Chavez's company seizure threatens Carabobo bids

Bidding in Venezuela's Carabobo tender—already a matter of concern to some companies—could face further problems following the government's seizure of a unit of American food giant Cargill.

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, Mar. 9 -- Bidding in Venezuela's Carabobo tender—already a matter of concern to some companies—could face further problems following the government's seizure of a unit of American food giant Cargill.

Altogether, 19 international oil companies (IOCs) are participating in the bid to produce at least 400,000 b/d of oil in seven areas of the Carabobo region of the Orinoco belt, and build three new heavy crude 200,000-b/d upgraders in the Soledad municipality of Anzoategui state.
Interested IOCs include BP PLC, Chevron Corp., China National Petroleum Corp., Sinopec, Ecopetrol, Eni SPA, Galp, Inpex, Jogmec, Mitsubishi, ONGC, Petrobras, Petronas, Total SA, and Venezuela's own Suelopetrol, along with a host of Russian firms.

Venezuelan Energy Minister Rafael Ramirez last week said that a consortium of Russian companies comprised of Rosneft, Gazprom, Lukoil, Surgutneftegas, and TNK-BP is eventually expected to produce 1 million b/d of Orinoco oil in collaboration with PDVSA.

The interest of IOCs is said to be driven by the Orinoco's plentiful reserves with little exploration risk, expectations of a medium-term oil price recovery, and the possibility of producing high-quality oil with new upgrading technology.

"We're still reviewing the numbers, but the offer appears quite attractive," said one oil company executive in December, while another said: "Venezuela is perceived as a high-risk environment."

Apart from the normal risks of exploration and development, the Venezuelan risk includes resource nationalism aimed at boosting government revenues by hiking royalties and taxes, as well as nationalizing four multibillion dollar heavy crude upgraders.

Such Chavez-decreed nationalization of oil company assets led ConocoPhillips and Exxon Mobil to leave Venezuela and file arbitration suits for expropriation of their holdings in the Orinoco region.

In 2008 Venezuela collected 82.432 billion bolivars ($38.482 billion) in taxes and royalties from the oil sector, up nearly 20% from the 71.583 trillion bolivars ($33.417 billion) collected in 2007.

Other conflicts surface
Even before the latest takeover, however, reports said that Venezuela's Carabobo tender could be facing trouble due to delays and conflicts among bidding firms and the country's oil ministry.

According to one source, "there was a big meeting or confrontation between the bidding IOCs and the minister on Mar, 5" with the companies saying they could not accept the current terms of the tender because of market conditions.

"The threat, implied or explicit, is that they would not bid if he did not make some concessions on the three main conditions for bidders including financing, percentage of recovery, and the final destination of the oil," the source told BNAmericas.

But Chavez, whose country already is suffering from the global downturn in oil prices, could not have chosen a worse time to seize a major international business than just ahead of a licensing round aimed at boosting his nation's oil production.

"Two years ago, Chavez nationalized the oil industry," said US Rep. Connie Mack (R-Fla.), condemning President Hugo Chavez and linking the nationalization to failed policies in the oil and gas industry. "Due to the falling price of oil, he is now suffering from the weight of his own socialist economy and is scrambling to keep his country's economy afloat."

Contact Eric Watkins at hippalus@yahoo.com.

More in General Interest