[Marxism] Big Oil Presses Ahead in Venezuela (WSJ)

Walter Lippmann walterlx at earthlink.net
Tue Aug 24 08:04:15 MDT 2004


It's a remarkable moment in world history as the price of
petroleum reaches historic levels. The track record of the
Venezuelan opposition is pretty telling. Before Chavez was
in office, they looted the country with few checks. Since
he took over, they have a failed coup, a failed attempt to
sabotage the country's main resource [oil] and an inability
to defeat Chavez at the ballot box as well. The incompetent
opposition hasn't offered Washington and big oil a lot on
which to place their hopes. Chavez's putting out of the
olive branch to the opposition, while explaining that he
cannot deal with those who refused to accept the results
of Venezuela's electoral success is right on target now.
http://www.venezuelanalysis.com/news.php?newsno=1347 

This article makes a good complement to the material
from the debate in the WSJ between Carter and O'Grady.

It's also worth noting that Cuba, whose oil fields have
been found to contain significant deposits, is also open
to investment from US corporations. The main problem is
opposition from Washington.


Walter

("What foreign oil companies fear most in Venezuela, as they
do in many markets, is instability or unpredictability.
While some opponents of Mr. Chavez say the leader can't be
trusted, others say he is unlikely to further change the
rules of the game.

("These are good times for Big Oil here," said Guaicaipuro
Lameda, a former president of PDVSA. "As long as prices are
high, the foreign companies can help invest, and PDVSA can
spend its money on social programs.")
===========================================================

Big Oil Presses Ahead in Venezuela

Despite Chavez's Hand
In Setting the Entry Terms,
Energy Companies Pour In
By DAVID LUHNOW 
Staff Reporter of THE WALL STREET JOURNAL
August 24, 2004; Page A10

CARACAS, Venezuela -- President Hugo Chavez's fiery
anti-American rhetoric isn't scaring off one group of
investors: Big Oil.

In recent weeks, major oil companies have unveiled plans
for giant investments in Venezuela, the first since Mr.
Chavez pushed through legal changes in 2001 that imposed
tougher financial terms on foreign oil companies.

The Chavez government trumpeted the moves as a vote of
confidence in his administration ahead of last week's
referendum on recalling the president, which he won
comfortably, 59% to 41%.

The investments come as global oil prices climb and
supplies appear tight for the foreseeable future. Venezuela
has the biggest proven reserves outside the Middle East.
And while Venezuela has its own political turmoil, oil
companies have been largely unaffected by the battles
between Mr. Chavez and his opponents.

So the terms imposed in 2001 -- which require the state to
be the principal stakeholder in any oil project and raise
royalty rates to between 20% to 30% from about 16% -- no
longer are stopping companies from betting on this
sometimes-volatile Andean nation.

"I can't think of a better position for Chavez to be in,"
said Miguel Diaz of the Center for Strategic and
International Studies, of Washington. "The international
situation leaves oil companies with few investment options.
By comparison, Venezuela looks attractive."

Despite his anti-American rhetoric, Mr. Chavez needs Big
Oil as much as it needs Venezuela. State-run oil giant
Petróleos de Venezuela SA, or PDVSA, has yet to return to
its former output levels following last year's strike and
subsequent purge by the government of thousands of company
officials.

Many analysts estimate Venezuela is producing about 2.5
million barrels a day, with nearly one million of that
coming from private companies. Before last year's strike,
the country was producing roughly three million barrels a
day.

Mr. Chavez also is using export revenue from the state oil
giant to spend billions of dollars on social programs,
leaving PDVSA with less money for investment than it
otherwise would have with high prices.

"It's a win-win for Venezuela and the oil companies," said
Fadel Gheit, an oil and gas analyst for New York brokerage
house firm Oppenheimer & Co.

Mr. Gheit estimated that until the recent surge in prices,
oil companies used to calculate an average for Venezuelan
export prices in the low teens of dollars a barrel to judge
whether an investment was worthwhile. Now the assumption is
probably in the low 20s of dollars a barrel, he said.
Venezuelan export prices are normally a few dollars lower
than benchmark prices.

Most of the attention by oil companies is aimed at the
country's Orinoco Belt, which has vast reserves of
extra-heavy crude that could rival Saudi Arabia's oil pool.

This month, ChevronTexaco Corp., of San Ramon, Calif., said
it was in talks with the Venezuelan government to upgrade
heavy oil to produce as much as 400,000 barrels a day of
synthetic crude oil from the region. The project could
involve as much as $6 billion in investment.

The company already leads a joint venture with
ConocoPhillips, of Houston, in the Orinoco region, which
produces 160,000 barrels a day of blended crude and expects
to inaugurate an upgrading plant with capacity for an
additional 190,000 barrels a day of synthetic crude in the
next few months.

Earlier this month, the company started exploratory
drilling for natural gas off Venezuela's coast -- a project
that could cost some $200 million in the next three years.

"ChevronTexaco is committed to Venezuela," Ali Moshiri,
president of ChevronTexaco Latin America, said during a
speech in front of Mr. Chavez to mark the start of the gas
drilling. "We are prepared to enter into a contract
governed by the new hydrocarbon law."

Royal Dutch/Shell Group, meanwhile, says it is looking
closely at doing its own project. "We see it as an
important opportunity for the company," Shell Venezuela
President Joaquin Moreo said recently.

Another move this month was made by Exxon Mobil Corp.,
Houston, which announced a new petrochemical project 
with PDVSA that could cost as much as $3 billion.

Venezuela's huge pools of oil and gas can make it to U.S.
markets in less than a week, making them a vital link in
American energy planning, especially if supplies from the
Mideast are disrupted. Indeed, the recent climb in energy
costs began nearly two years ago, during the PDVSA strike.

What foreign oil companies fear most in Venezuela, as they
do in many markets, is instability or unpredictability.
While some opponents of Mr. Chavez say the leader can't be
trusted, others say he is unlikely to further change the
rules of the game.

"These are good times for Big Oil here," said Guaicaipuro
Lameda, a former president of PDVSA. "As long as prices are
high, the foreign companies can help invest, and PDVSA can
spend its money on social programs."

--Jose de Cordoba contributed to this article.

Write to David Luhnow at david.luhnow at wsj.





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