ConocoPhillips: Venezuela Agrees to Pay 'Market Value' for Orinoco

HOUSTON Sep 5, 2007 (Dow Jones Newswires)

ConocoPhillips (COP) said Wednesday Venezuela had agreed to pay "fair market value" compensation for a crude-oil project it abandoned earlier this year.

"Both parties agreed that ConocoPhillips is entitled to fair market value of those assets," said John Lowe, ConocoPhillips' executive vice president for exploration and production. "We have not agreed on what that fair market value is at this point. If we cannot reach agreement through negotiation, then our only course is going to international arbitration."

Lowe was addressing analysts at an investor conference.

The shifting of ownership of the oil projects in the Orinoco River basin topped Venezuela's multiyear campaign to wrangle control away from the global integrated energy majors. Low-quality Orinoco oil is expensive to upgrade, requiring billions of dollars of infrastructure investments. Venezuela demanded larger stakes in the projects after much of the investment had already been made. When it disclosed it would be leaving Venezuela after failing to come to a new agreement with the government, ConocoPhillips said its assets had been expropriated.

Recently, oil minister Rafael Ramirez said Venezuela will recognize the book value, not the net present value, of these deals when calculating how much the project are worth.

Along with ConocoPhillips, Exxon Mobil Corp. (XOM) decided to leave the Orinoco River basin after Venezuela pressured the company to restructure its joint venture with state-owned Petroleos de Venezuela S.A. (PVZ.YY), or PdVSA. Other companies agreed to sign on to the new terms.

Companies involved in the compensation talks include Total Oil (TOT), Statoil ASA (STO), BP Plc (BP), and Chevron Corp. (CVX).

It took an estimated $17 billion to set up the four Orinoco ventures, but with world oil prices much higher now than when the projects were built, they are estimated to be worth more than $30 billion currently.

In May, PdVSA took operational control of the projects, but there was no legal procedure yet to decide what would happen to the assets owned by these companies.

After it pulled out, ConocoPhillips reported a loss in its exploration and production business of $2.4 billion on the Venezuela charge.

Of the six oil majors active in the area, ConocoPhillips was the most exposed to Venezuela, with its 50.1% stake in Petrozuata and its 40% stake in the Ameriven, or Hamaca, heavy-oil project.

Shares of ConocoPhillips recently were down $1.23 at $82.25.

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