EMBARGO - Quietly, Chávez opens the door to Western oil firms
By Simon Romero Published: January 14, 2009
CARACAS: It is a telling sign of how deeply the global economic crisis has cut: President Hugo Chávez, who initially reveled in describing the crash as proof of capitalism's flaws, is now quietly courting Western oil companies once again.
Until recently, buoyed by the surging price of oil, Chávez had pushed foreign oil companies here into a corner by nationalizing their oil fields, raiding their offices with the tax authorities and imposing a series of royalty increases.
But faced with the plunge in oil prices and a decline in domestic production, senior officials here have quietly begun soliciting some of the largest Western oil companies in recent weeks, including Chevron, Royal Dutch Shell and Total, in the hope of getting them to invest in Venezuela again.
Their willingness even to consider investing in Venezuela, home to some of the largest petroleum reserves in the world, reflects the scarcity of projects open to foreign companies in other top oil nations, particularly in the Middle East.
But the shift also shows Chávez's pragmatic side. At stake are no less than Venezuela's economic stability and the sustainability of his rule. With oil prices so low, the longstanding problems plaguing Petróleos de Venezuela SA, the national oil company that is driving his socialist-inspired revolution, have become much harder to ignore. Embracing the Western companies may be the only way to shore up the company - and his personal ambitions.
Today in Americas Obama inauguration a boom for merchandisersPanel delays hearing on Obama's Treasury choicePentagon official says that torture was used"If re-engaging with foreign oil companies is necessary to his political survival, then Chávez will do it," said Roger Tissot, an authority on the Venezuelan oil industry at Gas Energy, a Brazilian consulting firm focusing on Latin America. "He is a military man who understands losing a battle to win the war."
While the new oil projects would not be completed for years, Chávez is already looking beyond the end of his current term in 2012 by putting forward a referendum, expected as early as next month, that would let him run for indefinite re-election.
In recent years, Chávez has preferred partnerships with national oil companies from countries like Iran, China and Belarus. But these ventures failed to reverse Venezuela's declining oil output. State-controlled oil companies from other countries have also been invited to bid this time, but the large private companies are seen as having an advantage, given their expertise in building complex projects in Venezuela and elsewhere in years past.
The bidding process was first conceived last year when Petróleos de Venezuela's production decline was getting impossible to overlook. But it was not until this month that Chávez's government was to begin reviewing the bidding plans on new areas of the Orinoco Belt, an area in southern Venezuela with an estimated 235 billion barrels of recoverable oil, for exploration and production. Altogether, more than $20 billion in investment could be required to assemble devilishly complex projects capable of producing a combined 1.2 million barrels of oil a day.
Chávez's olive branch to Western oil companies comes after he nationalized their oil fields in 2007. Two companies, Exxon Mobil and ConocoPhillips, left Venezuela and still wage legal battles over lost projects.
But Venezuela may have little choice but to re-engage with foreign oil companies. Nationalizations in other sectors, like agriculture and steel manufacturing, are fueling capital flight, leaving Venezuela reliant on oil for about 93 percent of its export revenue in 2008, up from 69 percent in 1998 when Chávez was first elected.
In the past year, with higher oil prices paving the way, Chávez has also vastly expanded Petróleos de Venezuela's power, inextricably linking it to his political program. He has directed the oil company to build roads, import and distribute food, build docks and shipyards, and set up light-bulb factories. He has even expanded it into areas like milk production, soybean farming and the training of athletes after a weak performance at the Olympic Games.
One of the oil company's ventures sells subsidized food and extols Chávez at its stores across Venezuela. At one frenzied store in eastern Caracas, posters hung from the ceiling Saturday showing Chávez arm in arm with children beneath the heading, "Fortifying Agrarian Socialism."
Petróleos de Venezuela has also carried out nationalizations in other industries, absorbing companies like Electricidad de Caracas, the utility serving this city of five million people. Top executives like Eulogio del Pino, the Stanford-educated vice president of exploration and production, spent much of 2008 negotiating unfinished deals like the takeover of a cement company.
But all the while, Petróleos de Venezuela has faced its own difficulties. It claimed that it produced 3.3 million barrels a day throughout most of 2008. But other sources like OPEC, of which Venezuela is a member, place the figure closer to 2.3 million barrels and show a fall of about 100,000 barrels a day from a year earlier.
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