Exxon not welcome in Venezuela

[Louis Proyect <lnp3@xxxxxxxxx>]

NY Times, April 1, 2006
A Tangle in Caracas for Exxon
By SIMON ROMERO

HOUSTON, March 31 ? Exxon Mobil, the world's largest publicly traded oil 
company, is locking horns with Venezuela's government, which ratcheted up 
the pressure Friday on other American oil companies by taking steps to put 
more than two dozen coveted petroleum ventures under government control.

The latest move in the growing confrontation between big oil and the 
leftist government of President Hugo Chávez follows months of changes ? 
from raising taxes to shifting control of projects to Venezuela's national 
oil company and welcoming state-controlled companies from Iran, China and 
India as exploration partners.

Few moves can rattle the executive suites of companies here in Houston. But 
one that did came late this week: a comment from Venezuela's energy 
minister, Rafael Ramírez, who essentially told Exxon that it was no longer 
welcome in Venezuela.

"We don't want them to be here, then," Mr. Ramírez said Thursday in a 
television interview in relation to Exxon's earlier decision to sell its 
stake in an oil field to Repsol of Spain rather than submit to a venture 
controlled by Petróleos de Venezuela. Venezuela's Congress approved 
measures this week that give the government control of 32 privately run oil 
fields.

If Venezuela needs Exxon, Mr. Ramirez said, "we'll call them."

Still, nothing is simple in the relationship between Venezuela and Exxon, 
which played a contentious role in the building of the country's oil 
industry. For all the rising tensions, the relationship between Exxon and 
Venezuela is more nuanced and intertwined than the harsh statements from 
Mr. Ramírez might suggest.

Exxon's chief executive, Rex W. Tillerson, said this month that he, at 
least for the moment, would avoid making any major investments in the 
country. Western oil companies fear a creeping nationalization of petroleum 
assets in Venezuela under Mr. Chávez's government, which is using its 
growing wealth from high oil prices to spread its influence around the rest 
of Latin America.

Those rising revenues from oil exports have also emboldened Mr. Chávez's 
government in its dealings with foreign energy companies.

Yet for all its difficulties in Venezuela, the placement of Exxon in the 
government's cross hairs may have more to do with symbolism than substance 
because of the way the company is perceived as a symbol of American 
influence in a country where anti-American sentiment is flourishing.

Exxon also stands out because of its signature method of dealing with 
governments in countries where it operates. Exxon, for example, has 
publicly criticized Venezuela's moves to increase royalties on projects in 
the country's Orinoco region, threatening last year to take the issue to 
international courts.

Venezuela has repeatedly been a challenging operating arena for Exxon, with 
the company taken off a $3 billion petrochemical project in February and a 
$5 billion project to export natural gas in 2002.

While Exxon and Venezuela continue to dance around each other, most other 
foreign oil companies operating there, including some of the largest energy 
concerns from the United States, Britain and France, have acquiesced to 
government requests for higher taxes, royalties and even fines.

José Vielma, the superintendent of Venezuela's tax authority, announced 
Friday that Chevron, the second-largest American oil company, after Exxon, 
had agreed to pay $50.2 million in back taxes, interest and fines. And BP 
of Britain will pay about $14 million, Mr. Vielma said.

Total of France made a similar outstanding tax payment of about $19 million 
this week after its administrative offices in Caracas were shut down by 
authorities for two days this month.

Lured by Venezuela's 77.2 billion barrels of conventional oil reserves, the 
largest outside the Middle East, these companies and others gained a 
foothold in Venezuela during a loosening toward foreign investment in the 
1990's. And they have good reasons to try to hang on to it.

One often overlooked reason most companies have declined to fight the 
different measures squeezing their operations is that Venezuela remains a 
relatively friendly place to do business. And while Venezuela's politics 
might be risky, its geology is not, with its oil easy to find.

Moreover, Venezuela still exports the bulk of its oil to the United States, 
since no other country's refining system can better handle its high-sulfur 
crude.

In Washington, the Energy Department issued a report this month concluding 
that Venezuela still offered a more favorable investment climate for 
American companies than Saudi Arabia, the most pivotal member of OPEC, and 
Mexico, where longstanding nationalism and constitutional law prevent 
foreign companies from exploring for oil.

Some analysts say that foreign oil companies account for as much as half of 
Venezuela's estimated 2.5 million barrels of daily oil production, 
explaining in part why these companies are hesitant to leave Venezuela and 
why Caracas, so far at least, is hesitant to see them go.

International companies have shown particularly keen interest in 
Venezuela's heavy oil reserves, after witnessing the boom in Canada, which 
is getting billions of dollars in revenue from these once uneconomical 
resources.

"The relationship with foreign oil companies and Venezuela is actually 
relatively warm, even with some of the improvised and emotional 
declarations that have been made," said Mazhar al-Shereidah, a professor of 
petroleum economics at the Central University of Venezuela in Caracas. "I 
don't interpret some negative comments about Exxon as policy of the state."

So why has Exxon opted to publicly complain about its treatment in 
Venezuela, risking a government scolding? Perhaps because it can do so 
without much harm to its overall operations, unlike some of its competitors.

ConocoPhillips, for example, relies on Venezuela for about 7 percent of its 
oil production, while Venezuela accounts for just 1 to 2 percent of Exxon's 
output.

"Exxon is bigger than an Argentina or any medium-sized Latin American 
country," said Roger Tissot, director of markets and countries at PFC 
Energy, a consulting firm in Washington. "They're not going to be bullied 
by Venezuela, but neither is Venezuela going to be bullied by Exxon."

Exxon has been through upheaval before in Venezuela, helping to cement the 
nation's position as a major oil exporter in the 1920's through its Creole 
Petroleum subsidiary and deriving nearly half its dividend income from 
Venezuela by the 1950's.

That was before a previous populist government nationalized foreign oil 
assets in the 1970's. Exxon still has a 42 percent stake in the Cerro Negro 
oil field in Venezuela, which produces 120,000 barrels of oil a day.

Mark Boudreaux, an Exxon spokesman, said the company had "a long-term 
perspective of its activities in Venezuela and maintains a respectful 
relationship with the Ministry of Mines and Energy."