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Chavez takes over Venezuela's last private oil fields, but seeks to entice Big Oil to stay

Chavez takes over Venezuela's last private oil fields, but seeks to entice Big Oil to stay

President Hugo Chavez's government took over Venezuela's last privately run oil fields, intensifying a power struggle with international oil companies over the world's single largest known petroleum deposit.
Newly bought Russian-made fighter jets streaked through the sky Tuesday as Chavez shouted "Down with the U.S. empire!" calling the state takeover a historic victory for Venezuela after years of U.S.-backed corporate exploitation.
"The nationalization of Venezuela's oil is now for real," said Chavez, who declared that for Venezuela to be a socialist state it must have national control.
Chavez accused foreign oil companies of bad drilling practices due to their hunger for quick profits, and said Venezuela could sue them for causing lasting damage to oil fields.
The takeover was timed to coincide with May Day, the international workers' holiday, and thousands of state oil workers cheered on Chavez at the Jose heavy crude refinery near the eastern city of Barcelona. Venezuelan flags fluttered from lamp posts and enormous red balloons dotted the sky.
The companies ceding control included BP PLC, ConocoPhillips, Exxon Mobil Corp., Chevron Corp., France's Total SA and Norway's Statoil ASA. All but ConocoPhillips signed agreements last week agreeing in principle to state control, and ConocoPhillips said Tuesday that it too was cooperating.
While the state takeover was planned well ahead of time, the oil companies remain locked in a behind-the-scenes struggle with the government. Chavez says the state is taking a minimum 60-percent stake in the Orinoco operations, but he is urging foreign companies to stay and help develop the fields. They have until June 26 to negotiate the terms.
The companies have leverage with Chavez because experts agree that Venezuela's state oil company, Petroleos de Venezuela SA, cannot transform the Orinoco's tar-like crude into marketable oil without their investment and experience.
"They're hoping ... that as time passes Chavez will realize he needs them more than they need him," said Michael Lynch, an analyst at Winchester, Massachusetts-based Strategic Energy and Economic Research.
Chavez suspects he holds the trump card: the Orinoco, if properly developed, could put Venezuela ahead of Saudi Arabia as the nation with the most reserves and he is keeping it open to private players _ unlike most of the world's proven reserves, which are controlled by state monopolies.
Patrick Esteruelas, an analyst at the New York-based Eurasia Group, said the companies are likely to stay, but in the meantime, the turmoil could cause production to fall at the operations, which export much of their output to the United States and other countries.
State-run PDVSA "is going to be assuming control as an inefficient and cash-starved company and is probably going to drag production down," he said.
Multinationals pumping oil elsewhere in Venezuela submitted to state-controlled joint ventures last year because they were reluctant to abandon the profitable operations.
Esteruelas said that since those takeovers, Venezuela's overall output has declined by close to 4 percent, or 100,000 barrels a day, with some companies complaining they have not been paid for the crude they have been pumping. "I expect to see a repeat of that in the Orinoco," he said.
Venezuela denies production problems and says it is on track to boost output in coming years.
As talks proceed, the stakes are high for both the oil companies and Venezuela.
The Orinoco River basin, though not yet fully explored, is recognized as the world's single largest known oil deposit, potentially holding 1.2 trillion barrels of extra-heavy crude.
If the big oil companies were to pull out, Chavez says state firms from China, India and elsewhere can step in, but industry experts doubt they have either the needed expertise or capital.
Chavez "is going to discover that nationalism is one thing, but money talks," Lynch said.
The companies have invested more than US$17 billion (euro13 billion) in the projects, now estimated to be worth US$30 billion (euro22 billion).
The takeover coincides with a push by the government to nationalize electricity companies and the country's main telecommunications provider as Chavez argues that radical changes are needed to help the poor benefit more from the country's oil wealth.
U.S. State Department spokesman Sean McCormack said Tuesday that Venezuela's negotiations with oil companies "will proceed as they will" but added Chavez's broader actions _ including a move to pull out of the World Bank and International Monetary Fund _ were digging Venezuela into a hole.
"You can't take the shovel out of the man's hand," McCormack told reporters in Washington. "He just keeps on digging. And sadly, it's the Venezuelan people who are victimized by this."
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AP Business Writer John Porretto in Houston, Texas, contributed to this report.


Updated : 2021-06-24 13:29 GMT+08:00