Venezuela Oil Field Seizures Cause Jitters

Governement by kleptocracy WaPo reports,

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 Chavez’s government is ready to send top oil companies packing unless they play by Caracas’ new rules, but experts 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 operations over 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 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.

Reclaimed? Appropriated or stolen would be better names. These companies won’t be getting their equipment back. The terms that President Chavez demanded is a 60% controlling stake.

Mr Chavez has decided to redefine the terms under which foreign companies can operate in Venezuela, which has the largest oil reserves outside of the Middle East.

The new terms state that the Venezuelan government must have a 60 per cent share in any venture. Sixteen companies have bowed to the demands by the president, among them BP and Shell, but Exxon Mobile, the world’s largest oil company, sold its interests instead.

Total and ENI, of Italy, have refused to sign accords, hence the seizure of Total’s concession. The Venezuelan government has said that both companies owe taxes and face being shut down.

Mr Chavez is using his oil windfall to promote a social reform programme, arms purchases and to engage in anti-US diplomacy, selling oil at below market rates to detach Latin American nations from Washington’s orbit.

Royal Dutch has the added inducement that Chavez has threatened the Dutch ABC islands just offshore of Venezuela.

From the Post article,

But Sosa [president of Grupo Petroleo YV, a Caracas-based energy consultant] warned Venezuela may lose on its gamble: “At the end of the day, it’s harmful. There will be no more additional investments.”

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….

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, Sosa said.

This is all about politics and populism. And maybe paranoia. President Chavez is continually accusing the USA of preparing to invade his paradise. UK Channel 4 recently prepared a 12-minute report on President Chavez, viewable here (broadband connection advisable). He plays to the fears of the Venezuelan people.

FILED UNDER: Latin America, National Security, , , ,
Richard Gardner
About Richard Gardner
Richard Gardner is a “retired” Navy Submarine Officer with military policy, arms control, and budgeting experience. He contributed over 100 pieces to OTB between January 2004 and August 2008, covering special events. He has a BS in Engineering from the University of California, Irvine.

Comments

  1. RA says:

    This is pure and simple theft. The UN should impose sanctions and all of their foreign assets should be siezed.

  2. Herb says:

    Looks more and more every day that that TV Preacher had it right when he called for the extermination of Chavez.

  3. Any moment now we can expect to see Chirac try to get his nation’s minds off the CPE problem with a short war. I can just see the US response.

    We need to enforce the Monroe doctrine. (But we didn’t enforce it against the UK in the Falklands).

    This is an attack on a NATO Allies. (Italy is a full member of NATO, but the French backed out when they were told that the French generals don’t get to do all the driving).

    Ah heck. We don’t like either side. Let them fight it out. (Of course, it might be a real lesson in French military power as to how well it can project its force outside of Africa).

  4. floyd says:

    it appears exxonmobil’s quarterly profit is larger than venezuela’s yearly budget,they only lack a standing army.i think i’d rather anger chavez than tillerson![lol]

  5. legion says:

    Ummm, I know we live in a capitalist society, but I would like to point out that this is _not_ an ‘attack against a UN ally’. It’s directed against corporations that happen to be _based in_ UN allies. I’m more concerned about what these actions will do to the global oil market, and if other countries (especially France and Italy) will follow suit in some sort of nationalization tit-for-tat, than I am about what this does to a couple of conglomerates

    And on a side note, it’s quite entertaining to see people on this board jumping to defend _France_, of all places – and under the rubric their being a _UN ally_. Wow, that must have hurt to type 🙂

  6. My post was tongue in cheek and spoke about France’s position as a NATO ally. We are under no treaty obligation for UN ally, but we are under NATO.

    I suspect that we could duck our commitments to the treaty by not viewing it as an attack on France. On the other hand, I suspect that France can make the case this is a causa belli for them if they want the distraction.

    So capitalist (or more socialist on the French side) the issue is not so much does this justify a war between France and Venezuela as Does Chirac think it would be convenient for it to justify a war.

    After all, the honor of France has been impugned and shouldn’t the world’s greatest power be allowed to regain its honor by force of arms?

  7. legion says:

    Yeah, sarcasm tags don’t always get scanned properly 🙂
    Depending on just how big an impact this could have on the French or Italian economy (I honestly have no idea), they could raise some serious stinks about it – even to the point of seizing Venezuelan assets, but frankly, I don’t see Chirac having the political deftness to pull off any sort of military action, and the Italian gov’t is too schizophrenic to keep that kind of focus.