significantly reduce the government's share in the Mixed Companies system.

Windfall tax:

The reform repealed the 2013 windfall tax law on high oil prices, further lowering the government’s share in the Mixed Companies system.
Exemptions from taxes and special contributions:

All operating companies (whether wholly state owned or not) are exempt from the following taxes and special contributions:

High Net Worth Tax;

• Special contribution established in the Organic Law on Science, Technology and Innovation;
  
  
• Special contribution established in the Organic Law on Sports, Physical Activity and Physical Education;
  
  
• Special contribution established in the Organic Law on Law on Drugs;
  
  
• Contribution established in the Law for the Protection of Social Security Pensions;

Exclusions

• Activities performed under the OHL are not subject to social responsibility commitments established under the Decree with Rank, Value and Force of Law on Public Procurement, and are not subject to state and municipal taxes.

We have prepared a chart that compares taxes for regular special taxpayers and those in Hydrocarbons activities, under both current and previous OHL versions. The calculation basis for taxes, contributions, and royalties differs according to the relevant legal provisions.

Comparative chart of taxes between regular special taxpayers and special taxpayers engaged in hydrocarbon activities

Effective Date of the Reform

In general, the Reform became effective on January 29, 2026, the date on which it was published in the Official Gazette. However, the Reform’s provisions regarding taxation, special contributions and royalty will become effective after sixty (60) consecutive days following January 29, 2026. Furthermore, for Mixed Companies and Production Sharing Agreements that existed before the Reform, the former taxation system will continue to be applied during the 180-day transition period set forth in the Reform for said companies and agreements to be adjusted to the parameters of the Reform.

Repealed legal provisions

The Reform repeals:

• The 2006 Organic Law on the Regularization of Private Participation in the Primary Activities;
  
  
• The 2006 National Assembly Agreement on the Terms and Conditions for the Creation and Functioning of Mixed Companies and the Model Agreement;
  
  
• The 2009 Organic Law Reserving to the State Goods and Services Related to Primary Hydrocarbons Activities;
  
  
• The 2013 Law creating the Special Contribution for Extraordinary and Exorbitant Prices in the International Hydrocarbons Market;
  
  
• The 2007 Decree No. 5.200 with rank, value and force of Law on the Migration to Mixed Companies of the Orinoco Belt Association Agreements; as well as the Risk Exploration and Profit Sharing Agreements;
  
  
• The 2009 National Assembly Agreement approving of the amendment of the First Agreement, numeral 6, letter a, of the Terms and Conditions for the Creation and Functioning of Mixed Companies contained in the Model Agreement for Mixed Companies between Coporación Venezolana del Petróleo, S.A. and the Private Entities.