May 11, 2007
On May 1, Venezuela went from being a minority partner to a majority stakeholder in four huge oil fields in the Orinoco Belt, known as the Faja. In doing so, it took operational control over fields that until then had been run by Exxon Mobil Corp., Chevron Corp., ConocoPhillips, Britain's BP, Statoil of Norway and France's Total.
The government and the companies, which invested $17 billion as of 2006 to develop the region's extra-heavy oil, now have until the end of June to negotiate compensation. Venezuela's state oil company, Petroleos de Venezuela, known as Pdvsa, also is expected to detail how it will run the Faja, which oil analysts say may be the richest oil deposit in the world. Venezuela has invited a host of new companies, including Chinese state firms, Brazil's Petrobras, Russian giants, and Colombia's small Ecopetrol, to also work the Faja. Oil markets have been closely following developments, trying to ascertain Pdvsa's future role in the Faja and the prospects for Venezuela's oil industry under President Hugo Chavez's increasingly centralized government.
The Washington Post spoke with Rafael Ramirez, the president of Pdvsa and also the minister of energy and mines. Excerpts are below:
Question: Some in the United States worry that Venezuela could cut off oil supplies. Possible? And is Venezuela worried about other competitors?
"We are not thinking of ceasing petroleum supplies to the United States. It's not in our interest. We have a market that offers a series of competitive advantages in terms of geography, in terms of a history of relations that permit us to provide, with ease, 1.5 million barrels of petroleum a day. That African countries are accessing the Atlantic Coast is logical and welcome. Perfect. We don't worry about any of that. None of the producing countries has to compete to stay in the market. We have our market niches and we'll maintain them."
Question: How are relations with foreign multinationals?
"We have fluid communications with all the North American companies that are here, from Exxon Mobil to Chevron. And even though we're in a process of migrating old contracts, we've never interrupted the level of communication. The possibility of expanding joint businesses between the North American companies and the state company has never stopped, as long as it's done within the framework of our laws."
Question: Apart from China, Venezuela seems to be trying to sell oil to countries that provide few economic gains, since several are small and others, like Brazil, are already self-sufficient. Why?
"We maintain that there is a precarious equilibrium between the producing countries and these countries. In addition, with an ample industrial development, they are going to have problems, that's what we've jointly evaluated. And so we are supplying."
Question: Many oil analysts say Venezuela has been underfunding the state oil company, and that that has weakened its capacity to produce oil. Your response?
"You know that all projects reach a peak, and last year that figure of $6 billion [which Pdvsa invested] was double what was ever invested in Pdvsa. Pdvsa had not had investments that went above $3.32 billion, and last year we doubled that. We're investing at our own rhythm and we have to add to that the investments of the private companies. The China National Petroleum Corporation, after finishing projects culminating in the perforation in the Faja, will begin investing on its own. It's not just money, but to have the capacity to produce those investments."
Question: The multinationals that developed the Faja are concerned about the compensation they'll receive from your government now that it's taken majority share. They want market value for the projects, valued at $30 billion. What is Venezuela willing to provide?
"This past May 1 we took control of the operations and decision-making from the businesses affected with the law of nationalization, and now there are two months until June 26 to reach an economic accord. In fact, what we will recognize is the book value of the various businesses. Why? Because it's more transparent, it's what can be audited, it's what will leave no doubt about how we use public funds. And the floor in that negotiation will be the amounts, the estimates, that the companies made when they went to the National Congress and asked for authorization to complete those projects."
Question: So where are negotiations headed?
"There are many options for an accord. It wouldn't be prudent for me to tell you which ones they've planted, but it would not involve the paying of money. It's compensations of all kinds to reach a deal with the companies. Our law permits them to be here. They will be in a minority position, but it's a minority position with 40 percent, 30 percent. That's important when you're producing 600,000 barrels of petroleum [per day]. It's much more important than some other opportunity there may be in another place where there's more risk. Here, there's petroleum production that has a cost of extraction of a dollar and a half or two dollars in the Faja, and if you include the upgrading, which is no more than a process of intermediate refinement, that cost of petroleum production reaches four dollars a barrel."
Question: With the government changing contracts unilaterally and now taking majority stake, won't companies stop investing?
"We want the companies to stay. And we expect them to stay. It's an excellent opportunity to invest. The mantra that they're not going to invest, well, that has to be discussed with the companies."
Question: There are concerns that there could be expropriation of some installations, if companies don't given in during the negotiations. Possible?
"The concept here is there can be no interest above our laws, our constitution, none. Those companies were at the margin of the laws in the hydrocarbon sector all these years. Last year, we offered a possibility to discuss a migration in the framework of our law. We spent a year intending to do that and, with that effort not being possible, President Hugo Chavez ordered the nationalization and a law was approved. What we say is that with that law there is no possibility, there is not much flexibility, the terms of the law have to be complied with, as in any sovereign country. And what we've said is if our legal framework and constitution are not respected, they'll have to leave the country."