Regulations of the Organic Hydrocarbons Law

REGULATORY REPORT

DECREE — Regulations of the Organic Hydrocarbons Law

(Official Gazette No. 7,052, Decree 5,381)

(Official Gazette No. 43,410)

STANDARD 002/2026

Rules for the Determination, Declaration and Payment of the Integrated Hydrocarbons Tax Applicable to Upgrading, Refining, Industrialization, and Commercialization Activities, as well as to Specialized Oilfield Services

STANDARD 024/2026

Rules for the Determination, Declaration and Payment of the Integrated Hydrocarbons Tax Applicable to public or private legal entities that carry out primary activities within the scope of the Organic Hydrocarbons Law

(Official Gazette No. 43,410)

The recent enactment of the new Regulations of the Organic Hydrocarbons Law, together with Standard No. 002/2026 “Rules for the Determination, Declaration and Payment of the Integrated Hydrocarbons Tax Applicable to Upgrading, Refining, Industrialization, and Commercialization Activities, as well as to Specialized Oilfield Services” and Standard 024/2026 “Rules for the Determination, Declaration and Payment of the Royalty and the Integrated Hydrocarbons Tax Applicable to public or private legal entities carrying out primary activities within the scope of the Organic Hydrocarbons Law”, represent a significant advance in strengthening the regulatory framework applicable to Venezuela's hydrocarbons sector. These instruments respond to the industry's need for greater regulatory clarity, legal certainty, and operational predictability, with the aim of fostering a more favorable environment for attracting national and international investment, incorporating new technologies, and sustainably increasing oil production.

In this context, the purpose of the Regulations is to establish the technical, operational, fiscal, administrative, and control rules necessary for the application of the Organic Hydrocarbons Law, comprehensively regulating the industry's entire value chain, from exploration and extraction activities to the gathering, transportation, storage, processing, upgrading, refining, industrialization, commercialization, conservation, and integral use of hydrocarbons, including the extraction of gaseous hydrocarbons associated with petroleum.

For their part, the Standards are intended to develop the regime applicable to the determination, assessment, and payment procedure of the integrated hydrocarbons tax and royalties corresponding to upgrading, refining, industrialization, commercialization, and oilfield services activities. Together, both instruments constitute fundamental pillars for facilitating the efficient execution of investment projects, strengthening the sector's competitiveness, and providing a modern regulatory framework that drives the development of Venezuela's oil industry.

1. General Provisions

With regard to guiding principles, the Regulations reaffirm legality, transparency, good faith, legal certainty, and environmental protection as the pillars of the relationship between the State and operators. They also more precisely delineate the Ministry's regulatory functions, reserving to it the issuance of Applicable Technical Standards and supervisory powers, while recognizing that technical, operational, and commercial execution falls to the holders of the rights granted. Likewise, they incorporate the principle of economic-financial equilibrium, aimed at preserving the stability of contractual relationships through compensatory mechanisms when substantial alterations occur.

In addition, the Regulations address obligations related to national content, State oversight, and environmental management, requiring the incorporation of Venezuelan goods, services, and talent into projects. They also provide for the Ministry of People's Power for Hydrocarbons to have permanent access to facilities and information, and impose duties of prevention and remediation of environmental damage. Furthermore, they establish an administrative procedure, solely for obtaining prior ministerial authorizations, for corporate and registry acts, to be processed through the Single System for Procedures, Authorizations, and Permits (SUTAP), incorporating defined deadlines intended to speed up the sector's administrative procedures.

2. Primary Activities

Title II of the Regulations comprehensively develops the regime applicable to primary hydrocarbons activities, establishing a more structured framework for the exploration, extraction, and oil-revenue administration phases.

On exploration matters, the requirements for granting rights are set out, including the submission of business plans, technical studies, and investment models, as well as the delimitation of exploration areas, minimum exploration programs, performance bonds, and the procedure for notifying and formalizing discoveries and reserves. Mechanisms for the unitization of shared reservoirs and geospatial information standards are also incorporated, strengthening the planning and technical control of exploration activities.

A notable aspect regarding discoveries is the treatment given to gas reservoirs. The Regulations grant Operating Companies a preferential right to apply for a non-associated gas exploitation license when a discovery involves this resource. This provision constitutes an incentive for investors, as it expands their possibilities for participating in new projects that broaden their investment and development opportunities in the sector.

With respect to unitization, it is stipulated that where a single reservoir extends across areas granted to different rights- or contract-holders, the parties must enter into an agreement establishing the terms and conditions for the reservoir's unitized exploitation.

This provision presents both opportunities and challenges for investors. On the favorable side, the Regulations promote cooperation among Operating Companies, allowing for the joint development of shared reservoirs and fostering more efficient exploitation of the areas. However, they also introduce elements that may create operational uncertainty. In particular, a six (6)-month term is established for negotiating and executing a Unitization Agreement, which could require adjustments to previously approved business plans and development strategies. Another relevant aspect concerns the expiration of that term: consequently, if it lapses without the Operating Companies having executed the agreement, the Ministry of People's Power will unilaterally set the exploitation conditions.

With regard to extraction activities, the Regulations consolidate a planning and oversight scheme based on the approval of business, work, and extraction plans, imposing technical obligations on reservoir management, well operations, and the execution of secondary and enhanced recovery projects. They also introduce specific provisions for the use of associated gas, promoting its measurement, efficient use, and loss reduction, while recognizing the upgrading of heavy and extra-heavy crude oil as an activity linked to primary operations, allowing third-party participation through service contracts with Operating Companies.

Finally, the Regulations redefine the oil-revenue regime through a fiscal scheme that integrates the Royalty and the Integrated Hydrocarbons Tax (IIH), establishing criteria for their determination as well as the possibility of adjusting the applicable rates according to each project's economic characteristics. They likewise regulate payment methods and the registration and reporting obligations of Operating Companies, and incorporate a procedure for the voluntary relinquishment of primary-activity areas, granting greater predictability and flexibility to the management of hydrocarbons exploration and production projects.

3. Fiscal Matters

Regarding the tax regime applicable to projects, the Regulations provide for the incorporation of an Aggregate Rate, made up of the Royalty and the Integrated Hydrocarbons Tax (IIH). This scheme establishes a tax differentiation based on the nature and development stage of the project, seeking to align the tax burden with its economic and operational characteristics.

Under the Regulations, Greenfield projects (fields under development or with limited pre-existing infrastructure) will be subject to an aggregate rate of twenty percent (20%), while projects associated with extra-heavy crude oil, including DCO, DICOM, or upgraded crudes, will bear a twenty-five percent (25%) rate. Developed fields or fields with dismantled infrastructure, i.e., Brownfield, will have a rate of thirty percent (30%) when not in production and thirty-five percent (35%) when in production.

Additionally, tax-incentive mechanisms are incorporated through reductions to the applicable aggregate rate. In this regard, offshore projects may benefit from a reduction of up to five percentage points (5%), as may projects that contemplate the construction or expansion of transformation, upgrading, or refining facilities integrated into the approved Business Plan.

Likewise, for Greenfield projects an Income Tax (ISLR) rate of thirty-four percent (34%) is established, in place of the fifty percent (50%) set forth in the Income Tax Law, together with the possibility of applying accelerated depreciation models over a period of up to seven (7) years. These provisions represent a significant factor in the economic evaluation of new projects, introducing tax-differentiation criteria and incentives aimed at promoting investment in strategic areas of the hydrocarbons industry.

4. Commercialization

Title V of the Regulations develops the framework for commercialization activities, in both the domestic market and foreign trade, establishing mechanisms aimed at strengthening the planning, oversight, and security of hydrocarbons supply.

With regard to domestic commercialization, the Regulations define supply, storage, transportation, distribution, and retail sale as essential components of the value chain, subjecting them to permits and regulatory controls by the Ministry of People's Power for Hydrocarbons. They also incorporate the concept of the National Hydrocarbons Balance as a planning tool, used to identify domestic-market needs, exportable surpluses, and possible supply gaps, allowing for the adoption of contingency measures and prioritization toward sectors deemed strategic.

A significant aspect is the regulation of the infrastructure and logistics associated with commercialization, establishing conditions of access to storage facilities, traceability obligations in transportation, and treating distribution and retail sale as public-interest services. The Regulations likewise grant the Ministry of People's Power for Hydrocarbons the power to set prices, transportation tariffs, and commercialization margins, reinforcing the State's role in the economic organization of these activities.

As for foreign trade, the Regulations establish specific requirements for the export and import of hydrocarbons, including the obligation of Operating Companies to directly procure the diluents needed to commercialize heavy and extra-heavy crude oil. They also incorporate the obligation to submit annual Commercialization Plans, subject to monitoring and possible administrative intervention for reasons of national interest, guaranteeing compensation mechanisms when such measures affect the investor's operations.

5. Sanctioning Regime

The Regulations establish an administrative sanctioning procedure with formal guarantees for the parties involved, including notice of the initiation of proceedings, the opportunity to present a defense and offer evidence, and the issuance of a legal recommendation prior to the ministerial decision. Financial penalties are structured according to the severity of the conduct, with infractions classified as minor, serious, or very serious, and fines that may reach up to fifty thousand (50,000) times the official exchange rate of the highest-value currency published by the Central Bank of Venezuela.

Among the conduct sanctioned most severely are those related to tampering with fiscal metering systems, undeclared production, alteration of technical information, diversion of fuels, significant environmental damage, and operations without the corresponding authorizations. These infractions can result not only in financial penalties but also in the suspension of activities, contract rescission, and restrictions on contracting with the State.

The Regulations also incorporate specific grounds for revoking rights linked to primary activities, refining licenses, and commercialization permits, associated mainly with failure to comply with business plans, tax obligations, operational commitments, environmental standards, and industrial safety requirements. In particular, enhanced liability is established for Operating Companies, which must incorporate liability clauses and insurance mechanisms covering damages arising from their own operations and from activities carried out by contractor companies.

6. About the Standards

Official Gazette No. 43,410 incorporates two Standards issued by the Ministry of People's Power for Hydrocarbons, which complement the new Regulations of the Organic Hydrocarbons Law and develop fundamental aspects related to the granting of rights, the oil tax regime, and the tax obligations applicable to the industry's various segments.

The Standard on the Royalty and Integrated Hydrocarbons Tax (IIH) applicable to primary activities develops the fiscal regime provided for in the Regulations, establishing the parameters under which the rates applicable to oil projects may be reviewed and adjusted. Criteria considered include the project's technical complexity, significant variations in investment levels, recovery-factor performance, and international competitiveness conditions. This mechanism introduces greater fiscal flexibility, allowing Operating Companies to request adjustments where economic or operational circumstances affect the project's viability.

Likewise, the Standards provide for tax incentives linked to operational performance, such as projects involving secondary or enhanced recovery, the incorporation of upgrading plants, outstanding compliance with the approved Business Plan, and a strong historical track record on the part of the operator. They also regulate the mechanisms for paying the Royalty and the IIH, both in cash and in kind, establishing reporting, monitoring, and control obligations to ensure the proper administration of oil revenues.

The Official Gazette also incorporates the Standard governing the Integrated Hydrocarbons Tax applicable to downstream activities, including upgrading, refining, industrialization, commercialization, and specialized oilfield services.

Finally, two additional clarifications stand out: first, adjustment of the aforementioned rates requires a favorable opinion from the Ministry of Finance; and second, under the framework set out in the Standards, there is a limit allowing a maximum of three (3) rate reviews over the course of the project's duration.

Together, these provisions reflect the intent of the new regulatory framework to establish more detailed rules for investment, operation, and taxation in the hydrocarbons sector, providing greater predictability while maintaining broad regulatory and oversight powers for the State.

7. Implications for Oilfield Service Companies

A particularly relevant aspect of the Resolution on the Integrated Hydrocarbons Tax applicable to the downstream sector is the express inclusion of service companies as taxpayers subject to the tax. The rule sets a rate of five percent (5%) for those providing specialized services to Operating Companies, as well as for the construction of infrastructure works associated with hydrocarbons production and the supply of goods across the various phases of the value chain and the industry's core processes—a broad scope of application that reaches drilling, construction, maintenance, procurement, and technical-services contractors.

The tax base is determined per taxable fiscal year based on financial statements expressed in the legal-tender currency, and payment must be made within the five (5) business days following notification of the assessment forms, with late-payment interest accruing under the Organic Tax Code in the event of delay. In return, taxpayers subject to the tax benefit from the exemption provided under Article 59 of the Organic Hydrocarbons Law with respect to the sector's special taxes and contributions, a benefit the Resolution reserves solely for Operating Companies and the taxpayers it defines. Specifically, these exemptions would apply to the following: (i) the Tax on Large Estates, (ii) the special contribution under the Organic Law on Science, Technology and Innovation, (iii) the special contribution under the Organic Law on Sports, Physical Activity and Physical Education, (iv) the special contribution under the Organic Drug Law, and (v) the contribution under the Law for the Protection of Social Security Pensions Against the Imperialist Bloc.

Accordingly, service companies are advised to assess the impact of this new charge on their margins and pricing structures, review the tax and adjustment clauses of their current and under-negotiation contracts with Operating Companies, and quantify the net effect between the 5% rate on their revenues and the benefit of the exemption from the special contributions that previously taxed their activity.

8. Additional Considerations

A. Power Generation: Power generation is introduced as a strategic element to ensure the operational continuity of Primary Activities, establishing the obligation of Operating Companies to secure a reliable and sufficient electricity supply through self-generation schemes or third-party contracting.

The creation of specialized companies dedicated to the generation, transformation, transmission, internal distribution, commercialization, or supply of electricity for facilities linked to the hydrocarbons sector is permitted.

However, these projects will be subject to prior authorization from the Ministry of People's Power for Hydrocarbons, which will regulate, through Applicable Technical Standards, matters related to their design, operation, interconnection, use of energy resources, contracting, and associated infrastructure.

B. International Arbitration: The Regulations incorporate provisions on dispute resolution, establishing that conflicts that cannot be resolved through direct negotiation or amicable settlement may be submitted to the jurisdiction of the courts of the Republic or to alternative dispute-resolution mechanisms, as agreed by the parties.

This provision aligns with the reform of the Organic Hydrocarbons Law, in recognizing the possibility of incorporating alternative mechanisms for resolving disputes within the sector's contractual relationships. Although the specific guidelines to be developed by the Ministry of People's Power for Hydrocarbons have not yet been defined, this regulatory provision represents a positive element for investors, as it opens the possibility of establishing dispute-resolution mechanisms that provide greater predictability and legal certainty in the contracts to be executed.

09 Conclusions

The enactment of the new Regulations of the Organic Hydrocarbons Law, the Standard for the Determination, Declaration and Payment of the Integrated Hydrocarbons Tax Applicable to Upgrading, Refining, Industrialization, and Commercialization Activities, as well as to Specialized Oilfield Services, and the Standard for the Determination, Declaration and Payment of the Integrated Hydrocarbons Tax Applicable to public or private legal entities carrying out primary activities within the scope of the Organic Hydrocarbons Law, issued by the Ministry of People's Power for Hydrocarbons, represent a significant change in the regulatory structure applicable to Venezuela's energy sector, establishing a more developed regulatory framework for hydrocarbons exploration, production, commercialization, and taxation activities.

The new regime introduces elements aimed at strengthening legal certainty, project planning, and investor participation, through clearer procedures for the granting of rights, the execution of primary activities, the determination of tax obligations, and the regulation of the hydrocarbons value chain. It also incorporates tax-differentiation mechanisms, incentives associated with the nature of projects, and technical criteria for the review of rates, aspects relevant to the economic and financial evaluation of new investments.

Nevertheless, the Regulations also reaffirm an active role for the State in regulation, oversight, and enforcement, granting the Ministry of People's Power for Hydrocarbons broad authority over plan approval, operational control, the determination of applicable conditions, and the application of sanctioning measures. Investors and operators must therefore conduct a detailed analysis of the new regulatory framework, adapting their contractual structures, business models, and operating strategies to ensure regulatory compliance and maximize the opportunities arising from this new scenario.

In this context, the correct interpretation and application of the provisions contained in the Regulations and their complementary instruments will be a determining factor for the sustainable development of hydrocarbons projects in Venezuela, particularly in an environment seeking to promote the incorporation of capital, technology, and technical capabilities for the recovery and expansion of the national industry.

If you have any questions or concerns regarding the above report, please do not hesitate to contact Juan Carlos Andrade, Rodolfo Belloso, Leopoldo Cadenas, Santiago R. Parra or Jorge E. Paúl at the emails jcandrade@lec.com.ve, rbelloso@lec.com.ve, lcc@lec.com.ve, sparra@lec.com.ve o jpaul@lec.com.ve.