Exxon, Conoco drop Venezuela oil projects
Exxon Mobil Corp. and ConocoPhillips have decided to abandon their heavy crude oil projects in eastern Venezuela rather than cede majority ownership and operating control to the government, Venezuelan officials said Tuesday.
President Hugo Chavez had set Tuesday as the deadline for the six foreign owners of four mega-projects in Venezuela’s Orinoco Belt region to agree to terms of turning over control to Petroleos de Venezuela, or PDVSA, the state-owned oil company.
Chavez then said he was taking over the fields whether the firms agreed or not.
The demands are part of a broad move by the socialist Chavez government to “re-nationalize” the energy, telecommunications and banking sectors. This year Chavez nationalized the country’s largest telephone company and the largest power generator in Caracas, the capital, both of which were controlled by U.S. companies.
The U.S. State Department on Tuesday called on Chavez 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 Corp.; and Cerro Negro by Exxon Mobil and BP of Britain.
Since the early 1990s, the companies have invested about $17 billion in complex methods and machinery to pump, transport and process oil with the consistency of tar.
ConocoPhillips stands to lose close to 5% of its global oil production by walking away from the Orinoco.
In a statement late Tuesday afternoon, 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.”
Irving, Texas-based Exxon Mobil, with a much larger scope of oil production operations, will lose 2% of oil production.
“Exxon Mobil has learned it’s not about the oil, it’s about the money,” said Michael Lynch, an oil analyst with Amherst, Mass.-based Strategic Energy and Economic Research. “You don’t sign a lousy deal just to get access to oil. There are companies that see dealing with countries like Venezuela or Iran as loss leaders, but in the long run it usually doesn’t pay off.”
Rafael Ramirez, Venezuela’s energy minister, 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 overall oil output. The region has been a rare bright spot in Venezuelan oil production, which has declined to 2.6 million barrels a day from 3.4 million barrels since a crippling general strike by oil workers in 2002.
Although U.S. Energy Secretary Samuel Bodman expressed concern Tuesday that U.S. oil supplies could be affected by the two companies’ withdrawals, analysts expect little short-term effect on oil prices or supplies.
Lynch said the effect would come later if the Orinoco projects “lose efficiency and reliability. It’s not clear the Venezuelans can maintain it without outside help.”
Shares of ConocoPhillips fell $2.24, or 2.9%, to $75.80 on Tuesday, while Exxon Mobil fell 55 cents to $81.82.
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