Chavez Takes Over Venezuela's Last Private Oil Fields

BARCELONA Venezuela (AP) _ President Hugo Chavez's government took over Venezuela's last privately run oil fields Tuesday, intensifying a power struggle with international companies over the world's

Tuesday, May 1st 2007, 9:39 am

By: News On 6

BARCELONA Venezuela (AP) _ President Hugo Chavez's government took over Venezuela's last privately run oil fields Tuesday, intensifying a power struggle with international companies over the world's largest known petroleum deposit.

Oil Minister Rafael Ramirez declared that the fields had reverted to state control just after midnight. State television showed cheering workers in hard hats raising the flags of Venezuela and the national oil company over a refinery and four drilling fields in the Orinoco River basin.

Chavez, a strident critic of the U.S. and a leader of the leftist movement in Latin America, traveled to the refinery for a ceremony with red-clad oil workers on May Day, the international workers' holiday. The military planned a fly-over by Russian-made fighter jets.

While the state takeover had been planned for some time, BP PLC, ConocoPhillips, Exxon Mobil Corp., Chevron Corp., France's Total SA and Norway's Statoil ASA remain locked in a struggle with the Chavez government over the terms and conditions under which they will be allowed to stay on as minority partners.

All but ConocoPhillips signed agreements last week agreeing in principle to state control, and ConocoPhillips said Tuesday that it too was cooperating.

Analysts say the companies have leverage because Venezuela's state oil company, Petroleos de Venezuela SA, cannot transform the Orinoco's tar-like crude into marketable oil without their investment and experience.

``They're hoping ... that as time passes Chavez will realize he needs them more than they need him,'' said Michael Lynch, an analyst at Winchester, Massachusetts-based Strategic Energy and Economic Research. He predicted most oil companies _ with the possible exception of Exxon Mobil _ would stay.

Multinationals pumping oil elsewhere in Venezuela, one of the leading suppliers of oil to the United States, submitted to state-controlled joint ventures last year because they were reluctant to abandon the profitable operations.

Chavez says the state is taking a minimum 60-percent stake in the Orinoco operations, but he is urging foreign companies to stay and help develop the fields. They have until June 26 to negotiate the terms.

``The president has ordered us to assume full control of our oil sovereignty, and we are doing it,'' Ramirez said at the Jose heavy crude refinery near the eastern city of Barcelona.

An enormous Venezuelan flag was hung between two cranes at the refinery, and smaller flags flew from lamp posts. Red balloons were attached to power lines.

The oil companies, meanwhile, still needed convincing that Venezuela will be a good place to do business.

Chevron's future in Venezuela ``will very much be dependent on how we're treated in the current negotiation,'' said David O'Reilly, chief executive of the San Ramon, California-based company. ``That process is going to have a direct impact on our appetite going forward.''

BP, Exxon Mobil and ConocoPhillips all say they're negotiating with Venezuela to determine ownership and compensation for their operations.

Jim Mulva, chairman and chief executive of ConocoPhillips, which has two projects in the oil-rich Orinoco River region and another offshore, has said he expects discussions to be completed by late June.

ConocoPhillips' Venezuelan operations account for roughly 4 percent of its daily worldwide production.

``ConocoPhillips has cooperated with the established transitional committees to ensure a safe, orderly transfer of operations,'' the company said in a statement Tuesday.

It added, ``While discussions between ConocoPhillips and the Venezuelan government are ongoing, agreements have not been reached with respect to ConocoPhillips' future participation in these projects or the compensation the company will receive.''

BP spokesman David Nicholas said the London-based company also was negotiating compensation for its 16.7 percent stake in the Cerro Negro heavy oil project in the Orinoco belt. The majority of that project is owned by Exxon Mobil and PDVSA.

In a conference call with analysts last week after reporting first-quarter earnings, Henry Hubble, Exxon Mobil's vice president of investor relations, said the company expected negotiations to continue ``for some time.'' Hubble declined to speculate whether Exxon Mobil would continue to do business in Venezuela after such discussions are finished.

The stakes are high for both sides as Venezuela stands to surpass Saudi Arabia as the nation with the most reserves. If the big oil companies were to leave, Chavez says state firms from China, India and elsewhere can step in, but industry experts doubt they are qualified.

Chavez ``is going to discover that nationalism is one thing, but money talks,'' Lynch said. ``And I don't think he's going to be able to get more money out of the Orinoco or the foreign oil companies without being a lot nicer to them.''

Pulling out would be damaging for the companies. They have invested more than $17 billion in the projects, now estimated to be worth $30 billion. Venezuela has indicated it is inclined to pay the lesser amount for taking over control _ with partial payment in oil and, some experts suspect, tax forgiveness.

Venezuela may still prove enticing because three-quarters of the world's proven reserves are already controlled by state monopolies.

Nationalization of the oil industry has been tried in Venezuela before, though with a different tack. Venezuela shut companies out of the oil sector completely between 1976 and 1992 before beginning a series of partial privatizations, which Chavez is now rolling back.

Chavez is also nationalizing electricity companies and the country's biggest telecommunications company, and has threatened to take over private hospitals if they continue raising prices for care. He says radical changes are needed to help the poor benefit more from the country's oil wealth.

The campaign has brought popularity for Chavez, who takes to the airwaves almost daily, delivering tirades against the rich, the news media, capitalism in general and his archenemy, the U.S. government.