ConocoPhillips: In Talks with Venezuela Over Oil-Projects Compensation

NEW ORLEANS Apr 02, 2007 (Dow Jones Newswires)

ConocoPhillips (COP) is engaging in discussions with the Venezuelan government over compensation for the reduction of ownership and new commercial terms in its oil projects there, Chief Executive Jim Mulva said Monday.

"We acknowledge the decree" that would give national oil company Petroleos de Venezuela S.A. operatorship of the Petrozuata, Hamaca and Corocoro projects by May 1," Mulva told reporters on the sidelines of a Howard Weil investors meeting. Discussions are over "compensation for expropriation and what are the commercial terms," he said.

Mulva met with Venezuelan oil minister Rafael Ramirez in Caracas last Saturday to talk about the changes, he said.

The Houston-based oil major has much at stake in Venezuela, where it currently participates in two heavy oil projects in the Orinoco belt and the offshore Corocoro development. Venezuelan president Hugo Chavez has sought to take control of these and other projects, potentially reducing foreign oil companies' profits and reserves there.

Conoco, which reined in its capital spending for 2007 in the face of mounting costs, sees inflation continuing to rise. "Service costs and contract costs continue to escalate," Mulva said. There are signs of some moderation, however, in conventional drilling in Canada and the lower 48 U.S., he said.

The company, which has participated in stalled negotiations with Alaska on the building of a new gas pipeline to the contiguous U.S., "will work with the governor" for the creation of a feasible project, Mulva said.

But stakeholders "should take a look" at an oil company proposal recently rejected by the Alaska legislature and which took two years to prepare, he said. Under that proposal, ExxonMobil (XOM), Conoco and other companies had put together a plan to develop the pipeline in several Arctic gas fields.

An Arctic gas pipeline won't start until 2016 or 2017, and it will cost much more than was expected when planning began three or four years ago, Mulva said. The structure could cost up to $30 billion compared to a previous estimate of 20$-$25 billion, he said.

The delays in the Alaska pipeline, combined with the competitiveness of liquefied natural gas markets, will guarantee that U.S. gas demand will be "reasonably strong" in the near future, Mulva said.

Conoco also plans to seek some sort of participation in the giant Shtokman LNG project in Russia. "We have submitted a proposal" to project owner OAO Gazprom, Mulva said, but declined to comment on the specifics.

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