A year after President Hugo Chávez called on the state oil company (Petróleos de Venezuela S.A. - PDVSA) to renegotiate oil contracts in the heavy oil producing Orinoco region, international legal action has heated up.
Following a trend toward resource nationalism—also seen in places like Russia, Nigeria and Ecuador—PDVSA, in June 2007, doubled its stake in four major projects to an average of 78 percent, according to the Economist Intelligence Unit. ConocoPhillips and ExxonMobil refused to accept demands for majority control and higher taxes, instead opting to close down Venezuela operations. By packing up, Exxon left behind a 41.7 percent operating stake in Cerro Negro, a project estimated to produce 120,000 barrels per day (bpd). For its part, ConocoPhillips lost a 40 percent operating stake in the 190,000 bpd Ameriven project, and a 50.1 percent stake in the 104,000 bpd Petrozuata project.
However, unlike other oil companies, ExxonMobil is not walking away quietly. On February 7, 2008, it secured court injunctions in the United Kingdom, Netherlands and Netherlands Antilles that temporarily froze more than $12 billion in PDVSA assets. Through this move, Exxon is trying to make sure that it will get paid should international arbitration proceedings—starting this month—rule in its favor. Next week, a British judge is expected to uphold or overturn the measure. ConocoPhillips has taken a more conciliatory stance and is negotiating with its Venezuelan counterpart.
Meanwhile, Chevron, Total, StatoilHydro, and BP chose to accept the new terms and continue to operate in Venezuela under the less favorable terms. Both Chevron and BP managed to retain their equity in Cerro Negro and Hamaca but accepted PDVSA as their new operator. In the 180,000 bpd Sincor project, France’s Total agreed to reduce its stake from 47 percent to 30 percent and Norway’s Statoil from 15 percent to 9.7 percent, according to the Energy Intelligence Group.
According to El Universal, unaudited results show PDVSA net profits falling 68 percent year-on-year in the first half of 2007. Oil production also dropped 4.3 percent in the first half of 2007.
Bolivian (Argentine and Brazilian) Gas Challenges
Facing likely natural gas shortages and the looming winter season, the Argentine, Bolivian, and Brazilian presidents met in Buenos Aires on February 23, 2008, to discuss potential solutions for distribution of the Bolivian gas supply. The results were inconclusive. Brazil is unable to cede a portion (1 million cubic meters per day) of its Bolivian gas; instead, an agreement was forged to convene an energy study group and for energy ministers to meet next.
Bolivia’s current gas output is approximately 40 million cubic meters per day (mcm/d). Of that, previous negotiated agreements oblige Bolivia to supply Brazil with 27 million to 30 million cm/d, and require 7.7 mcm/d to be destined to Argentina. In reality, neither Brazil nor Argentina receives the full contracted amount, with just under half of the intended supply making its way to Argentina. An agreement signed in 2006 calls for Argentina to receive an additional 20 mcm/d beginning in 2011.
The Bolivian Hydrocarbons Chamber recently announced that Bolivia will not be able to meet its current supply commitment. Since nationalization of the hydrocarbons sector, production has suffered due to a lack of investment. However, Bolivian Hydrocarbons Minister Carlos Villegas sees the situation more optimistically. He projects output reaching 42 mcm/d this year and increasing an additional 6 million to 7 million cm/d in 2009, allowing for all markets to receive the necessary supply.
For Bolivia, supplying gas to Argentina is a more profitable venture—Argentina pays approximately $1 more per million BTU than its Brazilian neighbor. But Brazil’s Petrobras is a critical gas producer in Bolivia and has agreed to invest an additional $1 billion. According to Bolivia’s former hydrocarbons minister, Mauricio Medinaceli, the contract with Argentina, and possibilities for renegotiation, are more flexible than the Brazilian one. Clearly, multiple interests must be balanced.
Nevertheless, Brazil currently relies on Bolivia to supply half its natural gas. Fast growth and less than expected rainfall, among other factors, have contributed to Brazil’s increased dependence on Bolivia. In the short term, Brazil can use gas to generate electricity and save its water reservoirs for future generation needs. But without adequate rainfall, Brazil could find itself in an energy predicament.
Argentina is also experiencing increased demand, forcing temporary electricity cuts last year. Its proven gas reserves are not far behind those of Bolivia, but price controls have dampened investment and prompted an increased reliance on Bolivian gas. Approximately half of Argentina’s energy needs are satisfied by gas. The National Program for Rational Energy Use (PRONUREE) will save approximately 600 MW of electricity, according to President Cristina Fernández de Kirchner.