Chevron Corp. and Total SA are pursuing new Venezuelan oil projects after President Hugo Chavez tore up past agreements, seized assets of contractors and expelled producers that wouldn’t accept new terms.

The strategy, producers and analysts say, is to tap crude reserves that Chavez touts as the world’s largest. Decisions to push ahead under a regime whose leader vows to “bury capitalism” are bets that the companies can buy enough time to outlast Chavez, said Peter Zeihan, a vice president at Stratfor, a geopolitical consulting firm in Austin, Texas.
“Everybody would like to keep a flag in the ground,” Zeihan said in a May 15 interview. “It’s a good idea, but that doesn’t mean you’re going to see much money going into these areas.” He said that once Chavez is out of power, perhaps in a decade, “you can start operations in a serious manner.”
Shell, BP Plc and Total, Europe’s biggest energy companies, and San Ramon, California-based Chevron are among 19 bidders for stakes in three ventures that will tap new areas of Venezuela’s Orinoco Belt, a strip of heavy-crude deposits that may hold more oil than Saudi Arabia. Chavez took assets of service providers this month after nationalizing oil ventures in 2007, leading Exxon Mobil Corp. and ConocoPhillips to exit the country.
Venezuela is slated to name Orinoco winners in August. To bid, producers paid $2 million to see data on the properties. The foreign producers will own minority stakes in ventures with the state oil company, and unlike the cases of Exxon Mobil and ConocoPhillips, they won’t be given rights in their contracts to file arbitration claims if there are disputes.
------------------Foot in the door
It could be a “strategic mistake” to close the door on Venezuela, and investing rapidly in infrastructure while Chavez is in control is risky, said Patrick Esteruelas, a Latin America analyst at Eurasia Group in New York. Producers can get a toehold without ramping up spending, he said.
“Companies that are buying the data packs and are thinking of bidding are not necessarily thinking of putting in any serious money into Venezuela,” Esteruelas said. Producers “are looking to put a marker on the table, secure a foothold in that market and open up the possibility of participating in what could potentially be very lucrative projects under the right circumstances.”
Chavez urged Venezuelan companies to increase investment in the country last year, calling on them to “join forces to advance more rapidly in the framework of the socialist project.” He hasn’t spelled out a vision for how he sees foreign producers making money on Venezuelan oil.
--------------------‘Down with capitalism’
“Today is a day of national dignity, of national independence,” Chavez said after seizing assets of overseas oilfield-services providers on May 8. “Down with capitalism, up with socialism.”
Chavez, 54, can seek re-election as many times as he wants after winning a referendum in February that approved an amendment to the Venezuelan constitution.
Just as producers can’t ignore the enormity of Venezuela’s reserves, the government needs the expertise of international oil companies to exploit the resource, said Chris Ross, a vice president at consulting firm CRA International in Houston.
“Both sides need each other, and in a rational environment, you would expect there to continue to be investment,” said Ross, who advised Venezuela in the 1990s on opening its oil industry to foreign companies.
-------------------Libya, Iraq
It’s possible Chavez will “modify his opinions,” as happened in countries such as Libya, said Nansen Saleri, chief executive officer at advisory firm Quantum Reservoir Impact in Houston and formerly reservoir-management chief at Saudi Arabia’s state oil company.
The U.S. lifted sanctions against Libya, home of Africa’s largest oil reserves, in 2004, after leader Muammar Qaddafi stopped trying to develop weapons of mass destruction.
Countries such as Iraq and Libya are more attractive for development than Venezuela, Stratfor’s Zeihan said. Iraq boasts large fields and a government that’s willing to sign over “pretty robust” concessions, he said.
“Foreign interest in Venezuela is always going to remain as long as there’s crude there, but Venezuela is nowhere near the top of the potential investment destinations,” Zeihan said.
Anadarko Petroleum Corp. saw the proposed sale of its Venezuela unit to PetroFalcon Corp. rejected last year by Chavez’s government.
-------------------Hoping for change
The country is “a very difficult environment” for Western companies, Chief Executive Officer Jim Hackett said in a May 19 interview. He said the company is waiting for Venezuela to buy its asset and that Anadarko doesn’t plan further investments until Chavez alters his approach.
“He may change policies,” Hackett said. “I think he’ll need to at some point.”
The latest expropriations by Chavez’s government confirm that Houston-based ConocoPhillips made the right decision to fight the takeover of its property, Chief Executive Officer Jim Mulva told reporters after a May 13 shareholders meeting. By contrast, Chevron accepted new terms.
Chevron spokesman Scott Walker wouldn’t comment on the reasons for continuing to do business in Venezuela, saying only that the company evaluates every opportunity “based on economics and other factors.”
Ali Moshiri, who oversees Chevron’s exploration and production operations in Latin America and Africa, spoke in a 2008 interview about Chevron’s approach to overseas investments.
-----------------Decades-long perspective
“We’re in the business that we’re going to be there for not a couple years, not 10 years, not five years,” Moshiri said. “We’re there for 40 years, and we’ve always got to have that in mind when we make those decisions.” Chevron’s Venezuela investments are “safe,” he said at a conference last week.
Moshiri cited the example of Angola, where Chevron beat other major producers to the punch by investing in the midst of a civil war and rebel attacks on oil facilities.
The Hague-based Shell looks at opportunities and risks in Venezuela without taking an “emotional” viewpoint, Marvin Odum, the company’s U.S. chief, said at a May 13 conference in Houston. Shell spokesman Rainer Winzenried declined to elaborate on that position.
Total was in talks with Chinese parties on a partnership for heavy-oil projects in Venezuela, Chief Financial Officer Patrick de la Chevardiere told investors on a May 6 conference call. Such partnerships are key to the Paris-based company’s strategy, he said. Kevin Church, a Total spokesman, declined to comment further on the company’s plans in Venezuela.
-----------------Getting in position
Likewise, David Nicholas, a spokesman for London-based BP, wouldn’t comment on Venezuela strategies.
Producers seeking to outlast Chavez want to be in position “when something more favorable comes along,” said James Williams, an energy economist at WTRG Economics in London, Arkansas. “The problem is, if it’s up to Chavez, nothing ever will,” he said.
Esteruelas, the Eurasia Group analyst, said companies can’t assume a new regime will be better. “I think that post-Chavez bounce is going to take several years to materialize,” he said. “If anything, things are going to get a lot worse in Venezuela once Chavez leaves before they get better.”
(Source: Bloomberg)