Confronted by Hugo Chávez’s determination to take control of Venezuela’s heavy oil upgraders, the international oil companies were between a rock and a hard place.
They could either accept participation on the new terms, in which they would be junior partners to PdVSA, Venezuela’s state oil company, and expected to write cheques for new investment over which they would not have full control – or walk away from assets worth billions of dollars.
Faced with that decision on Tuesday, Chevron of the US, Total of France, BP of the UK and Statoil of Norway chose to bite their lips and stick around.
ConocoPhillips and ExxonMobil of the US have walked away.
For Exxon, the calculation, while painful, was straightforward. It has built a reputation for being a company that regards contracts as sacrosanct and expects its partners to do the same.
With delicate negotiations over its Sakhalin-1 project in Russia under way, it would have been madness to throw that reputation away.
If it could not do a deal with Venezuela on acceptable terms, the cost – losing about 1 per cent of its production – was a price worth paying.
For Conoco, however, the cost of leaving is much higher and analysts had generally expected it would try to stay.
Last year, it made about 4 per cent of its production and had about 10 per cent of its reserves in Venezuela.
Its shares lost 3 per cent on Tuesday, although they steadied yesterday. It expects to write off $4.5bn for its lost assets.
Exxon said in a statement yesterday that “we continue discussions with the Venezuelan government on a way forward”, even though it was clear that it was giving up its stake in Cerro Negro, one of the four upgraders turning Venezuela’s heavy oil into crude so it can be sold on world markets.
Robert de By, of Dewey Ballantine, the law firm, said it might sound too late for talks, adding: “It is a bit like being on the ground being robbed – you can say ‘I’m still talking’ but is the robber listening?”
But he said Venezuela was unlikely to want to cut itself off from the world economy by expropriating assets without compensation.
Verizon of the US was paid what was seen as a reasonable price for its stake in CANTV, a Venezuelan telecommunications company, in February.
Ultimately, Exxon and Conoco can go to arbitration, as Eni of Italy is seeking to do over a conventional oil project in Venezuela that was taken over last year, at the World Bank’s International Centre for Settlement of Investment Disputes.
That would be a long, hard road, however.
Given the difficulties that could lie ahead, it is understandable that the other companies have chosen not to go down that path; particularly as one side-effect of the Exxon and Conoco withdrawal is that some of their stakes will be cut less severely than they had feared.
Chevron, for example, is retaining its 30 per cent holding in the Hamaca project and BP its 16.7 per cent stake in Cerro Negro.
For international oil companies, such difficulties are an increasingly common fact of life. Resource-rich countries have taken advantage of high oil prices to exert greater influence.
Chevron, BP, Total and Statoil are left with the potential for future development in a country that has some of the largest oil resources in the world.
Venezuela’s heavy oil reserves are estimated at 270bn barrels; on a par with Saudi Arabia’s 260bn.
“When all the oil in the world has run out, Venezuela will be one of the last countries turning its taps off,” says Derek Butter of Wood Mackenzie, a consultancy. “Unlike many countries with large reserves, Venezuela is not closed to foreign investment, and there will be plenty of companies still willing to invest there.”
They could either accept participation on the new terms, in which they would be junior partners to PdVSA, Venezuela’s state oil company, and expected to write cheques for new investment over which they would not have full control – or walk away from assets worth billions of dollars.
Faced with that decision on Tuesday, Chevron of the US, Total of France, BP of the UK and Statoil of Norway chose to bite their lips and stick around.
ConocoPhillips and ExxonMobil of the US have walked away.
For Exxon, the calculation, while painful, was straightforward. It has built a reputation for being a company that regards contracts as sacrosanct and expects its partners to do the same.
With delicate negotiations over its Sakhalin-1 project in Russia under way, it would have been madness to throw that reputation away.
If it could not do a deal with Venezuela on acceptable terms, the cost – losing about 1 per cent of its production – was a price worth paying.
For Conoco, however, the cost of leaving is much higher and analysts had generally expected it would try to stay.
Last year, it made about 4 per cent of its production and had about 10 per cent of its reserves in Venezuela.
Its shares lost 3 per cent on Tuesday, although they steadied yesterday. It expects to write off $4.5bn for its lost assets.
Exxon said in a statement yesterday that “we continue discussions with the Venezuelan government on a way forward”, even though it was clear that it was giving up its stake in Cerro Negro, one of the four upgraders turning Venezuela’s heavy oil into crude so it can be sold on world markets.
Robert de By, of Dewey Ballantine, the law firm, said it might sound too late for talks, adding: “It is a bit like being on the ground being robbed – you can say ‘I’m still talking’ but is the robber listening?”
But he said Venezuela was unlikely to want to cut itself off from the world economy by expropriating assets without compensation.
Verizon of the US was paid what was seen as a reasonable price for its stake in CANTV, a Venezuelan telecommunications company, in February.
Ultimately, Exxon and Conoco can go to arbitration, as Eni of Italy is seeking to do over a conventional oil project in Venezuela that was taken over last year, at the World Bank’s International Centre for Settlement of Investment Disputes.
That would be a long, hard road, however.
Given the difficulties that could lie ahead, it is understandable that the other companies have chosen not to go down that path; particularly as one side-effect of the Exxon and Conoco withdrawal is that some of their stakes will be cut less severely than they had feared.
Chevron, for example, is retaining its 30 per cent holding in the Hamaca project and BP its 16.7 per cent stake in Cerro Negro.
For international oil companies, such difficulties are an increasingly common fact of life. Resource-rich countries have taken advantage of high oil prices to exert greater influence.
Chevron, BP, Total and Statoil are left with the potential for future development in a country that has some of the largest oil resources in the world.
Venezuela’s heavy oil reserves are estimated at 270bn barrels; on a par with Saudi Arabia’s 260bn.
“When all the oil in the world has run out, Venezuela will be one of the last countries turning its taps off,” says Derek Butter of Wood Mackenzie, a consultancy. “Unlike many countries with large reserves, Venezuela is not closed to foreign investment, and there will be plenty of companies still willing to invest there.”
Phoenix Petroleum Philippines
Phoenix Petroleum Philippines Inc. has set a final price of P9.80 per share for its initial public offering which will be launched on June 27, underwriter BDO Capital & Investment Corp. told the stock exchange.
The final IPO price is within the offer price range of P6.08-P11.30 per share disclosed earlier to the exchange.
Phoenix, a retailer of fuel products based in southern Philippines, will sell to the public up to 36.25 million common shares. The estimated proceeds of P355.25 million will be used to expand its operations.
Phoenix booked net profit of P74 million in 2006, up sharply from P3.7 million in the previous year.
The final IPO price is within the offer price range of P6.08-P11.30 per share disclosed earlier to the exchange.
Phoenix, a retailer of fuel products based in southern Philippines, will sell to the public up to 36.25 million common shares. The estimated proceeds of P355.25 million will be used to expand its operations.
Phoenix booked net profit of P74 million in 2006, up sharply from P3.7 million in the previous year.
