The Other Side of the Business Plan
The Business Plan Under Venezuela's New Hydrocarbons Regime
Under Venezuela's new hydrocarbons regime, the Business Plan is no longer just a business plan.
The new framework has taken a familiar concept and given it a distinctly different role in an oil project. The Business Plan now does more than project investment, production, and returns. It carries legal and tax consequences: it records commitments to the State, provides a benchmark for measuring the Project's progress, and forms part of the foundation on which its economic and tax treatment is determined.
The starting point is still the Project's economics: investment, production, costs, infrastructure, reservoir conditions, and expected returns. But that information no longer stays inside the company. It becomes relevant to the State under a model that links the Project's economics to the State's economic participation, what the industry refers to as Government Take.
That is the first real shift. The Business Plan is no longer simply an internal planning document. From the outset, it becomes part of the Project's economic and tax analysis. The particular economics of each Project are tied to its tax treatment, and the information set out in the Plan becomes a reference point for the State.
Its relevance does not end with the Plan's initial approval. If the Project's circumstances change, the economics documented at the outset may later become critical to explaining what changed and supporting the impact of those changes.
The Plan therefore has to be prepared with more than one moment in mind. At the beginning, it helps frame the Project's economics. Years later, those same economics may be the baseline for explaining how and why the Project changed. The Plan is no longer just a planning exercise. It becomes part of the Project's legal and fiscal architecture.
1. Project Economics at the Core of the New Tax Framework
The Law Reforming the Organic Hydrocarbons Law, published in Extraordinary Official Gazette No. 6,978 dated January 29, 2026 (the “Law”), goes beyond recognizing the economic reality of each Project. It builds that reality into the tax framework. Investment requirements, viability, and economic and financial equilibrium are no longer matters left entirely to the Operator. The regime is not one-size-fits-all. It requires the specific economics of each Project to be examined and supported from the outset, and the Business Plan is one of the principal tools for doing so.
For the Operator, the practical consequence is clear. Preparing the Business Plan and structuring the Project's tax position are no longer separate exercises. The economic model, the investment and production commitments, and the applicable tax treatment have to be aligned from the first draft.
2. A Business Plan Tailored to the Oil Regime
The Regulations to the Organic Hydrocarbons Law (the “Regulations”) define the Business Plan as a technical-financial document submitted by the Operator and approved by the Ministry. But they also give it a weight that no conventional business plan carries.
It becomes the Project's governing document, bringing together its strategic, operational, and financial objectives, along with capital investment, operating expenditures, and schedules. And under the Regulations, compliance is not simply expected: it is a substantial obligation of the Operator. Not a best practice. An obligation.
That raises an important question: what does compliance actually mean? The Plan commits the Operator to a program of activities directed toward a result, not to spending a particular amount for its own sake. If the Operator achieves the committed result with less capital because of better technology or greater efficiency, that outcome should be assessed in light of the Plan's purpose. We return to this point below when we discuss how compliance is measured.
Article 26 of the Regulations gives that obligation more substance. The Plan's Descriptive Report constitutes the Operator's investment commitment to the State and becomes the benchmark for measuring compliance with the Primary Activity. It also puts in writing the volumetric commitment and the activities required to achieve the purpose for which the rights were granted.
The stakes are both legal and tax. How the Plan describes investment, production, and Project economics can shape the tax treatment established at the outset and the way that treatment is maintained or revisited later. For that reason, the line between a projection and a commitment has to be clear from the drafting stage. An investment obligation is not the same as a capital estimate, and a volumetric commitment does not mean guaranteeing every barrel on the projected production curve.
3. Tax Flexibility Built Around the Project
The new regime starts from a simple idea: different Projects have different economics, and the tax burden can reflect those differences.
A Project classified as Greenfield, for example, is subject to a combined Royalty and Integrated Hydrocarbons Tax Aggregate Rate of 20% and an Income Tax rate of 34%. The classification turns on the objective characteristics of the field and the Project. The Plan can document and support the characteristics on which that classification rests, but it does not determine the classification.
The 34% Income Tax rate applies expressly to Projects already classified as Greenfield. It is a separate rule from the Income Tax reduction mechanism for economic equilibrium set out in the first paragraph of Article 45 of the Regulations.
The Business Plan then becomes part of the tax evaluation process. Under Article 43 of the Regulations, the Ministry reviews the Plan and applies the technical-economic criteria set out in the Law to classify the Project and assign the Royalty and Integrated Hydrocarbons Tax rates.
The same provision allows reductions of up to five percentage points for offshore Projects and for certain Projects that incorporate transformation, upgrading, or refining facilities into their Plan. Article 44 of the Regulations then provides for the specific rates to be incorporated into the Terms for the Development of Primary Activities or the applicable contract.
That flexibility does not make taxes freely negotiable. It does, however, allow a Project's tax treatment to be tailored, within the limits of the regime, to its type, characteristics, and economics.
The tax question is therefore not simply what rate the law provides. It is also what tax burden a particular Project can bear while remaining economically viable over its useful life. In that sense, the Business Plan is relevant from the moment the Project is structured and can remain relevant throughout its life.
4. Protecting the Project's Economic and Financial Equilibrium
That flexibility has a clear statutory foundation. The Law itself requires the economic and financial equilibrium of certain Projects to be preserved, giving the Operator a legal basis to seek protection when later changes materially alter the economics on which the Project was structured.
The key provision is Article 26 of the Law, as amended in January 2026. For contracts covering primary activities entered into by the operators referred to in items 2 and 3 of Article 23 of the Law, the economic and financial equilibrium originally agreed must be preserved throughout the life of the contract. The protection also extends to any later benefit that improves the original economic terms.
Article 26 of the Law also provides a mechanism for restoring that balance. If later changes to the legal, tax, regulatory, or contractual framework have a negative and substantial effect on the Project's economics, the State will act through authority delegated to the Ministry responsible for hydrocarbons to make the adjustments needed to restore that balance. Those adjustments may involve royalties, taxes, tariffs, contract terms, economic conditions, or compensation mechanisms, with the objective of returning the Operator to the economic position it would have occupied had the changes not occurred.
The protection under Article 26 of the Law has clear limits, and those limits matter when the Business Plan is prepared. It addresses changes in the legal, tax, regulatory, or contractual framework; it does not guarantee profitability or transfer geological, operational, or price risk to the State. Those risks remain with the Operator, which conducts the activities at its sole cost and for its own account and risk.
The same concept carries through to the Law's tax provisions. Articles 51 and 56 allow the Royalty and the Integrated Hydrocarbons Tax rate to be adjusted, within the statutory limits, when necessary to preserve the Project's economic equilibrium. Article 58, applying the criteria in Article 51, permits an Income Tax rate reduction for the same purpose. Articles 45 and 46 of the Regulations set out the procedures for requesting those adjustments.
For the Operator, the practical challenge is largely one of evidence. It must be possible to show what the Project's economics were at the outset, what changed, and how those changes affected the Project. The natural baseline for that analysis is the economics documented in the Business Plan.
5. The Business Plan and the Path to Bankability
A Project's economic viability is not only a matter of its relationship with the State. Many Projects developed under the new regime will require substantial investment and, in many cases, third-party capital or financing.
Attracting that capital takes more than reserves, an operator, and a legal instrument authorizing development of the field. The Project must also be financeable. Its economics have to support the investment, the tax burden, debt service, and the returns expected by capital providers.
That is where the Business Plan also takes on a financial dimension. Projected investment, the production curve, costs, infrastructure, schedules, and the tax burden all form part of the economics that an investor or lender must understand before committing capital.
The Plan, of course, does not make a Project bankable by itself. Bankability will also depend on the contractual structure, available cash flows, security, offtake arrangements, and regulatory risk. But weak Project economics will rarely support a strong financing structure. That is why the new regime's tax flexibility can matter well beyond taxation: it can directly affect the Project's ability to attract the capital needed for development.
6. Build the Record Before You Need It
The Business Plan is more than another set of projections. Once filed with the State, it becomes part of the Project's record and carries commitments that remain relevant throughout execution. That makes the distinction between projections and commitments especially important. An operational target, for example, should not be treated as an absolute obligation when its achievement depends on geology, market conditions, or other factors beyond the Operator's control.
The question, then, is not simply how much the Operator expects to invest, but how much of that investment is being committed to the State. The goal is not to present the most attractive case on paper. It is to build Project economics that are realistic, sustainable, and defensible.
That distinction becomes even more important as the Project evolves. Costs move. Well productivity can change. Prices and technology shift, and so can the legal and tax environment. Even the reservoir may perform differently from what was originally expected. If the Operator later needs to show that the Project's economics have changed, it will need a credible baseline. In large part, that baseline will be the economics originally documented in the Plan.
A Plan that looks reasonable today may become, years later, the main reference point for explaining how the Project's economics changed. Preparing it properly is therefore not only about defining the Project at the outset. It is also about building the record that may later be needed to support its economics.
7. Measuring Performance: Investment and Production Under the Business Plan
The same document that helps the Operator support the Project's tax economics is also used to measure performance against the commitments in the Plan. That is the other side of the Business Plan.
How Compliance Is Measured
Resolution No. 024/2026 (the “Resolution”) sets out how that compliance is measured. Article 29 provides for verification milestones tied to the Plan's investment commitments and to the continued applicability of the rates assigned to the Project. If the Project deviates from those commitments, the assigned rates may be subject to reversion.
Articles 33 and 34 add two separate tests. Under Article 33, a negative investment deviation of 15% or more from the approved Plan prevents certain variations tied to the Project's economics from being used as a qualifying factor in a rate review. The rate is not automatically lost, but one route to qualification is closed. Article 34 looks at production: meeting at least 90% of the approved production profile is one of the criteria that may support a request for an adjustment. The Resolution also considers, separately, whether the Operator has achieved that same level of compliance in other Projects.
Why Efficiency Matters
Those rules point to a broader question: what should matter most when performance is assessed? In our view, production best captures both the State's economic interest and the logic of the regime. The focus should be on whether the Project meets its committed volumetric targets and does so efficiently. Investment remains essential, but it is the means to that result, not the result itself.
Several provisions of the Law point in that direction. Under Article 41, the Operator's remuneration in contracts for primary activities is tied either to hydrocarbons measured for fiscal purposes or to another form of participation in profits. Royalty is assessed on volumes extracted and not reinjected. For extraction activities, the Integrated Hydrocarbons Tax uses the value of those hydrocarbons as gross income. Articles 51 and 56 also require consideration of the Project's economics and the need to preserve its international competitiveness. The practical result is that higher production can increase the State's fiscal take and, when achieved at lower cost, may also produce higher taxable income for Income Tax purposes.
Efficiency also appears elsewhere in the Law as an express requirement. Article 36, although directed to a specific case involving technical and operational management in mixed companies, measures efficiency by reference to direct production cost per barrel under comparable circumstances. That matters because it shows that the regime looks not only at whether production is achieved, but also at how efficiently it is achieved.
Taken as a whole, that framework points in the same direction. Investment is essential, but it is ultimately deployed to deliver production. An Operator that meets or exceeds its committed production profile with less investment than projected may have drilled more successfully, adopted better technology, or optimized its supply chain. In that setting, lower spending reflects efficiency, not necessarily underperformance. It should therefore be distinguished from a case in which lower investment is accompanied by a production shortfall.
An important part of the value an Operator brings to a Project is its ability to deliver production more efficiently. That may come from better drilling and completion technologies, enhanced recovery methods, digital monitoring, or procurement and logistics practices that reduce time and cost. A compliance test focused only on how much was spent risks discounting that value.
The case is even clearer when the Operator exceeds the committed production profile. If better technology or operating practices allow the Project to produce more than expected, the State benefits from the additional economic activity and the fiscal revenues generated by that production and by the Project's results. In that situation, lower-than-projected investment should not, by itself, overshadow stronger operating performance.
How to Assess an Investment Deviation
An investment-deviation threshold, if applied in isolation, can distort the analysis. It risks placing too much weight on preserving a spending figure and too little on how efficiently the Project was executed. By contrast, when lower investment is accompanied by a shortfall against the production profile, the deviation becomes more significant in assessing the Project's execution.
In our view, Articles 33 and 34 of the Resolution should be understood together. An investment deviation should not be viewed as a stand-alone number. Its significance depends on why it occurred and on what it meant for the volumetric commitment. The Operator should be able to show that lower investment resulted from greater efficiency and that the approved production profile was still achieved. This does not weaken State oversight. It simply distinguishes between a deviation that signals noncompliance and one that reflects more efficient execution, while keeping the focus on what ultimately drives the State's economic participation: production, the barrels measured for fiscal purposes, and the income they generate.
Article 25 of the Law reinforces the same idea from a different angle. It allows rights to be revoked when noncompliance with substantial obligations prevents achievement of the purpose for which those rights were transferred. That materiality standard supports looking beyond the existence of a deviation and asking what practical effect the noncompliance had on the purpose the rights were intended to serve.
That dual role is what makes the Business Plan different under the new regime. It is both an economic case for the Project and a record against which its execution may later be assessed. The Operator therefore has to think beyond the tax treatment available at the outset and ask what the Plan may need to demonstrate years later if that treatment must be preserved, revisited, or adjusted. Properly prepared, the Plan does more than launch the Project. It becomes the economic record that helps explain its performance, support its financing, measure compliance, and, when necessary, defend the economics on which the Project was built.
