Continuing upheaval in Venezuela, and in state petroleum giant Pdvsa, is generating concern among foreign companies pursuing investments in that country's oil and gas sector. Pdvsa has its third president this year: Hector Ciavaldini, formerly Pdvsa vice-president of planning and a close ally of President Chávez, succeeds Roberto Mandini, who presided over one of the world's largest oil companies for only 7 months. Mandini on Feb. 2 had replaced Luis Giusti, whom Chávez had targeted for sacking, along with much of the Pdvsa board, during a volatile campaign for the presidency last year. Neither Mandini nor Chávez cited the reasons for the Pdvsa veteran's departure, but it was widely known that a deep split had developed on the Pdvsa board over the direction of the company, with Chávez urging Pdvsa to take a stronger role in helping develop the nation's long-suffering economy.
In later comments, Chávez seemed to suggest that Mandini's role was to serve as a transition away from the former Pdvsa model-pushed by Giusti-of running the state firm like any other multinational major, with an eye to market share and bottom lines: "...Pdvsa is being strengthened and redimensioned and tuned to a new strategy...Since Feb. 2, a process (has been) in place, let's say, of Venezuelanizing Pdvsa-the integration of Pdvsa into the economic and political model of the country. We are removing the character it had in previous years when it was as a state within a state."
That sentiment was reinforced by the Energy and Mines Ministry, which, under Al! Rodr!guez Araque, has taken a dominant role in the country's oil policy-making vs. deferring to Pdvsa, which had been the case during Giusti's tenure: "The country continues to count on a state company that complies with the strategic objective of serving as one of the principal levers in the development of Venezuela's productive factors. Therefore, in addition to its fundamental role of providing fiscal revenue, it must serve as an effective instrument to push the formation of Venezuelan capital, both public and private."
It remains to be seen whether some of that capital, particularly foreign, flees the country as concerns mount over the continuing shakeup at Pdvsa (several other key vice-presidents also stepped down after Mandini resigned) and the evolving constitutional crisis. But Chávez and Rodríguez also are trying to court foreign investment in Venezuela's natural gas and petrochemicals sectors to revive the country's economy. Their insistence on restoring relations with the rest of OPEC was a key to the rounds of production cuts that have rescued oil prices from the cellar, in turn reenergizing Venezuela's economy. So any more-radical measures than those already formulated, especially regarding contracts and terms with foreign oil investors, are unlikely, regardless of campaign rhetoric.
While the direction of one of the world's most important state oil companies remains a question mark, the privatization juggernaut continues to roll on, with other key state oil firms in its path.
Brazil's Mines and Energy Minister Rodolpho Tourinho is considering offering private investors a one-third stake in Petrobras, selling part to a company and another portion through the stock exchange. He told reporters in Rio de Janeiro, "Our oil sector would benefit highly from having a strategic partner, either national or foreign." The National Bank for Social and Economic Development (Bndes) is drafting a sales model that reportedly involves offering ordinary shares and retaining a 51% "golden" share for the government. Last year, Bndes estimated the deal could earn Brazil well over $6 billion.
Tourinho says Petrobras will invest $5 billion in 2000 to increase Brazil's oil production to 1.5 million b/d from 1.1 million b/d by 2002 and natural gas output to 50 million cu m/day. And oil and gas reserves are projected to increase to 25 billion bbl boe by 2002 from 17 billion bbl boe. Tourinho said Petrobras will fund $4 billion of the cost on its own, with $1 billion potentially coming from private partners or lending organizations. Natural gas supply is a vital component of the plan to increase Brazil's firm electricity generating capacity by about 19,000 MW. Analysts told OGJ the oil production figure of 1.5 million b/d was conservative, given the number of offshore concessions to be explored by the private sector.
Meanwhile, a Brazilian oil delegation has embarked on an international tour to promote plans to expand Petrobras unit Braspetro's deepwater activities and seek financial support for Campos basin projects. The delegation includes Tourinho, Petrobras Pres. Philippe Reichstul, and Braspetro Pres. Jorge Camargo.
Planned stops include Angola, Nigeria, and Japan.
The future of Indonesian state oil firm Pertamina hangs in the balance as legislators continue to hammer out a proposed demonopolization bill, scheduled for a vote Sept. 6, that would strip the firm of most of its privileges and strongholds (OGJ, Aug. 23, 1999, Newsletter). Indonesia's House of Representatives and the central government are still torn over certain key issues regarding Pertamina's future, says one member of a special team working on the bill, who also doesn't have much hope in meeting the September deadline due to the bill's complexities. The House, he says, strongly opposes the government's push to liberalize the petroleum price mechanism-thus allowing fuel producers to set prices-fearing that oil products prices would soar out of control. In addition, legislators are at odds about Pertamina's transition period to become an independent company with limited liability. The House feels a 5-year span should be allowed, while the central government believes 2 years is sufficient, with flexibility added to allow the firm to operate in certain areas for an additional 5 years.
Four units of Algerian state oil company Sonatrach are to be partially privatized this month. A 51% stake in each subsidiary will be offered to domestic and foreign private investors on the Algiers stock exchange. The four are Entgp (Co. for Great Petroleum Works), Ensp (a drilling subsidiary), Enageo (Geophysical Prospecting Co.) and Co. for Petroleum Works. It's part of a privatization push in Algeria targeting 17 firms in a number of business sectors.
The oil industry's biggest merger deals are moving towards closure.
The shareholders of both BP Amoco and ARCO have voted in favor of BP Amoco's takeover bid, so more post-merger cutbacks loom. BP Amoco CEO John Browne said, "Our discussions with the various regulatory authorities areellipsemoving constructively ahead (see related story, p. 26), and our integration plan is ready to be implemented. All this gives me great confidence that we can meet our target to complete the deal before the end of the year."
ARCO has already identified ways to slash its $4 billion/year cash costs by $500 million/year, while BP Amoco has found $1 billion in savings from combining the two companies. "Overall," said Browne, "$700 million of savings would come from the upstream, with around half of that coming from a tight focusing of the exploration program. (The remaining) $300 million would come from synergies in the downstream business and from the rationalization of corporate headquarters. These are hard synergies. The $1 billion number doesn't include any savings from the extension of our best practice or from improved revenues. In terms of staff numbers...we expect to see a reduction of around 2,000 posts."
Meanwhile, European Union authorities appear to be moving toward approval of both the BP Amoco-ARCO and Exxon-Mobil combines. The European Commission is no longer concerned about the mergers' effects in the upstream sector, an EC official told Reuters recently. Worries over the effects of the combines in refining and marketing have not been fully allayed, but the companies have made concessions. The biggest stumbling block is an existing European R&M joint venture of BP Amoco and Mobil, but BP Amoco has reportedly expressed interest in buying out Mobil's 30% stake in the JV. The EC is expected to give its verdict on the two unions on Oct. 12.
In the U.S., Exxon and Mobil have begun early settlement talks with the Federal Trade Commission, reports the Wall Street Journal.
The TotalFina-Elf takeover struggle has settled into a propaganda war, as both sides strive to make the most impressive announcement ahead of the planned expiry of the opposing bids on Oct. 15. Nevertheless, some analysts see the combine as an inevitability (see story, p. 26).
TotalFina signed an agreement with India's Tata Electric and Gas Authority of India to import 3 million metric tons/year of LNG to Maharashtra to supply the Trombay power station. And Elf confirmed its decision to monetize 15.5% of shares in its Sanofi-Synthelabo pharmaceuticals venture with L'Oreal, in a bid to strengthen its balance sheet for the showdown vote.
Elf has also secured an exploration block off Brazil and made another oil strike on its prolific Block 17 off Angola. Elf won operatorship and a 35% interest in Brazil's Block BC-2 in the deepwater Campos basin. Partners in the joint venture with Petrobras are Royal Dutch/Shell and Enterprise Oil. Off Angola, the Orquidea-1 oil find in 1,197 m of water is the sixth strike on the block, says Elf. The operator did not disclose test results.
Germany may get a new merged energy major, with diversified industrial firms Veba and Viag negotiating a combination. The Bavarian finance ministry-a 25.1% shareholder in Viag-confirmed to the European press that talks were at an advanced stage. The union would reportedly create the biggest electricity utility in Germany and the second largest European utility, after France's EDF.
