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BP's Browne: Venezuela's demands for more oil revenue may scare off foreign investment
Bloomberg
NEW YORK
Petroleumworld.com 04 27 06
BP Plc Chief Executive Officer John Browne said Venezuela's demands for more oil revenue may scare off foreign investment at a time when the nation is struggling to boost production and crude prices are at a record high.Venezuelan President Hugo Chavez is in dispute with oil companies after raising taxes and royalties on companies including Exxon Mobil Corp. and Chevron Corp. and seizing operations run by Italy's Eni SpA and Paris-based Total SA after they refused to accept new terms of production.
``There's a lot of instability, and one has to question whether Venezuela wishes foreign oil companies really to be there in any big way,'' Browne said in an interview today in London. ``This may well be just a replacement of foreign oil companies with the actual state company.''
Oil output in Venezuela, the world's fifth-largest oil exporter, has fallen about 20 percent since Chavez took office in 1999 as state-owned Petroleos de Venezuela SA failed to invest in its fields. Instability in supplies from nations including Venezuela, Nigeria and Iran has contributed to the three-year surge in crude prices to more than $75 a barrel last week.
Oil companies including BP, which today reported net income fell 15 percent in the first quarter, are seeking new fields to compensate for maturing deposits in the U.S. and North Sea. Net income fell to $5.62 billion, or 27 cents a share, from $6.6 billion, or 30 cents, a year earlier, BP said.
Missing Quotas
One place to invest is Venezuela, the largest producer in South America and the fourth-biggest supplier to the U.S. last year. The Faja in the country's east, near the Orinoco River, may hold up to 235 billion barrels of oil, according to Venezuelan estimates. That total is almost as large as Saudi Arabia's.
About 600,000 barrels a day are produced from the Faja's tar-like deposits, which are easy to find and expensive to extract. That's almost a quarter of the 2.6 million barrels a day the country pumped last month.
Venezuela is among four producers in the 11-member Organization of Petroleum Exporting Countries that are failing to reach their output targets, along with Iran, Indonesia and Nigeria. Iraq's output is still about 20 percent lower than it was before the fall of Saddam Hussein's regime.
Chavez and Iranian President Mahmoud Ahmadinejad are ``tampering'' with world markets to keep oil prices artificially high, Dutch Minister of Economic Affairs Laurens Jan Brinkhorst said in an interview in Doha, Qatar, yesterday.
$15 Billion Goal
Venezuela says that companies that were granted contracts by Petroleos de Venezuela in the 1990s to operate 32 fields on a fee basis often booked the state oil company's reserves as their own. Chavez has said that all of the country's energy reserves belong to the state and has undertaken a campaign to reassert sovereignty over them.
``We are adjusting our relationship with the private companies,'' Venezuelan Energy Minister Rafael Ramirez said yesterday in an interview in Doha.
By alienating companies such as BP, Chavez may fail in his quest to attract $15 billion in new investment to help double the country's output by 2012. Changes to oil contracts are a threat to Chevron and ConocoPhillips, the second- and third-largest U.S. oil companies. Conoco gets about 8 percent of its total output from Venezuela.
BP has only ``very small'' interests in the country, he said.
Governments around the world are seeking a greater share of surging oil revenue. BP's taxes jumped 18 percent to $2.9 billion as payments in Russia more than doubled, causing earnings growth to stall in the country, which had been an engine of growth.
Contract Terms
The terms of the four joint ventures, which include Exxon and Total, were set and approved by the Venezuelan Congress before Chavez came to power. The government's stake was small to encourage oil companies to develop the resource amid low energy prices and questions about how efficiently the heavy oil could be extracted.
``It's important for the international oil companies to remember that economic conditions are very different today than when the contracts were signed,'' Kevin Pringle, Venezuelan oil analyst at Wood MacKenzie Ltd., an Edinburgh-based energy consultant said in a phone interview today.
Crude in New York averaged at $19.30 a barrel in 1999, while by last year it had almost tripled to average at $56.70 a barrel.
Heavy oil deposits such as the Faja and the tar-sands in Alberta, Canada, have grown more desirable as conventional oil fields have become harder to find and prices have surged to an all-time high.
Crude oil for June delivery fell 45 cents to $72.88 a barrel today on the New York Mercantile Exchange.
Bloomberg 04 26 06Copyright © 1994-2006 Bloomberg. All Rights Reserved.
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