Six American and European energy companies, including Houston-based ConocoPhillips, have yet to hammer out agreements with the Chavez government on compensation for losing their majority stakes in four heavy oil projects in the Orinoco River basin. Working against a June 26 negotiating deadline imposed by the government, company officials complain that Chavez has offered far less than what their holdings are worth.
But as final preparations were made for the May Day events here celebrating both the takeover and the international workers holiday, analysts said the two sides need each other.
Chavez's oil plans in slippery territory
Venezuela's state-run energy company, known as PDVSA, requires the money and expertise of the multinationals, which helped pioneer the complicated process of turning tar-like heavy oil into commercial crude. Big Oil, in turn, covets long-term access to the Orinoco basin, considered the largest energy reserve in the Western Hemisphere.
In addition, some analysts said, the leftist Chavez needs the petrodollars from a healthy oil industry to fund a wide array of aid programs at home and abroad and help him challenge the United States for dominance in Latin America.
"If this were a rational business decision, a deal would be reached," said Michael Goldberg, who heads the international dispute resolution group at Baker Botts, a Houston law firm that represents oil companies and governments in the negotiations. "But the wild card is Chavez."
Taking over
To burnish his anti-imperialist credentials, Goldberg said, Chavez could opt to take a hard line in the negotiations, prompting one or two companies to leave.
Unlike an earlier nationalization in the mid-1970s, when the Caracas government took over all the assets of private petroleum firms in the country, today's ceremony at this heavy oil upgrading facility on the Caribbean coast heralds a less dramatic turn of events.
This time around, Venezuela has invited the foreign firms to stay on as junior partners.
PDVSA will raise its stake in the four Orinoco joint ventures from a range of 38 percent to 49.9 percent to 60 percent.
Although compensation for the multinationals has yet to be worked out, Venezuela will take over management of the projects starting today. The fields produce 600,000 barrels of oil per day, about one-quarter of Venezuela's output.
Most of the region's 5,000 oil workers will become PDVSA employees. American and other expatriate laborers are expected to leave. ConocoPhillips, for example, is bringing home about 20 Americans.
"That transition is going well," James Mulva, chairman and CEO of ConocoPhillips, told analysts last month. "But in terms of expropriation (and) PDVSA increasing their ownership to 60 percent, those discussions will continue on for some time."
Of the six private companies operating in the Orinoco basin — which include Exxon Mobil, Chevron, BP, Statoil and Total — ConocoPhillips is the largest and has the most to lose.
It owns 50.1 percent of a joint venture with PDVSA called Petrozuata. The company also owns 40 percent of a second joint venture, called Ameriven, along with PDVSA and Chevron. ConocoPhillips' assets in the Orinoco are worth about
$6 billion, according to the global banking firm UBS.
Needing each other
To sweeten the pot in the current round of talks, the Chavez government is widely expected to offer tax incentives and promises of additional drilling rights in the Orinoco basin. In effect, said Pietro Pitts of Caracas-based LatinPetroleum magazine, the multinationals would be getting a smaller percentage of a bigger pie.
Besides massive reserves that could amount to more than 300 billion barrels, technological advances could greatly increase the amount of extractable oil from Orinoco deposits, said Pedro van Meurs, a Dutch consultant who advises governments negotiating with private oil firms.
"That's why the major oil companies will be very careful to hold their positions in Venezuela," van Meurs said. "And I think that the Venezuela government is rational enough to know that it needs the big firms to exploit the heavy oil."
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