Venezuela threatened to expel Conoco-Phillips, the US oil company, if it does not abide by the nationalization of stakes held by foreign investors in the country's Orinoco heavy oil operations.
ConocoPhillips has refused to sign an agreement which will give PDVSA, the Venezuelan state oil company, control over its share of the production and refining of Orinoco crude, a vast resource of very poor quality oil which needs extensive upgrading. Conoco is the largest player among the foreign investors that include ExxonMobil, Chevron, ENI of Italy, Total of France and Norway's Statoil. PDVSA said Friday that Italy's Eni has agreed to hand the Corocoro Project it was developing under a risk contract since the nineties. Last week ExxonMobil and Chevron, British BP, French Total and Norway's Statoil agreed to hand operational control of their stakes in the Orinoco heavy oil fields to PDVSA. Rafael Ramirez, Venezuela's Oil Minister, suggested that ConocoPhillips would face the same fate as ENI and Total, which suffered the seizure of oilfields last year when they resisted the imposition of a new contract. "There is a conflict with a company that opposes us. If this company, ConocoPhillips or any other company, does not accept the termsÃÂ¢€Ã‚Â¦they will have to leave the country", said Minister Ramirez who added that discussions will continue until next June 26th. "Should they continue with us, then we will adopt the modality of joint venture. If, on the contrary, they refuse to do it, we will take up 100 percent of the operations," he noted. "Private companies' involvement is useful for investment and market access, but we have a conflict with those companies opposed to our law enforcement" the senior official conceded. In a two-stage campaign that forms part of President Chávez's Bolivarian revolution, Venezuela is attempting to reassert state control over its oil industry and resources. Last year, Mr Chávez forced foreign oil companies to sign new contracts giving PDVSA control over conventional oil operations. In the second stage, launched in February, the President targeted the Orinoco belt, which produces some 600,000 barrels per day of crude from four strategic associations. He wants to lift PDVSA's interest in Orinoco, which is valued by some analysts at more than 30 billion, from 40 to 60%. He said he would nationalize the oil industry. Jim Mulva, chief executive of ConocoPhillips, has described Chavez nationalization by decree as "a difficult situation" for the company. The company is the most exposed to heavy oil projects, with 50.1% of Petrozuata and 40% of Hamaca, totaling an interest in 128,000 barrels per day. High oil prices have improved the profitability of Venezuela's Orinoco crude an expensive to produce viscous oil. Better profits have encouraged President Chávez to put a squeeze on the foreign multinationals. However, analysts reckon that PDVSA, a highly inefficient company whose cash flow props up the Venezuelan economy, would struggle to operate the Orinoco facilities without foreign assistance. According to Petroleum World, Venezuelan oil output is in decline and the country struggles even to produce as much oil as it is allowed under Opec quotas. Chávez began the transfer of the Orinoco operations on May first and gave foreign companies until June 26 to sign agreements. He refuses to pay compensation. Venezuela has conventional oil reserves of 79 billion barrels and produces 2.7 million barrels per day. The Orinoco oil belt is the world's largest deposit of heavy oil with estimated recoverable reserves of 270 billion barrels, greater than Saudi Arabia.