Chevron: Venezuela Relations All Business, No Politics

CARACAS (Dow Jones), Nov. 4, 2009

Chevron's chief for Latin America and Africa says the company aims to keep business and politics separate as it views a possible multibillion dollar, decades-long investment to drill for oil in Venezuela.

In an interview Tuesday with Dow Jones Newswires on the sidelines of an oil conference, Ali Moshiri expressed few concerns about any of the political risks often attributed to Venezuela's populist-socialist leader Hugo Chavez. "Our relationship with Venezuela is business-to-business," he said.

Moshiri, who heads exploration and production for Latin America and Africa, also indicated that since the U.S. government maintains diplomatic relations with Chavez, the potential for doing good business in Venezuela still exists.

"As long as there is a government-to-government relationship, we think we have the right to participate," the Chevron executive said.

"The day that (government relationship) doesn't happen, that's a different story."

Chevron is one of the largest private oil companies in Venezuela, operating with Venezuela's state oil company PdVSA on exploration and production projects. It has onshore and offshore operations, and total 2008 daily production averaged 268,000 barrels in liquids.

Chevron is one of nearly 20 companies bidding for the right to produce heavy oil in the eastern Orinoco as part of the Carabobo drilling tender. The bidding for the first several blocks was due to take place earlier this year, but has been pushed back to early 2010 as the government and companies discuss modifications to royalties and taxes and other issues.

Winning bidders would be obligated to enter joint ventures with PdVSA, which would have majority control. The areas drilled could produce 400,000 barrels a day, and total costs could be $10 billion to $20 billion.

There are immense proven reserves in the fields where the Carabobo drilling would take place, but the oil is a heavy and extra-heavy, tar-like grade, which makes the refining process expensive.

Moshiri acknowledged those challenges, but suggested Carabobo could be a good opportunity to fill a gap between supply and demand that could be coming several years from now.

"Heavy oil is a long-term project," he said. "The cost of finding it is usually zero but the cost of getting it out of the ground is normally high."

Venezuela's government has already told oil companies they will have to pay the lion's share for needed upgraders to change the heavy crude into marketable oil.

But Moshiri suggested Chevron could be willing to shoulder that burden to get its hands on Venezuela's Orinoco heavy crude.

"Heavy and extra heavy oil has got to fill that gap" between supply and demand that will be coming, he said. He added: "It's hard to turn your back on resources."

Regarding concerns about the Chavez government, which has nationalized several foreign oil companies in recent years, and forced changes to contracts of others, he said Chevron doesn't necessarily contest such changes, either by Chavez or other governments around the globe.

"In terms of changes proposed by governments...if it adds value to us and our shareholders we accept it and move on," he said.  

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