Six of the world's largest oil companies caught in Venezuela's continuing oil nationalization are bracing for an unfavorable compensation scheme for many billions of dollars in investment. The idea involves paper investment vouchers.

Industry sources say Petroleos de Venezuela S.A., or PdVSA, which is taking operational control of four integrated oil projects in the Orinoco river basin, plans to partially compensate western majors with credits toward future investments for accepting reduced equity stakes, not cash.

The voucher plan is seen as a "hot issue" between oil firms and the socialist administration in Caracas, potentially dragging out contract negotiations that have already run into repeated delays. A PdVSA spokesman was unable to immediately comment on the issue.

Venezuela began a so-called "re-nationalization" of its oil industry in 2004, hiking taxes and taking over privately run oil fields in a process that has curtailed investments and hurt oil production levels.

The new voucher plan, if implemented, would hit Exxon Mobil Corp. (XOM), Total SA (TOT), Chevron Corp. (CVX), ConocoPhillips (COP), Statoil (STO), and BP PLC (BP), which, along with PdVSA, invested $17 billion in the 1990s to set up the Orinoco projects that turn a sludgy tar oil into high-value grades of synthetic crude. The projects are now estimated to be worth some $31 billion.

President Hugo Chavez has set a May 1 date for PdVSA to take operational control of these projects through majority equity stakes. But this week the government gave more specifics on the nationalization time frame, giving companies until late July to finalize the new contracts before they go to Congress for final approval.

One executive at an oil major involved in the Orinoco, who declined to be named given the sensitive nature of the talks, said the compensation plan is "not defined yet," but confirmed the government is proposing a "a kind of paper instrument other than cash."

PdVSA did the same thing last April when it took control of 32 mature oil fields that were previously run by outside firms under operating contracts. At the time, PdVSA paid out $913 million in vouchers to companies that accepted minority stakes in projects under a new joint-venture structure.

Nearly a year later investments in these fields have slowed to a bare minimum under state management, reducing production levels. PdVSA hopes to recover part of the lost production this year by earmarking more funds for drilling and well maintenance.

The vouchers are viewed as highly illiquid. The credits can be used to bid in new licensing rounds in a country that has a track record for violating contract sanctity. PdVSA has also been slow to organize new licensing rounds where the credits could be used. Two years ago, the company said it would invite private firms to form joint ventures to develop 26 aged oil fields. Companies are still waiting for PdVSA to open the bidding round.

Companies can also use the vouchers to expand existing upstream operations into adjacent areas, or sell them to other companies that are looking to form joint-ventures with the state firm.

"They're not so worried about how much they will get paid, but how," said another industry insider, referring to oil firms in the Orinoco.

Orinoco oil is considered "unconventional" because it must be prepared in expensive upgrading facilities before traditional refineries can process it into retail products, such as gasoline. Venezuela claims to have nearly 300 billion barrels of recoverable oil in the entire area, making it the largest hydrocarbons deposit on the planet. The four projects currently pump around 500,000 barrels a day, around a fifth of the country's total production.

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