Chavez seeks to reap where he has not sown

Houston Chronicle:

Back in the 1990s, the Houston-based company now known as ConocoPhillips sank huge sums into what seemed a far-fetched plan to extract oil from Venezuela's Orinoco River basin.

The bet paid off for the firm, which used cutting-edge technology to turn the region's tarlike, heavy oil into synthetic crude.

But with President Hugo Chavez now bent on rapidly turning Venezuela into a socialist state, ConocoPhillips and other Western energy companies stand to lose control of their lucrative projects in the Orinoco basin — a flat expanse of arid scrubland that may hold the world's largest oil reserves.

Last week, Chavez said foreign firms must sell enough shares to give a majority stake to Venezuela's state-run oil company, long the minority partner in Orinoco projects.

Some analysts believe that this partial nationalization signals the start of a new era in which Big Oil will play a diminished role in Venezuela.

The multinationals "will continue to operate in Venezuela, but they won't be in the driver's seat, as they were in the 1990s," Roger Tissot, a consultant with PFC Energy, said from the firm's Houston office.

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In the Orinoco, state-run Petroleos de Venezuela, or PDVSA, holds between 30 percent to 49.9 percent of the region's four main projects, but the company intends to acquire at least 60 percent of each.

The government also plans to control joint operations to refine and sell oil. Talks over compensation for the foreign oil firms have gone nowhere, and Chavez is growing impatient.

"I have given instructions that on May 1, all the fields of the Orinoco Belt should wake up under our control," Chavez said last week.

Private firms are welcome to stay on as minority partners, he said, "but if they aren't in agreement, they are free to leave."

ConocoPhillips refused to comment. But last month, a top Exxon Mobil executive said that his firm wants to hold Venezuela, the world's fifth-largest oil producer, to the original multiyear contract it signed with the company in the 1990s.

"I don't want to get pejorative about it, but contract sanctity is very, very important to Exxon Mobil," Stuart McGill, the company's senior vice president, told Reuters. "We don't enter into our obligations lightly, and we expect that others don't enter into their obligations lightly either."

Yet experts predict the six main oil companies involved in the Orinoco — which also include Chevron Corp., BP, Total of France and Norway's Statoil — will agree to the conditions.

These companies already have invested about $17 billion in projects. The fields, derricks, pipelines and facilities at Jose, the state-of-the-art oil port on the Caribbean coast, are now worth an estimated $33 billion. What's more, the Orinoco belt may hold up to 270 billion barrels of oil, which would amount to the world's largest reserves.

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These days, PDVSA is spending twice as much on health and education programs at home and subsidized oil for other nations than on developing Venezuela's fields, according to the U.S. Energy Department's Energy Information Agency.

Partly as a result, oil production from 32 other joint ventures with private companies in which PDVSA recently became the majority partner has fallen from 500,000 barrels per day to 350,000, according to the Caracas daily El Nacional.

Chavez has embraced a system that will make everyone poorer including him. Greedy communist will kill the goose laying the golden eggs. He is already being payed a handsome royalty for removing the oil, and now he wants to steal the profits from selling it again. His demonstration that Venezuela's word is no good on contracts will eventually make it more difficult to get people to invest in his economy, much less the oil business.