Exxon Mobil to hand over the reins
Exxon Mobil Corp. will cede control of its Cerro Negro operation in Venezuela's oil-rich Orinoco River basin later this year in order to comply with Venezuelan President Hugo Chavez's decree last week, the company said Tuesday.
Exxon Mobil spokeswoman Susan Reeves said that the Irving-based oil giant will transfer operational control to Petroleos de Venezuela, or PDVSA, having been informed by the Venezuelan government that Chavez's decree requires such action by May 1.
Analysts weren't surprised, given Chavez's repeated public announcements of his intent to wrest control of oil production projects run by foreign oil giants. Other companies with Orinoco operations declined comment on Exxon Mobil's move, but analysts said they are expected to make similar concessions.
San Ramon, Calif.-based Chevron Corp., Houston-based ConocoPhillips and Paris-based Total also run Orinoco operations. London-based BP and Statoil, Norway's state-controlled oil company, are minority partners in Orinoco projects.
"If there was one company that was probably going to be the most reluctant among the operators in the Orinoco belt, it would be Exxon. With Exxon onboard, it goes without saying that the other operators will come on board as well," said Patrick Esteruelas, an analyst with Eurasia Group, a New York-based political risk advisory and consulting firm.
Fadel Gheit, an oil analyst with Oppenheimer & Co., agreed, noting that Exxon Mobil's decision likely would be discussed at the company's annual analyst meeting in New York today.
"They had no choice," Gheit said. "It was not if, it was when."
Chavez, a vocal critic of Bush administration policy in Latin America, gained the power to rule-by-decree after his landslide re-election in December.
Reeves said that Exxon Mobil remains in discussions with Venezuela's Ministry of Energy & Petroleum regarding a migration to a "mixed enterprise" structure in which PDVSA would assume at least 60 percent ownership of the project.
Those discussions include "issues of value, contract sanctity and compensation," Reeves said. She declined to elaborate, saying Exxon Mobil doesn't discuss business details or speculate on future business plans.
Exxon Mobil operates and holds a 42 percent interest in Cerro Negro. London-based BP holds a 16 percent interest, and PDVSA holds the rest. The project produces 120,000 barrels a day of extra-heavy, or tarlike, oil that is piped to an upgrader in northern Venezuela for processing into synthetic crude oil.
"We are working to ensure that the transfer of operatorship is safely accomplished," Reeves said. "Mobil Cerro Negro remains open to resolving these issues amicably."
Chevron said in a prepared statement Tuesday that Chavez's decree "has given the owners four months to negotiate ongoing participation."
Esteruelas said the May 1 deadline is for foreign operators to present a "memorandum of understanding," with control handed over by June 26. But the revised contracts could take months to make final, he said.
"Throughout that period, we can expect many of the companies to put investment opportunities on hold until they know how they'll be compensated and what their future is in the Orinoco, which could put a damper on overall production," Esteruelas said.
Chevron has a 30 percent interest in its Hamaca project in the Orinoco belt, with PDVSA holding 30 percent and ConocoPhillips the remaining 40 percent.
Chevron declined comment about ceding majority control to PDVSA or its discussions with the ministry about Chavez's decree. ConocoPhillips also declined to comment Tuesday. At a conference in Houston last week, CEO James Mulva told reporters that it was critical to get discussions moving with the ministry and PDVSA given the size and scope of the foreign companies' investments.
In addition to the project with Chevron and PDVSA, ConocoPhillips has a 50.1 percent interest in Petrozuata, with PDVSA holding the remaining 49.9 percent.
"We have to understand what this means to our projects," Mulva said last week.
Total has a 47 percent interest in its Sincor project in the Orinoco belt, with PDVSA holding 38 percent and Statoil 15 percent.
Total and Statoil declined to comment except to say they were talking with the ministry. BP, a minority partner in Cerro Negro, also declined to comment. Gheit said that even though Chavez wants PDVSA to control the projects, he needs the affected companies' participation because of their expertise in handling heavy oil.
"Venezuela cannot do it alone, or otherwise Chavez would have confiscated the properties outright," Gheit said.
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