Venezuela to nationalize Orinoco oil operations

Jan. 10, 2007
Venezuela's President Hugo Chavez announced a series of measures Jan. 8 to change the face of the country's economy and lead it further onto a socialist path.

Peter Howard Wertheim
OGJ Correspondent

RIO DE JANEIRO, Jan. 10 -- Venezuela's President Hugo Chavez announced a series of measures Jan. 8 to change the face of the country's economy and lead it further onto a socialist path.

A series of "special powers" were requested from congress to reform Venezuela's commercial legislation, and Chavez promised to end the Central Bank's autonomy and to nationalize the Orinoco belt's extra-heavy oil operations.

Because the government's party controls virtually 100% of the congress, there is little doubt that the legislature will grant the "special powers."

Chavez said that multibillion-dollar oil projects run by major oil companies should become state property.

Since last year the government had been negotiating with international consortia currently operating in the Orinoco area, so that state-owned Petroleos de Venezuela SA (PDVSA) attains a majority stake in each project.

Joint ventures between PDVSA and ExxonMobil Corp., Chevron Corp., ConocoPhillips, Total SA, BP PLC, and Statoil ASA, process about 600,000 b/d of tar-like Orinoco crude. PDVSA currently holds an average 40% stake in these ventures.

The international oil companies declined to comment until they have further details.

Chavez, reelected by a landslide last December, promised to roll back a private investment campaign of the 1990s known as the oil "opening."

Before his reelection, the nation's congress approved a bill that hikes the income tax rate to 50% for the six foreign oil companies working in oil ventures in the Orinoco belt.

"The Orinoco belt is still a living symbol of what was an important part of the oil opening. We must eliminate this symbol," Chavez said during the inauguration of new cabinet members.

"I'm talking about the international companies that have control and dominion over these processes of what they call upgrading of heavy crude in the Orinoco belt. That must become property of the nation," Chavez said.

These latest developments come after Chavez earlier declared that he would work hard to stop oil exports to the US and divert them to China and other energy-hungry countries. Chavez's anti-US rhetoric has raised concern because the US is Venezuela's biggest oil-trading partner.

Venezuela supplies about 1.5 million b/d of crude oil and oil products to the US, according to the International Energy Agency. Venezuelan oil comprises about 11% of US oil imports, which amounts to 60% of Venezuela's total exports. PDVSA also wholly owns five refineries in the US and partly owns four refineries, either through partnerships with US companies or through PDVSA's US subsidiary, Citgo Petroleum Corp.

However, although Venezuela seeks to develop new markets for its crude, a significant short-term shift in oil relations between Venezuela and the US is unlikely because Venezuela remains heavily dependent on oil exports to the US, say Latin American analysts.

Venezuelan oil exports to China increased to 150,000 b/d in 2006 from 12,300 b/d delivered in 2004 and are expected to increase to 500,000 b/d within 5 years. As part of agreements signed in 2005, China is investing $2 billion in oil-related exploration and development projects in Venezuela's Zumano region and Orinoco oil belt.

Venezuela agreed in April 2006 to begin sending 2 million bbl/month to India, according to India Daily. Both countries are jointly exploring for heavy crude oil in India.

Venezuela and Iran agreed last August to jointly build oil refineries in Indonesia, Syria, and Venezuela. In addition, Iran's state-owned oil company Petropars began to invest in oil exploration and development in the Orinoco belt.

"Previously, PDVSA was managed as a multinational company, with criteria that did not consider our social reality. Now, it is a national company composed by a highly popular component that has allowed us to deploy, for the first time, our own oil plan, the 2006-12 "Oil Sowing Plan," which foresees a $60 billion investment in projects aligned with the interests of the country," said former Minister of Energy and Petroleum and current president of PDVSA, Rafael Ramirez.

Brazil's state-run oil company Petroleos Brasileiro SA (Petrobras) signed a joint venture agreement that brings oil E&P operations under Venezuela's government control.

The decision by Petrobras follows similar moves by Royal Dutch Shell PLC and Chevron Corp. to submit to government demands for a greater government share of control and revenues from Venezuela oil operations.

Petrobras has signed the first of four new contracts that replace agreements to independently pump oil at fields across the country, PDVSA said in a statement.

Under the new terms, PDVSA holds a 60% stake in the La Concepcion oil field in Western Venezuela, while Petrobras has a 36% stake. Williams International holds the remaining 4%.