[Marxism] New Venezuela Tensions Worrying Oil Executives

["acpollack2@xxxxxxxx" <acpollack2@xxxxxxxx>]

More war-drum beating by the Times or just oil exec whining?
Either way, sock it to 'em, Hugo!

http://www.nytimes.com/2005/01/25/business/worldbusiness/25oil.html?pagewanted=print&position=
--------

January 25, 2005
New Venezuela Tensions Worrying Oil Executives
By SIMON ROMERO and BRIAN ELLSWORTH

HOUSTON, Jan. 24 - Venezuela may be increasing tension in energy markets with 
decisions that are confounding international oil companies, but the government 
there says it is merely seeking more income and new markets for its oil.

Peter J. Hill, the chief executive of Harvest Natural Resources of Houston, 
which gets all its oil from Venezuela, has one view of the policies unfolding 
there. Harvest's stock lost a quarter of its value last week after the 
Venezuelan national oil company unexpectedly told it to suspend exploration 
efforts.

ConocoPhillips's plan to develop a new oil field in Venezuela was suspended 
about two weeks ago, and Rafael Ramírez, the Venezuelan energy minister, said 
last week that the government would review its 33 operating agreements with oil 
companies from the 1990's to see if they still made sense for Venezuela.

Those delays come as officials, over the last month, have held talks with 
government-run oil companies from China, Russia and Iran.

"I'm a businessman and I don't like to get involved in politics," Mr. Hill, 
whose company has operated in Venezuela for more than a decade, said in an 
interview. "But there's been a demonstrable change in the way things are done 
in Venezuela."

The view from Venezuela is somewhat different. The government of President Hugo 
Chávez has said it will negotiate its disputes with Harvest and Conoco to reach 
agreement on production and spending. But analysts say that at a time of high 
crude oil prices worldwide and a shift in attention toward China, the 
Venezuelans are also trying to exert greater control over their resources and 
expand their range of buyers - as well as get more lucrative deals.

Access to some of the most coveted oil reserves in the Western Hemisphere is at 
stake, with Venezuela exporting about 1.2 million barrels of oil a day to the 
United States, or nearly 15 percent of American imports. But the overtures to 
the Chinese, Russians and Iranians have added to worries among private oil 
companies that Venezuelan policies toward them are becoming increasingly 
unpredictable.

Concern is also rising over the possibility that Venezuela may eventually 
divert shipments from the United States, which now receives more than half of 
Venezuela's total production. The Venezuelans say they still consider the 
United States their principal market, adding that only new production would be 
moved to China.

All this concern has been acutely felt in Houston in recent days. Shares in 
Harvest, which produces about 30,000 barrels of oil a day in Venezuela, have 
plunged almost 30 percent since it said that Petróleos de Venezuela, the 
government-controlled oil company, had told it to effectively cut its 
production by one-third.

"I'm not able to read the mind of the Venezuelan government," said Mr. Hill, 
who added on Monday that officials from the Venezuelan energy ministry signaled 
they were open to negotiations on Harvest's activities in the country. He said 
he did not know why the government oil company "would want to restrict 
investment and production."

"The interface for communication with the government is becoming much cloudier 
to read," Mr. Hill added.

Investors are focusing on the Venezuelan operations of ConocoPhillips, one of 
the largest international energy companies operating there, after its $480 
million plan to develop an oil field off the eastern coast was put on hold this 
month amid feuding with Petróleos de Venezuela over the project's terms. Conoco 
gets about 7 percent of its worldwide production from Venezuela. [Dow Jones 
quoted Mr. Ramírez as saying Monday that the government was close to an 
agreement with Conoco.]

Paul Sankey, an analyst at Deutsche Bank, wrote in a note to investors last 
week that "we are extremely concerned about what seems to be an escalating 
situation in Venezuela." He recommended reducing holdings of ConocoPhillips 
shares. Mr. Sankey said American companies in Venezuela, including 
ConocoPhillips, Harvest and ChevronTexaco were the "main potential losers from 
the unpredictable situation."

Shares of ConocoPhillips, based in Houston, fell more than 3 percent late last 
week amid greater scrutiny of its differences with Petróleos de Venezuela, and 
rebounded 1.3 percent on Monday. A spokeswoman for the company declined to 
comment on its relations with the Venezuelan company.

Higher oil prices, which increased the flow of hard currency to Venezuela's 
treasury, appear to have emboldened the dealings of the leftist Mr. Chávez with 
foreign energy companies as the rise in oil revenue offset the effects of 
declining production.

Output fell to an estimated 2.7 million barrels a day from nearly 3.5 million 
barrels a day in the late 1990's, after strife in the state oil company 
resulted in a purge of employees, many of them virulently anti-Chávez, 
restricting its ability to grow. Venezuela's output is about 400,000 barrels a 
day short of its OPEC production quota of 3.11 million barrels a day, according 
to the International Energy Agency.

But even as Venezuelan oil production has declined over all, foreign companies 
have contributed more of the output, accounting for roughly 1.2 million barrels 
a day - a result of the opening of the Venezuelan energy industry to greater 
foreign investment by previous governments in the 1990's. With oil prices and 
demand high, Mr. Chávez appears to be seizing the moment to get more favorable 
contracts from the oil companies and greater control of his resources.

"I tend to believe that these disputes have to do with the government wanting a 
bigger share of the pie," said Roger Tissot, director for markets and countries 
at PFC Energy, a consulting group in Washington. He added that "in the past, 
they have been notoriously clumsy in asking for it."

In October, for instance, the Venezuelan government abruptly raised royalties 
to 16.6 percent from 1 percent for energy companies producing heavy-grade crude 
oil in the Orinoco belt. The measure, which ended a virtual tax holiday, 
affected companies like ChevronTexaco and Total of France. Mr. Tissot noted 
that the energy companies learned of the tax increase on a Sunday television 
broadcast by Mr. Chávez.

The president and his officials also want to widen the customer base for 
Venezuelan oil. That is where China, which is seeking to secure long-term 
sources of oil, comes in. In December, Venezuela said it would allow the China 
National Petroleum Corporation, one of that country's largest energy companies, 
to expand exploration. It is more expensive to ship oil to China than to the 
United States, but Venezuela is trying to reduce those costs by negotiating 
with Panama to send its oil by pipeline across the isthmus. (Only small tankers 
are now able to pass through the Panama Canal.)

An agreement between Venezuela and Panama would reverse the flow of a 
Panamanian pipeline, Petroterminales de Panamá, to the Pacific from the 
Atlantic coast with a capacity of 800,000 barrels a day. Chinese refineries 
would still need to be refitted since most cannot process the heavy crude oil 
exported by Venezuela, an adjustment that could take several years.

But the difficulty that some energy companies are experiencing in Venezuela has 
added to already tense relations with the United States. Venezuelan officials 
scoffed at remarks last week by Condoleezza Rice, President Bush's nominee for 
secretary of state, in Senate testimony, describing Mr. Chávez as "a 
democratically elected leader who governs in an illiberal way."

Ultimately, industry executives say, what matters most is not necessarily a 
shift in exports to China and away from the United States. Those shipments 
could potentially be replaced by imports from countries in West Africa, the 
Middle East or Central Asia.

But there is growing concern that oil production in Venezuela, which has the 
largest reserves in Latin America, could decline further if exploration 
ventures with international companies were suspended. That, in turn, could 
restrict global energy supplies and push prices even higher, producing an even 
larger windfall for Mr. Chávez's government.

"This type of strategy is fine as long as oil remains high," said Antonio 
Szabo, a former executive at Petróleos de Venezuela, who now runs an energy and 
software consulting company in Houston. "But if prices retreat, they'll have 
grave difficulty in fulfilling the promises that are now being made."



Copyright 2005 The New York Times Company | Home | Privacy Policy | Search | 
Corrections | RSS | Help | Back to Top


_______________________________________________
Marxism mailing list
Marxism@xxxxxxxxxxxxxxxxxxx
http://lists.econ.utah.edu/mailman/listinfo/marxism