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Venezuela's Ambassador says foreign partners may join, not lead, in tapping nation's oil
By Kristen Hays
Houston Chronicle
HOUSTON
Petroleumworld.com 07 13 07
Venezuela's oil industry wants foreign partners to help tap its vast resources, but they need not come knocking if they want to call the shots, the country's ambassador to the United States said in Houston Wednesday.Ambassador Bernardo Alvarez Herrera said Venezuela is continuing compensation talks with major oil companies that walked away from their multibillion-dollar Venezuelan operations last month. They did so rather than agree to terms of relinquishing control in the face of President Hugo Chavez's nationalization of oil operations.
Those who stay — or come later — will do so with Venezuela's government-controlled oil company in charge, Alvarez told the Chronicle editorial board.
"We want partnerships with private companies, but with that rule," he said.
Later, during an appearance at a Greater Houston Partnership luncheon, Alvarez was asked what Chavez wants to hear from the new U.S. ambassador to Venezuela.
"We are ready to respect Venezuela," Alvarez replied.
Patrick Duddy, a senior State Department official, recently was named to succeed the outgoing ambassador to Venezuela, William Brownfield.
Alvarez is spending several days in Texas on a visit he said has focused more on making community contacts than on the energy business, though he conceded that it's "impossible to have a completely non-oil visit to Texas."
Alvarez said he has not encountered hostility from Americans despite Washington's chilly relations with Chavez, a socialist who once likened President Bush to the devil.
"At least they know who Chavez is," he said during the meeting with the Chronicle.
Alvarez said he has found Americans open to discuss ions about differences and common interests involving the United States and the South American nation.
In May, Venezuela's state-run oil company Petróleos de Venezuela, or PDVSA, took over operations of major oil projects that had been run by Houston-based ConocoPhillips, Irving-based Exxon Mobil, San Ramon, Calif.-based Chevron and Paris-based Total. Most of the projects are in Venezuela's oil-rich Orinoco River basin, but ConocoPhillips also had an offshore project slated to begin producing next year.
PDVSA took over after Chavez issued a decree mandating the turnover.
Last month, ConocoPhillips and Exxon Mobil refused to accept new working terms for their Venezuelan operations and walked away. PDVSA absorbed their stakes, and the companies are now negotiating compensation for what they gave up.
Chevron and Total agreed to stay on as PDVSA's minority partners. London-based BP and Norway's Statoil, which already were minority partners, also agreed to stay.
After the Orinoco takeover
Analysts have valued the combined projects PDVSA took over at $25 billion to $30 billion. ConocoPhillips has announced plans to write off the entire $4.5 billion value of its Venezuelan assets in its second quarter results, but Exxon Mobil hasn't revealed its plans.Spokesmen for the companies on Wednesday couldn't be reached or declined comment on Alvarez's statements or ongoing compensation talks.
Alvarez said in the meeting with the Chronicle that he isn't worried that the takeovers will chill future investment or participation from foreign companies.
While ConocoPhillips and Exxon Mobil left, others remain, he said, and more have been invited to explore and develop the Orinoco region — including Russia's Lukoil, Brazil's Petrobras, China's CNPC and India's ONGC. This week PDVSA also announced that Venezuela and Iran will collaborate to spend $4 billion on a joint Orinoco project.
Alvarez said Venezuela is especially interested in attracting investment from smaller businesses and ones owned by blacks and Hispanics.
Alvarez also said oil services providers, such as Schlumberger and Halliburton, can fill the gap of technical expertise left by pullouts of international oil companies.
Questioning the plan
Patrick Esteruelas, an analyst with political risk consultancy provider Eurasia Group, said the aftermath may be more complicated than Alvarez suggests.He said other companies may be hesitant to invest when contracts could change in midstream.
Also, he said questions loom as to whether other companies have the know-how to successfully develop heavy oil projects and maximize production in the Orinoco, where estimated reserves could surpass those in Saudi Arabia.
"Frankly, I think ConocoPhillips' and Exxon Mobil's refusal to accept new contracts has shown there are certain limits to how far Venezuela can take the game," Esteruelas said. "I think the government will have to recalibrate and re-evaluate its prospects unless it wants to run the risk of either pushing other companies out or failing to convince any new companies to step in."
Also, Esteruelas noted that in mid-May, the Venezuelan government said it might take over 18 oil rigs now operated by oil service companies and create a PDVSA subsidiary to tighten control of drilling operations throughout the country. That could prompt oil service companies to hold back on drilling expansion, he said.
American assets
If compensation talks fail and ConocoPhillips and Exxon Mobil turn to international arbitration, Venezuela has something to lose.Its American assets — notably five refineries run by its Houston-based subsidiary, Citgo — could be targeted for seizure to compensate ConocoPhillips and Exxon Mobil.
Alvarez said he was unconcerned about that possibility. He said he hoped compensation talks would succeed, rendering the lengthy, expensive arbitration process unnecessary.
"It is the best for everybody else to go and reach an agree-
ment," he told the Chronicle.He also said that during his visit, he would meet privately with officials of Chevron and Citgo. He had no meetings scheduled with ConocoPhillips or Exxon Mobil.
kristen.hays@chron.com
Houston Chronicle 12 07 07Copyright© 2007 Houston Chronicle. All Rights Reserved.
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