Article

2007-03-02 Caribbean-Latin America

Even Chavez's own energy officials are getting nervous about the dictator's new bid to start a confrontation with the U.S. through its oil firms.

Last week, for the 10th time, Chavez announced his plan to confiscate four Orinoco Belt extra-heavy-oil projects run by six Western companies Exxon Mobil, Chevron, ConocoPhillips, the U.K.'s BP, France's Total and Norway's Statoil.

"We are taking back our country," he thundered to the political peanut gallery, preposterously claiming that Venezuela is going to be a sovereign state again.

One of the targets is the vast Cerro Negro project, a joint venture of Exxon and BP with the Venezuelan state oil company PDVSA. It extracts otherwise useless tar sands and converts them into high-grade synthetic petroleum.

It's a "designer" project because it requires lots of high technology as well as high oil prices to produce enough to turn a profit. It's also integrated, and if any stage in the production chain extraction, upgrading or refining and marketing is taken out, the economics become questionable.

Exxon insisted Chavez's plan was old news and sent the following statement to IBD: "We confirmed last year that the government had informed the Cerro Negro partners of its intent to migrate to a 'mixed enterprise' structure."

That might be because most of the best cards are on the side of the oil companies.

With a market cap of $414 billion, Exxon is four times the size of the Venezuelan economy. It's famous for its by-the-books corporate style and adherence to contracts. It has vast operations worldwide.

It won't willingly give up 41,000 barrels of oil a day, but it knows that if contracts are breached in one country, its operations in other places may face similar actions. For Exxon, a contract is always a contract. Industry sources say Exxon has never changed a long-standing contract.

Rather than allow Chavez's state oil company to become the majority partner in its investment, Exxon could sell its stake to another partner, such as BP, but only if BP is willing. It did this two years ago in another confiscation.

But it could also just walk away a possibility that's keeping Venezuelan energy officials up at night.

More at the link.

Posted by mrp 2007-03-02 07:22|| || Front Page|| [11127 views since 2007-05-07] Top

#1 There are some American corporations that are amazingly hard-assed about their business dealings.

Many insist on totally transparent and honest contracts, and if anything happens, they have a walk away clause. But they will never, ever do business again with that other company, individual or nation. They don't care if it costs them much more to do it their way.

If Chavez decides to wholeheartedly rip off Exxon, then Exxon is under no obligation to play nice with Venezuelan oil. They might even rig the markets so that the value of Venezuelan oil drops to zero, because the price is far more than anyone wants to pay.

Venezuela might sell its oil at $5bbl, but by the time it reaches the spot market, it could be priced at $75bbl, and V could do nothing about it.

Posted by Anonymoose 2007-03-02 16:43|| 2007-03-02 16:43|| Front Page Top

#2 "a possibility that's keeping Venezuelan energy officials up at night"

If they're so damned worried about it, they're in a better position to do something about it than most.

IfyouknowwhatImean.

Posted by Barbara Skolaut">Barbara Skolaut 2007-03-02 16:43|| http://ariellestjohndesigns.com/page/15bk1/Home_Page.html]">[http://ariellestjohndesigns.com/page/15bk1/Home_Page.html] 2007-03-02 16:43|| Front Page Top

#3 Spike it before Oogo gets his hands on it and walk away.

Eff 'em.

Posted by Parabellum 2007-03-02 17:42|| 2007-03-02 17:42|| Front Page Top

#4 Don't know about the rest of you but I don't buy gas or anything else at Citgos anymore. Every little bit helps.

Posted by mac 2007-03-02 19:07|| 2007-03-02 19:07|| Front Page Top

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