Venezuela may be increasing tension in energy markets with decisions that are confounding international oil companies, but the government there says it is merely seeking more income and new markets for its oil.
Peter J. Hill, chief executive of Harvest Natural Resources of Houston, which gets all its oil from Venezuela, has one view of the policies unfolding there. Harvest’s stock lost a quarter of its value last week after the Venezuelan national oil company unexpectedly told it to suspend exploration.
ConocoPhillips’s plan to develop a new oil field in Venezuela was suspended about two weeks ago, and Rafael Ram�rez, the Venezuelan energy minister, said last week that the government would review its 33 operating agreements with oil companies from the 1990’s to see if they still made sense for Venezuela.
Those delays come as officials, over the last month, have held talks with government-run oil companies from China, Russia and Iran.
“I’m a businessman and I don’t like to get involved in politics,” Mr. Hill, whose company has operated in Venezuela for more than a decade, said in an interview. “But there’s been a demonstrable change in the way things are done in Venezuela.”
The view from Venezuela is different. The government of President Hugo Ch�vez has said it will negotiate its disputes with Harvest and Conoco to reach agreement on production and spending. But analysts say that at a time of high crude oil prices worldwide and a shift in attention toward China, the Venezuelans are also trying to exert greater control over their resources and expand their range of buyers – as well as get more lucrative deals.
Access to some of the most coveted oil reserves in the Western Hemisphere is at stake, with Venezuela exporting about 1.2 million barrels of oil a day to the United States, or nearly 15 percent of American imports. But the overtures to the Chinese, Russians and Iranians have added to worries among private oil companies that Venezuelan policies toward them are becoming increasingly unpredictable.
Concern is also rising over the possibility that Venezuela may eventually divert shipments from the United States, which now receives more than half of Venezuela’s total production. The Venezuelans say they still consider the United States their principal market, adding that only new production would be moved to China.
All this concern has been acutely felt in Houston in recent days. Shares in Harvest, which produces about 30,000 barrels of oil a day in Venezuela, have plunged almost 30 percent since it said that Petr�leos de Venezuela, the government-controlled oil company, had told it to effectively cut its production by one-third.
“I’m not able to read the mind of the Venezuelan government,” said Mr. Hill, who added on Monday that officials from the Venezuelan energy ministry signaled they were open to negotiations on Harvest’s activities in the country. He said he did not know why the government oil company “would want to restrict investment and production.”
“The interface for communication with the government is becoming much cloudier to read,” he added.
Investors are focusing on the Venezuelan operations of ConocoPhillips, one of the largest international energy companies operating there, after its $480 million plan to develop an oil field off the eastern coast was put on hold this month amid feuding with Petr�leos de Venezuela over the project’s terms. Conoco gets about 7 percent of its worldwide production from Venezuela. [Dow Jones quoted Mr. Ram�rez as saying Monday that the government was close to an agreement with Conoco.]
Paul Sankey, a Deutsche Bank analyst, wrote in a note to investors last week that “we are extremely concerned about what seems to be an escalating situation in Venezuela.” He recommended reducing holdings of ConocoPhillips shares. Mr. Sankey said American companies in Venezuela, including ConocoPhillips, Harvest and ChevronTexaco were the “main potential losers from the unpredictable situation.”
Shares of ConocoPhillips, based in Houston, fell more than 3 percent late last week amid greater scrutiny of its differences with Petr�leos de Venezuela, and rebounded 1.3 percent on Monday. A spokeswoman declined to comment on its relations with the Venezuelan company.
Higher oil prices, which increased the flow of hard currency to Venezuela’s treasury, seem to have emboldened the dealings of the leftist Mr. Ch�vez with foreign energy companies as the rise in oil revenue offset the effects of declining production.
Output fell to an estimated 2.7 million barrels a day from nearly 3.5 million barrels a day in the late 1990’s, after strife in the state oil company resulted in a purge of employees, many of them virulently anti-Ch�vez, restricting its ability to grow. Venezuela’s output is about 400,000 barrels a day short of its OPEC production quota of 3.11 million barrels a day, according to the International Energy Agency.
But even as Venezuelan oil production has declined over all, foreign companies have provided more of the output, accounting for roughly 1.2 million barrels a day – a result of the opening of the Venezuelan energy industry to greater foreign investment by governments in the 1990’s. With oil prices and demand high, Mr. Ch�vez appears to be seizing the moment to get more favorable contracts from the oil companies and greater control of his resources.
“I tend to believe that these disputes have to do with the government wanting a bigger share of the pie,” said Roger Tissot, director for markets and countries at PFC Energy, a consulting group in Washington. He added that “in the past, they have been notoriously clumsy in asking for it.”
In October, for instance, the Venezuelan government abruptly raised royalties to 16.6 percent from 1 percent for energy companies producing heavy-grade crude oil in the Orinoco belt. The measure, which ended a virtual tax holiday, affected companies like ChevronTexaco and Total of France. Mr. Tissot noted that the energy companies learned of the tax increase on a Sunday television broadcast by Mr. Ch�vez.
The president and his officials also want to widen the customer base for Venezuelan oil. That is where China, which is seeking to secure long-term sources of oil, comes in. In December, Venezuela said it would allow the China National Petroleum Corporation, one of that country’s largest energy companies, to expand exploration. It is more expensive to ship oil to China than to the United States, but Venezuela is trying to reduce those costs by negotiating with Panama to send its oil by pipeline across the isthmus. (Only small tankers are now able to pass through the Panama Canal.)
An agreement between Venezuela and Panama would reverse the flow of a Panamanian pipeline, Petroterminales de Panam�, to the Pacific from the Atlantic coast with a capacity of 800,000 barrels a day. Chinese refineries would still have to be refitted since most cannot process the heavy crude oil exported by Venezuela, an adjustment that could take several years.
But the difficulty that some energy companies are experiencing in Venezuela has added to already tense relations with the United States. Venezuelan officials scoffed at remarks in Senate testimony last week by Condoleezza Rice, President Bush’s nominee for secretary of state, describing Mr. Ch�vez as “a democratically elected leader who governs in an illiberal way.”
Ultimately, industry executives say, what matters most is not necessarily a shift in exports to China. The American supplies could potentially be replaced by imports from countries in West Africa, the Middle East or Central Asia.
But there is growing concern that oil production in Venezuela, which has the largest reserves in Latin America, could decline further if exploration ventures with international companies were suspended. That, in turn, could restrict global energy supplies and push prices even higher, producing an even larger windfall for Mr. Ch�vez’s government.
“This type of strategy is fine as long as oil remains high,” said Antonio Szabo, a former executive at Petr�leos de Venezuela, who now runs an energy and software consulting company in Houston. “But if prices retreat, they’ll have grave difficulty in fulfilling the promises that are now being made.”
