Venezuela Orinoco Cos Fear Voucher Compensation

CARACAS Feb. 28, 2007 (Dow Jones Newswires)

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.

Copyright (c) 2007 Dow Jones & Company, Inc.

Related Companies
 Company: BP plcmore info

 - BP General Council Bondy To Leave At Year End (Oct 24)
 - BP Says Will Break Even With Oil At $55/Barrel In 2017 (Oct 18)
 - BP Boss Dudley Sees Oil Prices At $55-$70 For Rest Of The Decade (Oct 11)
 Company: Exxon Mobil Corporationmore info

 - Exxon CEO Doesn't See Supply Shortage Pushing Up Oil Prices (Oct 19)
 - ExxonMobil To Start Drilling First Liberia Well In November (Oct 19)
 - Norway Gas Plant Workers Agree Wage Deal, Avoid Strike (Oct 7)
 Company: Statoilmore info

 - Statoil Says Restarts Output At Statfjord A Platform After Fire (Oct 24)
 - Faroe to Increase CAPEX in 2017 (Oct 19)
 - Production Still Shut at Statfjord A Following Platform Fire (Oct 17)
 Company: Total S.A.more info
 - Total Says Brazil Libra NW Prospect Holds 3-4 bln Barrels of Oil (Sep 29)
 - Oil Industry Welcomes Indonesia's Tax Reform, But Says It's Not Enough (Sep 23)
 - Oil Firms Seen Spending More Next Year For First Time Since 2014 (Sep 23)
 Company: ConocoPhillipsmore info

 - ConocoPhillips Sues Venezuela's PDVSA, Calls Bond Swap 'Fraudulent' (Oct 7)
 - MedcoEnergi Acquires ConocoPhillips' Stake in South Natuna Sea Block (Sep 20)
 - Pertamina's Upstream Arm Produces 15% More Oil, Gas Than Planned (Sep 19)
 Company: Chevron Corporationmore info
 - Chevron Confirms Is In Discussions For Potential Bangladesh Sale (Oct 13)
 - Kidnapped Romanian Oil Engineer in Niger Delta Released (Oct 13)
 - Jefferies: OPEC Output Cut Unlikely (Oct 11)
 Company: PDVSAmore info

 - Venezuela PDVSA Swaps $2.8B 2017 Bonds, Gains Financial Breather (Oct 24)
 - Ex-Venezuela PDVSA Boss Denies $11B Corruption Allegations (Oct 20)
 - Spain's Repsol Provides $1.2B Credit Line For Venezuela Oil JV (Oct 7)

Our Privacy Pledge

Most Popular Articles

From the Career Center
Jobs that may interest you
Logistics Coordinator & Optimization Analyst
Expertise: Logistics Management
Location: Billings, MT
Associate Category Manager or Category Manager Job
Expertise: Logistics Management|Purchasing|Supply Chain Management
Location: Denver, CO
Contracts Advisor
Expertise: Budget / Cost Control|Contracts Engineer|Supply Chain Management
Location: San Ramon, CA
search for more jobs

Brent Crude Oil : $51.78/BBL 0.77%
Light Crude Oil : $50.85/BBL 0.83%
Natural Gas : $2.99/MMBtu 4.77%
Updated in last 24 hours