Chavez readying to take on oil majors for control of crude fields

After trouncing Vene-zuela’s opposition in the presidential vote, leftist Hugo Chavez is preparing for a bigger battle in 2007 — the fight with oil majors for control of the Opec nation’s crude fields.

The Cuba ally is armed with a strong mandate but he is taking on businesses with bigger earnings than most nations — including ExxonMobil, the world’s largest company — for control over what Chavez calls the earth’s hugest reserve.

The anti-US former soldier has used record oil revenues to finance a self-described socialist revolution for the nation’s poor majority that overwhelmingly backed his re-election landslide. Now he wants more of that income and the battleground is for majority control of projects worth an estimated $33bn that would give Chavez domain over the Orinoco belt, believed to hold up to 235bn barrels of tar-like oil.

Five companies — Chevron, Conoco, ExxonMobil, BP, Norway’s Statoil and France’s Total — invested around $20bn for 60 per cent of the joint ventures, with state oil firm PDVSA holding the rest. “The election reaffirmed that the country supports Chavez’s agenda, including efforts to boost control of the energy sector,” said Michelle Billig, an analyst at Pira Energy in New York. “It’s good politics for Chavez, and it gets more oil rents for the government.”

Venezuela has ordered the companies to sell part of their stakes in four Orinoco projects that turn around 600,000 barrels per day of heavy crude into lighter synthetic crude, providing close to 25 per cent of national output. The companies are likely to resist the move.

The defence of their investments could include filing lawsuits making Venezuela honour contracts signed during the 1990s — a step Exxon threatened to take in 2004 over a royalty dispute. Others may warn that they will pull their operations, which could leave Venezuela without the capital and expertise to operate complex projects. But with oil prices near $60 per barrel and crude getting harder to find worldwide, they cannot easily pass over Venezuela’s prolific reserves.

“Companies can’t walk away from these projects because they’ve made huge investments,” said Roger Tissot, a consultant with PFC Energy in Washington. “On the other hand, the government can’t replace an Exxon or a Chevron that easily. This is going to be complex.” If Chavez prevails, he will boost government revenues, half of which come from the oil sector, allowing him to expand social programmes.

Chavez, who casts the battle as a defence of Venezuelan sovereignty, would also bolster his image as a man who stands up to what he calls the imperialist capitalism promoted by the United States. The showdown follows a wave of Andean natural resources nationalism sparked by high energy prices that have allowed oil producing nations to extract concessions from operators.

Venezuela led the charge in 2004 by hiking royalties on the four Orinoco projects and in 2005 ordering companies to rewrite subcontracting deals with PDVSA. Even though oil companies around the world are increasingly deploying lawyers to protect contractual agreements, almost all of Venezuela’s operators eventually agreed to the changes.