ExxonMobil and ConocoPhillips have opted to abandon their heavy crude oil projects in eastern Venezuela's Orinoco Belt rather than cede majority ownership and operating control to the state-owned oil company PDVSA, Venezuelan officials announced June 26. President Hugo Chavez had set that day as the deadline for the six foreign owners of four projects in the region to agree to new terms, a part of his program to "re-nationalize" the energy sector, along with banks and telecommunications.
This year Chavez has already nationalized Venezuela's largest telephone company and the largest power generator in Caracas, controlled by US companies. Chavez paid $739 million to AES for its stake in CA Electricidad de Caracas and $572 million for Verizon's share of CA Nacional Telefonos de Venezuela.
As the deadline approached, the US State Department issued a call for the Chavez government to pay the oil companies a fair price for their investments. The four Orinoco projects are Petrozuata, controlled by ConocoPhillips; Sincor, by Total of France and Norway's Statoil; Ameriven by ConocoPhillips and Chevron; and Cerro Negro by ExxonMobil and BP.
Since the early 1990s, the companies have invested some $17 billion in complex techniques and machinery to pump, transport and process oil with the consistency of tar from the rich deposit known as the Faja. ConocoPhillips stands to lose close to 5% of its global oil production by quitting the Orinoco. In a statement, the Houston-based company said it was bracing for the loss of the entire $4.5-billion value of its two Orinoco projects, though it is continuing to negotiate with the Chavez government for "appropriate compensation." The much larger ExxonMobil, based in Irving, TX, will lose 2% of oil production.
Venezuelan Energy Minister Rafael Ramirez said Chevron, Statoil, BP and Total had agreed to the terms and would remain in the Orinoco Belt. All told, the Orinoco fields generate about 550,000 barrels of oil a day, or about one-fifth of Venezuela's total oil output. The region has seen growing output even as Venezuelan oil production has declined to 2.6 million barrels a day from 3.4 million barrels since a strike by oil workers in 2002.
Shares of ConocoPhillips fell $2.24, or 2.9%, to $75.80 upon announcement of the pull-out, while ExxonMobil fell 55 cents to $81.82. (LAT [2], June 27; Bloomberg [3], June 26)
The Venezuelan bolivar weakened June 26 to 4,180 per dollar in the unofficial dollar market from 4,050 the previous day. Businesses and people turn to the parallel market when they are unable to get the limited number of dollars the government sells at the official exchange rate of 2,150 bolivars. (Bloomberg [4], June 27)
See our last posts on Venezuela [5] and the global struggle for control of oil [6].
