Peter Howard Wertheim
OGJ Correspondent
RIO DE JANEIRO, May 2 -- Venezuela President Hugo Chavez's government took over that country's last remaining privately run oil fields on May 1, intensifying a decisive struggle with the oil industry over one of the world's most lucrative deposits.
In 2006 Venezuela took control of 32 privately operated oil fields (OGJ Online, Jan. 9, 2006).
Oil Minister Rafael Ramirez declared that the oil fields had reverted to state control just after midnight. The companies ceding control include BP PLC, ConocoPhillips, ExxonMobil Corp., Chevron Corp., Total SA, and Statoil ASA.
These foreign companies have invested more than $17 billion in those projects, now estimated to be worth $30 billion. Venezuela has indicated it may just pay the lesser amount, using oil and tax forgiveness to further reduce the cash payout.
All but ConocoPhillips have agreed in principle to state control and Venezuela has warned that it may expropriate the company's assets if it doesn't follow suit.
Chavez says state-owned Petroleos de Venezuela SA (PDVSA) is assuming at least 60% on each of the Orinoco belt operations, but has invited the companies to stay as minority partners. They have until June 26 to negotiate the terms, including compensation and reduced stakes.
If Chavez persuades the foreign companies to stay, Venezuela will be on track to develop the world's largest known oil reserves and possibly surpass Saudi Arabia as the nation with the most reserves, say energy experts.
But if the multinationals decide to leave, the Orinoco belt region could end up starved of the investment and know-how needed to transform the Orinoco's tar-like crude into marketable oil. Chavez says government firms from China, India, and elsewhere can step in, but industry experts say they doubt they are qualified to face technical challenges.
Petrobras in Venezuela
Some oil companies still need convincing that Venezuela will be a good place to do business. Others believe that Venezuela may still prove enticing because three quarters of the world's proven reserves are already controlled by state monopolies.
Brazil state-owned Petroleo Brasileiro SA (Petrobras) says it is being pressured to sign an exploration contract for the giant Carabobo extra-heavy oil field in the Orinoco belt without knowing how much it will have to pay for the deal.
A company source told OGJ that it had already allocated $1 billion to invest in this field. According to Petrobras, to implement the accord, the Brazilian company must pay a bonus whose value has not been determined after a year of negotiations.
Other sources say the Brazilian company may abandon the project with PDVSA to exploit Carabobo field. Under the accord signed last January, PDVSA will have a 60% stake in the Carabobo project, and Petrobras a 40% stake. The letter of intent also included the establishment of a joint capital company to develop the Carabobo-1 field.
In exchange, Petrobras would have a 60% stake in a planned 200,000 b/d refinery to be built near Recife, capital of Pernambuco state, in northeastern Brazil. This refinery is slated to, in part, refine oil from Carabobo. PDVSA would have the other 40%. The refinery is slated to be built by 2011.
Carabobo field has reserves of 5 billion bbl of oil, said PDVSA Pres. Rafael Ramirez. The Venezuelan company and foreign oil firms, among them Petrobras, are currently trying to make a more precise estimate of the heavy oil reserves in Carabobo and the Orinoco basin. According to the Venezuelan government the Orinoco belt has estimated reserves of 274 billion bbl.
Last January's agreement also included the development of five oil fields in Venezuela, with 40% percent participation by Petrobras and 60% by Venezuela and the creation of a plant in Venezuela for improving extra-heavy oil from the Orinoco belt.
