News
Diplomat Stresses Venezuelan Control
By Kristen Hays
The Houston Chronicle
July 12, 2007
Continued
While ConocoPhillips and Exxon Mobil left, others remain, he said, and more have been invited to explore and develop the Orinoco region — including Russia's Lukoil, Brazil's Petrobras, China's CNPC and India's ONGC. This week PDVSA also announced that Venezuela and Iran will collaborate to spend $4 billion on a joint Orinoco project.
Alvarez said Venezuela is especially interested in attracting investment from smaller businesses and ones owned by blacks and Hispanics.
Alvarez also said oil services providers, such as Schlumberger and Halliburton, can fill the gap of technical expertise left by pullouts of international oil companies.
Questioning the plan
Patrick Esteruelas, an analyst with political risk consultancy provider Eurasia Group, said the aftermath may be more complicated than Alvarez suggests.
He said other companies may be hesitant to invest when contracts could change in midstream.
Also, he said questions loom as to whether other companies have the know-how to successfully develop heavy oil projects and maximize production in the Orinoco, where estimated reserves could surpass those in Saudi Arabia.
"Frankly, I think ConocoPhillips' and Exxon Mobil's refusal to accept new contracts has shown there are certain limits to how far Venezuela can take the game," Esteruelas said. "I think the government will have to recalibrate and re-evaluate its prospects unless it wants to run the risk of either pushing other companies out or failing to convince any new companies to step in."
Also, Esteruelas noted that in mid-May, the Venezuelan government said it might take over 18 oil rigs now operated by oil service companies and create a PDVSA subsidiary to tighten control of drilling operations throughout the country. That could prompt oil service companies to hold back on drilling expansion, he said.
American assets
If compensation talks fail and ConocoPhillips and Exxon Mobil turn to international arbitration, Venezuela has something to lose.
Its American assets — notably five refineries run by its Houston-based subsidiary, Citgo — could be targeted for seizure to compensate ConocoPhillips and Exxon Mobil.
Alvarez said he was unconcerned about that possibility. He said he hoped compensation talks would succeed, rendering the lengthy, expensive arbitration process unnecessary.
"It is the best for everybody else to go and reach an agreement," he told the Chronicle.
He also said that during his visit, he would meet privately with officials of Chevron and Citgo. He had no meetings scheduled with ConocoPhillips or Exxon Mobil.
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