I bet deals with China and Russia look more pleasing to Chavez.
http://www.chron.com/cs/CDA/ssistory.mpl/business/3007527
Jan. 25, 2005, 12:40AM
Venezuela out to get better deals by rewriting its contracts for oil
By LYNN J. COOK
Copyright 2005 Houston Chronicle
HOUSTON companies like Conoco-Phillips and Harvest Natural Resources have hit the wall in Venezuela as the country demands better terms on old oil contracts.
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Energy analysts are watching closely to see how those companies make the bruising transition to a more tightly controlled oil market under President Hugo Chavez.
All of the country's 33 operating service agreements signed in the 1990s and held by the likes of ChevronTexaco, Shell and Total are being called into question.
According to Harvest's chief financial officer, Steven Tholen, the company's proposed 2005 budget and production plan was approved in November. A month later, Harvest received letters from state oil firm Petróleos de Venezuela, or PDVSA, restricting oil production by a third and slashing capital expenditures two-thirds.
For a small operator like Harvest, the Venezuelan veto has forced it to abandon drilling seven oil wells, although the company did get approval this month to proceed with one natural gas well.
When Harvest announced it was suspending its Venezuela drilling program, its stock took a drubbing. In one week shares have traded down 30 percent to $11.94 on Monday.
Tholen said Harvest is still discussing the issue with PDVSA, but so far there's no clear vision of why the agreements were blocked.
"We all need to wait and see what they are trying to accomplish," he said.
ConocoPhillips also got word that Venezuela had rejected its plans to develop the offshore Corocoro field that was expected to produce 70,000 barrels of oil a day by 2006.
Spend more money
Venezuela's Energy Minister, Rafael Ramirez, said ConocoPhillips needed to spend more money. The contract tussle prompted Deutsche Bank to downgrade Conoco to "hold" from "buy" status.
On the surface, a drilling slowdown appears to run counter to Venezuela's ambitious goal of increasing production to 5 million barrels per day by 2009.
The country averaged 2.5 million barrels per day in 2004 according to the Energy Information Administration. Other estimates put Venezuela's production between 2.7 million and 3 million barrels per day.
Ramirez, who also took the helm of PDVSA in November, said Friday that the operating agreements are bad for PDVSA and bad for Venezuela.
"They are a very costly service," he told reporters in Caracas, according to a Dow Jones news report, adding that five of the 33 agreements had especially bad terms. "We don't want to invest more in the ones that are under these circumstances."
This isn't the first time Venezuela has tightened its grip on foreign oil companies.
Linda Giesecke, a Latin American expert with Energy Security Analysis, said that in 2001 President Chavez enacted a new hydrocarbon law that raised royalty rates from the 1 percent that many foreign investors were paying under contracts drawn up in the 1990s. Future royalty rates would be 20 percent or more.
Chavez also spelled out the need for PDVSA to retain a majority stake in any joint venture.
Conflicting signals
"The oil sector was opening up to foreign participation, and now the signals sent are conflicting," Giesecke said.
Perhaps foreign investors in Venezuela should have seen this coming.
Ramirez appears to be putting a plan into action that was hinted at last September by then-PDVSA chief Ali Rodriguez, who is now Venezuela's foreign minister.
Rodriguez told an OPEC-sponsored energy summit that every single deal Venezuela struck in the 1990s was bad for the country.
ljcook@chron.com