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Oil companies say no to Venezuela

Scott Jagow Jun 26, 2007

Oil companies say no to Venezuela

Scott Jagow Jun 26, 2007


Scott Jagow: As you know, Venezuela’s president, Hugo Chavez, is taking control of the industries in his country. Today was the deadline for oil companies to hand over their operations. But ExxonMobil and ConocoPhillips said, “No, we’re not gonna do that just yet.”

Joining us from Caracas is Reuters reporter Brian Ellsworth. Thanks for being here, Brian.

Brian Ellsworth: Sure.

Jagow: So what does this mean for the oil companies? Do they still operate there, or are they getting out?

Ellsworth: ConocoPhillips has one natural gas project offshore in Venezuela. Exxon has no other projects. It has sold its one small business that it still had. The government has said that this was a friendly agreement and that there is not going to be a lawsuit that follows — so that will, of course, remain to be seen. The government will, obviously, have to pay Exxon and Conoco for the assets that they gave up.

Jagow: Because they did make a huge investment into Venezuela. So you’re saying that they are going to be compensated equally for what they put in?

Ellsworth: They not only made a huge investment, they also took quite a risk as they negotiated these projects during the 1990s, when oil prices were really at their lowest levels in quite a long time. And they put between $2 [million] and $3 billion each in downpayments to make these really large facilities that can turn Venezuela’s Orinoco oil, which is almost tar if you look at it, and turn it into this sort of clear substance that’s very high-quality oil.

Part of the dispute over this is that the government wants only to reimburse them, basically, for what they put into the projects, whereas the companies want to receive the actual value of the projects. It would be a little bit like if, say, you bought GE stock at $10 and it went up to $50, and someone came and offered to buy it back at $10. Well, that’s only what it cost you. That’s what the companies are arguing, is yes, but there’s a value here that’s not being represented.

Jagow: Well also, these companies, these American companies have been running the project here, they have the expertise in this area. What changes now? If they’re out of there, how will these projects get run?

Ellsworth: Well, nobody is suggesting that tomorrow, the projects are gonna stop running. In fact, the government actually took operational control over the companies on May 1. But the concern is that Venezuela will not invest sufficiently in these operations and they will not have the expertise. So over the long run, you could see less oil going out of these projects. This is a concern of the United States, and we’ve already heard from the U.S. Secretary of Energy saying that the United States is worried this could mean less oil for the United States.

Jagow: Obviously, the U.S. is watching this very carefully. But what about other Latin American countries? What does this mean for them?

Ellsworth: Chavez is already at the forefront of a nationalization crusade all across Latin America. You can see it in Bolivia with Evo Morales, you can see it in Ecuador with Rafael Correa. It’s something that is already underway, but to the same extent, it does up the ante. And it gives Chavez a certain cache to say that he kicked out two gringo companies. At a political level it does raise the tensions, and it does raise the expectations of a lot of populations across the continent that see Chavez as the natural leader for a Latin-American unity movement.

Jagow: Reuters reporter Brian Ellsworth in Caracas. Thank you.

Ellsworth: Thank you.

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