- The Washington Times - Tuesday, April 4, 2006

CARACAS, Venezuela

Venezuela has seized control of oil fields from France’s Total SA and Italy’s Eni SPA in a show of force against those resisting President Hugo Chavez’s efforts to pry more profits from the industry at a time of high oil prices.

The move signals that Mr. Chavez’s government is ready to send top oil companies packing unless they play by Caracas’ new rules, but analysts say the tactic could backfire by spooking partners Venezuela needs to develop potentially some of the world’s largest untapped reserves.

Oil Minister Rafael Ramirez announced Monday that state oil company Petroleos de Venezuela SA, or PDVSA, had taken control of Total’s Jusepin field and Eni’s Dacion field, which together produced 115,000 barrels a day, after the two companies refused to turn over operations to state-controlled joint ventures.

In challenging the government, they join Exxon Mobil Corp., which earlier sold off its stake in the 15,000-barrel-a-day Quiamare-La Ceiba field rather than submit to tightened terms.

The three dissenters are among the world’s six largest oil companies by market capitalization.

Mr. Ramirez was resolute Monday.

“We’re not going to trample over anybody but we can’t accept being trampled on either,” he said. “Companies that don’t adjust to our laws, we don’t want them to continue in the country.”

The seized properties were among 32 oil fields the government has reclaimed from private companies by voiding their oil-pumping contracts and replacing them with so-called “mixed companies” that give PDVSA a 60 percent to 80 percent stake and sharply raise royalties and taxes, among other measures.

“It’s sent a very negative sign,” said Juan Carlos Sosa Azpurua, president of Grupo Petroleo, a Caracas consultancy.

Patrick Esteruelas, analyst at the Washington-based Eurasia Group, said in a report distributed Monday that Venezuela was taking a risk playing hardball with the oil majors as “a decline in oil prices and/or the emergence of new opportunities elsewhere could force current players to reassess.”

Companies representing 25 fields, including Chevron Corp. and Royal Dutch Shell PLC, have signed on to the joint ventures.

Four other companies, including Spanish-Argentine Repsol YPF and Japan’s Teikoku Oil Co., chose to return five fields to PDVSA, though they retained stakes in other more profitable fields.

Norway’s Statoil sold PDVSA its stake in one field rather than agree to a joint venture.

Venezuela has been emboldened by rising oil prices, political instability in the Middle East and Nigeria, and new buyers in Asia.

But Venezuela may lose on its gamble, Mr. Sosa warned. “At the end of the day, it’s harmful. There will be no more additional investments,” he said.

The impact on future investment could prove critical at a time when Venezuela is seeking to develop its vast reserves in the Orinoco tar belt.

The region is estimated to hold an estimated 236 billion barrels of extra-heavy oil and tarlike bitumen, which if certified and proved commercially viable would make Venezuela home to the world’s largest crude oil reserves.

But developing those deposits requires Big Oil’s expertise and technology.

Notably, Exxon Mobil, Total and Statoil are among those with investments upgrading about 330,000 barrels a day of heavy oil in the Orinoco region to lighter, more marketable crudes.

Having suddenly changed the rules of the game, Venezuela will find it difficult to get such companies to commit to future investments, Mr. Sosa said.

“It’s not as simple as peeling mandarins. It’s not so easy,” he said.

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