ExxonMobil in Cerro Negro Talks with Government

US oil and gas major ExxonMobil (NYSE: XOM) has begun talks with Venezuela's energy and oil ministry on increasing the government's share in the Cerro Negro project, the company said in a statement.

"Mobil Cerro Negro [a wholly owned subsidiary that represents Exxon in the project] confirms it is in discussions with the ministry of energy and oil regarding the migration to a mixed enterprise and reiterates it remains open to resolving the issue amicably," the statement said.

Operations at Cerro Negro's 100,000b/d-plus upgrading facility in eastern Venezuela are "proceeding in a completely normal fashion," a company spokesperson told BNamericas. Cerro Negro is one of four Orinoco heavy crude upgrade projects President Hugo Chavez pledged to nationalize early January.

However, while Venezuela has repeatedly used the word "nationalization," Exxon's statement implies the talks will center on a joint venture-type agreements in which state oil firm PDVSA will hold at least 51%.

Similar joint ventures were implemented last year between PDVSA and several foreign oil companies to replace operating agreements, but ExxonMobil refused to accept the terms and pulled out of its operating agreement in the country.

At present, PDVSA and Exxon Mobil both hold 41.67% of Cerro Negro and BP (NYSE: BP) has the other 16.67%.

Cerro Negro's viability is also threatened by a government demand that the Orinoco projects cut production, in this particular case by about 30%, a move that led ratings agency Fitch recently to downgrade all four. Cerro Negro was given the lowest rating of CCC.

The four projects have capacity to produce 620,000b/d oil but, according to the International Energy Agency are churning out less than 600,000b/d.

The other foreign partners in the Orinoco projects are ConocoPhillips (NYSE: COP), Chevron (NYSE: CVX), Norway's Statoil (NYSE: STO), and Total (NYSE: TOT).

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