Venezuela Faces Staffing Hurdles at Exxon's Cerro Negro

CARACAS Apr 25, 2007 (Dow Jones Newswires)

Venezuela has secured operational control of extra-heavy oil projects ahead of a May 1 deadline, but the state firm is struggling to get some key oil professionals on board President Hugo Chavez's Socialist bandwagon.

Of the four projects Petroleos de Venezuela SA (PVZ.YY) is taking control of, the most tricky is Cerro Negro, a 120,000 barrel a day integrated venture that has been managed almost exclusively by Exxon Mobil Corp. (XOM) ever since construction began in the 1990s.

Exxon has signed an agreement with PdVSA to transfer Cerro Negro operations to the state firm. Four other oil majors with interests in the Orinoco basin signed Wednesday similar memorandums of understanding with PdVSA.

But observers say the extra-heavy oil projects will put PdVSA's managerial and technical capabilities to the test. Most analysts expect production levels to suffer in the not too distant future under PdVSA, as conventional fields that it took over a year ago from private operators have seen output falls.

PdVSA, which has also seen its own production levels steadily fall in recent years, according to international industry estimates, is trying to lock in staffers before May 1, the day PdVSA will hold nationalization celebrations at the facilities that upgrade tar oil from the Orinoco river basin.

PdVSA's job fair is proving difficult, though. Pro-government oil union leaders say 30% of Cerro Negro employees still reject PdVSA's most recent salary package, and not only because it involves a pay cut.

"A lot of workers think Socialism just isn't viable," Jose Morillo, a pro-Chavez union leader representing Cerro Negro workers, told Dow Jones Newswires.

Industry executives say many of the foreign oil workers at the four projects have already left, and there is no chance they will wind up on PdVSA's payroll. This leaves PdVSA with a smaller pool of high-level Venezuelan managers to choose from.

Options abound for these oil professionals in an industry that has a human resources deficit. One diplomatic source said Saudi Arabia's Saudi Aramco has put out feelers in Venezuela, hoping to pick up some trained refinery hands for its projects.

A politicization of the work place is inevitable under PdVSA. The company routinely holds rallies where employees sport red, pro-Chavez T-shirts and hats. PdVSA President Rafael Ramirez was caught on video ahead of last year's elections ordering the rank and file to back Chavez or hit the road, underscoring the ideological atmosphere at the national oil company.

This year, Chavez is taking control of all oil and electricity operations run by outside firms as part of a nationalist plan to put the state in charge of all "strategic" industries.

Morillo said PdVSA is reducing base salaries for most employees at the Orinoco ventures, but is offering perks such as housing loans, car loans and medical assistance as compensation. He said PdVSA will retain enough Cerro Negro staff to keep operations running smoothly despite the pending exodus, but admitted the departures could "cause some difficulties."

PdVSA has little familiarity with Cerro Negro because Exxon ran a tough bargain back in the 1990s. At the other joint-venture companies - Petrozuata, Hamaca and Sincor - PdVSA has had staffers involved in operations for years.

"Cerro Negro is a different creature from the others," said one Caracas-based oil executive. "There haven't been many PdVSA folks running around there."

PdVSA planned to absorb the 4,000-plus employees in the heavy oil projects before completing a contract renegotiation on June 26, and it set up transition teams in March to have the international oil companies train PdVSA managers in daily operations leading up to its May 1 takeover of the upgraders.

The only company that did not sign an Orinoco operating agreement on Wednesday was ConocoPhillips (COP), which runs Petrozuata and has a stake in Hamaca. Ramirez said PdVSA will assume operational control anyway, and that it continues negotiating with the oil major.

PdVSA hopes to gain leverage over its foreign partners by taking over operations before completing the contract talks. But this plan could backfire if PdVSA encounters difficulties in running the complex upgrading plants on its own.

In an e-mailed statement late Tuesday, Exxon said it has "demonstrated its commitment and cooperation with the transition process to safely hand over to PdVSA operatorship of the Cerro Negro strategic association by May 1."

Still, Morillo does not expect Exxon to stick around much longer. "Exxon is leaving the country, that much is clear," he said, referring to conversations workers have had with top PdVSA managers.

Irving, Texas-based Exxon has said it could leave Venezuela if the government does not offer acceptable terms under the new contracts.

PdVSA's Ramirez said last week that talks with Exxon had been going well. Chavez has said he expects most of the foreign oil companies to stay on as minority partners.

Currently, Exxon and PdVSA each have a 41.67% stake in Cerro Negro. BP Plc. (BP) holds the remaining 16.66% stake.

Early Wednesday afternoon, Exxon's shares gained 1.5% at $79.80.

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