Exxon Mobil Corp. and ConocoPhillips refused to sign deals Tuesday to keep pumping heavy oil under tougher terms in Venezuela’s Orinoco River basin, signaling their departure from one of the world’s largest oil deposits.
Analysts said the move, however, won’t have a major effect on supplies or lead to higher prices at U.S. pumps because production by the two companies will shift to other producers who agreed to the pacts.
Four major oil companies — U.S.-based Chevron Corp., BP PLC, France’s Total SA and Norway’s Statoil ASA — signed deals to accept minority shares in the oil projects under new terms set by President Hugo Chavez’s government.
“Exxon Mobil is disappointed that we have been unable to reach an agreement on the terms,” the Irving, Texas-based company said in a statement. “However, we continue discussions with the Venezuelan government on a way forward.”
The changes are part of a broader nationalization effort by the Chavez government to assume greater control over “strategic” sectors of the economy. Aside from the oil industry, the government recently nationalized the country’s top telecommunications and electricity companies.
Elogio Del Pino, a director of the state oil company, said Houston-based ConocoPhillips, the third largest U.S. oil company, is not leaving the country completely and will maintain a 50-percent share in the Deltana Platform natural gas project.
Officials said Exxon Mobil, the world’s largest publicly traded oil company, will have no remaining oil interests in the South American country.
Venezuela “has an informal agreement to continue talking” with Exxon Mobil and ConocoPhillips about the terms of finalizing their involvement in the heavy crude projects, Oil Minister Rafael Ramirez said at a signing ceremony in Caracas.
“In the case of Exxon Mobil and ConocoPhillips, they are ending their participation in the businesses” of the Orinoco and other exploration activities, Ramirez said. “We are talking with both companies to continue negotiations to establish settlements.”
Ramirez said the signed agreements will benefit Venezuelans. He thanked the companies that agreed to the new terms, saying they are working toward a “secure future” in Venezuela.
It remains unclear how the companies are being compensated for their losses. The six companies invested more than $17 billion in the Orinoco projects and hold some $4 billion in outstanding debts, but Petroleos de Venezuela SA, also known as PDVSA, would not be assuming those obligations, Ramirez said.
“Each company is responsible before the banks for its commitments,” he told reporters.
The U.S. State Department urged Venezuela to provide proper compensation.
“The government of Venezuela, like any other government, has the right to make these kinds of decisions to change ownership rules,” said State Department spokesman Tom Casey. “We want to see them meet their international commitments in terms of providing fair and just compensation.”
Tuesday’s deals increase PDVSA’s stakes to an average of 78 percent in the four Orinoco joint ventures, from previous stakes ranging from 30 percent to 49.9 percent.
ConocoPhillips said it was likely to record an impairment of its interest in Venezuelan oil projects of about $4.5 billion in the second quarter. The oil company also said it would reserve the right for international arbitration if their talks with Venezuela fell apart.
Ramirez said PDVSA is assuming ownership of ConocoPhillips and ExxonMobil’s stakes in the Petrozuata, Ameriven and Cerro Negro heavy oil projects.
Chevron and BP’s stakes remain unchanged in their respective ventures, but Total saw its participation slashed from 47 percent to 30.3 percent, and Statoil from 15 percent to 9.7 percent in its project.
Ramirez said PDVSA is taking control of ExxonMobil’s and ConocoPhillips’ remaining oil interests in the country, including ExxonMobil’s 50.1 percent stake in the La Ceiba block currently under development. ConocoPhillips was developing the Corocoro offshore oil field with Italy’s Eni SpA, but PDVSA will take a 74 percent stake there with Eni holding the remainder.
ConocoPhillips was the most exposed: It was the single largest private oil producer in the Orinoco, with its share of production equal to about 128,000 barrels a day. Venezuelan operations account for about 4 percent of the company’s daily global oil and natural gas production.
Shares of ConocoPhillips fell $2.24, or 2.9 percent, to $75.80 Tuesday, while Exxon Mobil fell 55 cents to $81.82.
Standard & Poor’s Ratings Services said the decision would not affect ConocoPhillips’ credit ratings or outlook because it already had incorporated the potential for such an outcome into its rating.
Oil analysts don’t expect any impact on world oil supplies or prices because they don’t see any one company as having a major effect on Venezuela’s overall production.
“It’s not going to result in any less crude coming out of there,” said Kevin Saville, managing editor for the Americas energy desk at Platts, the energy research arm of the McGraw-Hill Cos.
Oil production lost to ConocoPhillips or any other oil major will shift to someone else, said James Cordier, president of Liberty Trading Group in Tampa, Fla.
“Before everyone walks out, a deal will be struck and production there will continue,” Cordier said.
Despite the tougher terms, the government notes that the oil sector remains more open to private investment than in the past: Venezuela shut private companies out of the oil sector completely between 1975 and 1992 before beginning a series of partial privatizations. Chavez has indicated no plans to repeat a complete nationalization of the oil industry.
Venezuela also remains more open than many other oil-producing nations: Three-quarters of the world’s proven reserves are controlled by state monopolies that bar private participation completely.