Chevron is keeping the door open
U.S. oil company to work with Venezuela after its peers Exxon Mobil and ConocoPhillips decide to bow out
By KRISTEN HAYS
Chevron Corp. is the last U.S. oil major standing in Venezuela's resource-rich Orinoco River basin after Exxon Mobil Corp. and ConocoPhillips this week refused to capitulate to new working terms imposed by Venezuela's government-controlled oil company.
While Chevron gave up operating an oil production pro- ject like its peers, the company retained its 30 percent interest in the Hamaca project.
The San Ramon, Calif., company's continued presence also maintains access to its significant natural gas plays elsewhere in Venezuela, which experts say is likely enough incentive to give in on the Orinoco.
"They are relatively minor in the Orinoco, but they are a big player in the gas sector," said Patrick Esteruelas, an analyst with political risk consultancy Eurasia Group. "Not to play ball on one side of the business is to shut down all other opportunities in the country."
Chevron spokesman Leif Sollid said Wednesday that its negotiations with Petróleos de Venezuela, or PDVSA, were acceptable, and "we look forward to continuing our long-standing partnership with Venezuela and the Hamaca project's success."
While PDVSA took over operating Orinoco projects in May, Tuesday was the deadline for foreign companies to sign agreements that outlined their lesser roles. Exxon Mobil and ConocoPhillips refused to sign, while Chevron, Total, BP and Statoil, Norway's state-controlled oil company, stayed.
The takeovers stemmed from a decree issued earlier this year by Venezuelan President Hugo Chavez, a vocal critic of both the Bush administration and previous contracts that allowed foreign companies to control projects in the oil-rich nation.
Chavez's administration has used PDVSA as a cash cow for its social welfare programs and critics say the oil company has failed to invest enough money in new oil ventures, causing its output to drop in recent years.
In addition, concerns persist about the quality of expertise of its managers and laborers after 19,000 workers — about half of the company — were fired following a 2002-2003 strike aimed at bringing down the Chavez regime.
As a result, Exxon Mobil and ConocoPhillips "probably feel pretty uncomfortable about PDVSA being in charge," said Enrique Sira, an analyst with Cambridge Energy Research Associates.
Talks on compensation
Exxon Mobil and ConocoPhillips remain in negotiations with PDVSA on compensation for what they are giving up. For Exxon Mobil, that's a 41.7 percent stake in Cerro Negro. BP retained its 16 percent interest in Cerro Negro, while PDVSA swallowed Exxon Mobil's stake.
PDVSA also absorbed ConocoPhillips's stakes in its projects — 40 percent in Hamaca, 50.1 percent in Petrozuata, and 32.5 percent in Corocoro, an offshore operation slated to begin production next year.
Total's 47 percent interest in its Sincor project fell to 30.3 percent, while Statoil's stake fell to 9.7 percent from 15 percent. PDVSA now holds the rest.
Corporate bond research firm Gimme Credit called the situation a "prisoner's dilemma" in a note to investors Wednesday.
"Near term, going with the flow netted Chevron more than ConocoPhillips by hanging tough — Chevron still has access to Venezuelan oil," it said.
Who will win?
"On another level, however, it remains to be seen whether or not the result will be advantageous for Venezuela. The country still has to compensate the oil companies leaving, and is left with partners that, while credible, won't necessarily make the projects their highest priority."
Chevron has a 39 percent stake in Petroboscan, an onshore oil field near Lake Maracaibo. And the company's natural gas discoveries off Venezuela's northeast shore are under consideration to supply natural gas to Venezuela, Sollid said.
Total has interests in onshore and offshore Venezuelan natural gas fields. And John Parry, an analyst with John S. Herold, noted BP's natural gas interests in neighboring Trinidad likely played a part in its decision to stay in Venezuela as well.
"I suspect this is a move that somebody stays inside the gate and somebody works it from outside the gate," he said of Exxon Mobil and ConocoPhillips' decision to exit while the others — including their former partners — are staying. "Someone had to stay in the muck and someone had to get out of it."
By KRISTEN HAYS
Chevron Corp. is the last U.S. oil major standing in Venezuela's resource-rich Orinoco River basin after Exxon Mobil Corp. and ConocoPhillips this week refused to capitulate to new working terms imposed by Venezuela's government-controlled oil company.
While Chevron gave up operating an oil production pro- ject like its peers, the company retained its 30 percent interest in the Hamaca project.
The San Ramon, Calif., company's continued presence also maintains access to its significant natural gas plays elsewhere in Venezuela, which experts say is likely enough incentive to give in on the Orinoco.
"They are relatively minor in the Orinoco, but they are a big player in the gas sector," said Patrick Esteruelas, an analyst with political risk consultancy Eurasia Group. "Not to play ball on one side of the business is to shut down all other opportunities in the country."
Chevron spokesman Leif Sollid said Wednesday that its negotiations with Petróleos de Venezuela, or PDVSA, were acceptable, and "we look forward to continuing our long-standing partnership with Venezuela and the Hamaca project's success."
While PDVSA took over operating Orinoco projects in May, Tuesday was the deadline for foreign companies to sign agreements that outlined their lesser roles. Exxon Mobil and ConocoPhillips refused to sign, while Chevron, Total, BP and Statoil, Norway's state-controlled oil company, stayed.
The takeovers stemmed from a decree issued earlier this year by Venezuelan President Hugo Chavez, a vocal critic of both the Bush administration and previous contracts that allowed foreign companies to control projects in the oil-rich nation.
Chavez's administration has used PDVSA as a cash cow for its social welfare programs and critics say the oil company has failed to invest enough money in new oil ventures, causing its output to drop in recent years.
In addition, concerns persist about the quality of expertise of its managers and laborers after 19,000 workers — about half of the company — were fired following a 2002-2003 strike aimed at bringing down the Chavez regime.
As a result, Exxon Mobil and ConocoPhillips "probably feel pretty uncomfortable about PDVSA being in charge," said Enrique Sira, an analyst with Cambridge Energy Research Associates.
Talks on compensation
Exxon Mobil and ConocoPhillips remain in negotiations with PDVSA on compensation for what they are giving up. For Exxon Mobil, that's a 41.7 percent stake in Cerro Negro. BP retained its 16 percent interest in Cerro Negro, while PDVSA swallowed Exxon Mobil's stake.
PDVSA also absorbed ConocoPhillips's stakes in its projects — 40 percent in Hamaca, 50.1 percent in Petrozuata, and 32.5 percent in Corocoro, an offshore operation slated to begin production next year.
Total's 47 percent interest in its Sincor project fell to 30.3 percent, while Statoil's stake fell to 9.7 percent from 15 percent. PDVSA now holds the rest.
Corporate bond research firm Gimme Credit called the situation a "prisoner's dilemma" in a note to investors Wednesday.
"Near term, going with the flow netted Chevron more than ConocoPhillips by hanging tough — Chevron still has access to Venezuelan oil," it said.
Who will win?
"On another level, however, it remains to be seen whether or not the result will be advantageous for Venezuela. The country still has to compensate the oil companies leaving, and is left with partners that, while credible, won't necessarily make the projects their highest priority."
Chevron has a 39 percent stake in Petroboscan, an onshore oil field near Lake Maracaibo. And the company's natural gas discoveries off Venezuela's northeast shore are under consideration to supply natural gas to Venezuela, Sollid said.
Total has interests in onshore and offshore Venezuelan natural gas fields. And John Parry, an analyst with John S. Herold, noted BP's natural gas interests in neighboring Trinidad likely played a part in its decision to stay in Venezuela as well.
"I suspect this is a move that somebody stays inside the gate and somebody works it from outside the gate," he said of Exxon Mobil and ConocoPhillips' decision to exit while the others — including their former partners — are staying. "Someone had to stay in the muck and someone had to get out of it."
posted by Alice at
Thursday, June 28, 2007
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