Forcing Big Oil to give up control of Venezuela's most promising oil fields this week will be relatively easy for President Hugo Ch...
CARACAS, Venezuela — Forcing Big Oil to give up control of Venezuela’s most promising oil fields this week will be relatively easy for President Hugo Chávez, but he will face a more delicate challenge in getting the world’s top oil companies to stay and keep investing.
If Chávez can persuade companies to stick around despite tougher terms, Venezuela will be on track to develop the planet’s largest known oil deposit, possibly to surpass Saudi Arabia as the nation with the most reserves.
If he scares them away, the Orinoco River region could end up starved of the investment and know-how needed to transform its vast tar deposits into marketable crude oil.
On Tuesday, BP PLC, ConocoPhillips, Exxon Mobil, Chevron, France’s Total SA and Norway’s Statoil ASA will turn over their Orinoco operations to Venezuela’s state oil company, Petroleos de Venezuela SA (PDVSA).
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Culminating a nationalist drive by Chávez that has increasingly squeezed the industry of profits, the two sides are now locked in contentious negotiations: Chávez says PDVSA will take a minimum 60 percent stake in the Orinoco operations, although the companies have been invited to stay as minority partners. They have until June 26 to negotiate the terms.
The companies appear to be taking a decisive stand, demanding conditions — and presumably compensation — to convince them that Venezuela will continue to be a good business.
Texas-based Exxon Mobil’s Rex Tillerson told Dow Jones Newswires and The Wall Street Journal that unless the negotiations produce a profitable proposal, “everything else is moot because we won’t be staying.”
Houston-based ConocoPhillips is the only company that has yet to agree in principle to state control, prompting Venezuela to warn it may expropriate its assets. Both sides say talks are ongoing but have declined to give details.
The stakes are high for both sides.
Chávez needs the private oil companies’ deep pockets and expertise to upgrade the Orinoco’s tarlike crude into more marketable oils. For the companies, pulling out of the Orinoco would be damaging.
They have invested more than $17 billion in the projects, now estimated to have grown in worth to some $30 billion. Venezuela has indicated it is inclined to pay the lesser amount — with partial payment in oil, and some suspect, tax forgiveness.
The companies have also claimed billions of future barrels of oil from the Orinoco in so-called booked reserves — a critical measure used by investors to value their worth. Smaller stakes will mean taking some of those reserves off the books.
PDVSA has been plagued by accidents and milked for cash by Chávez’s government. If accidents occur under PDVSA’s management, the private partners also could be liable.