Foreign Policy Blogs

Venezuela and Chevron — A Love Story

Just in time for Valentine’s Day, Hugo Chavez, President of Venezuela, has changed his mind.  He loves big oil companies after all.

The history of Big Oil and Hugo Chavez reads like one of those dysfunctional relationships most of us have at least briefly been involved in: he or she only loves you when they need you. At first it seems passionate and real. The first time they want to get back together, you believe them, but after a couple rounds, it just seems stormy and dispiriting. If you feel you need to keep going back, it’s time for addiction therapy.

In 2006, President Chavez took over control of two oil fields from France’s Total and Italy’s Eni; in 2007, he moved to nationalize oil projects by, among others, Exxon and ConocoPhillips. They subsequently pulled out.

But nationalization hasn’t worked out so well; President doesn’t want to invest but he does want the money. More than 80% of Venezuela’s export income comes from oil and although oil is at $70-80 a barrel, demand is still weak. The economy, which was afloat when demand and prices were high has contracted, the Economist says, by 2.9% last year and the country is in a recession. Chavez devalued the bolivar earlier this year to try to ease the situation.

Even more tantalizing, the US Geological Survey has just upped the amount of recoverable oil it believes is in Venezuela’s famous Orinoco oil belt: It is now estimated to hold 513 billion barrels of oil — up there with Saudi Arabia, but of a heavier, gloppier kind. President Chavez has a lot of oil to sell.

So he has come back around sweet-talking. For all the loud acrimony on both sides, the United States is still the largest consumer of Venezuelan oil. What will the oil companies do?

AP reports that one block will be developed by a consortium that includes Spain’s Repsol, Malaysia’s Petronas and three Indian companies — Oil and Natural Gas Corp., Oil India Ltd. and Indian Petroleum Corp.

The other block will be worked by a consortium that includes US-based Chevron, which, it is agreed, had always maintained a closer relationship with Venezuela than other American oil companies.

In an unusual display of warmth given his friction with Washington, Mr. Chávez happily greeted a senior Chevron executive in attendance, Ali Moshiri, the company’s president of African and Latin American operations. The groups led by Chevron and Repsol agreed to cede control in their ventures to Petróleos de Venezuela, Mr. Chávez’s national oil company, in addition to securing all the financing for their projects, which could require as much as $30 billion. New York Times  2-11-10

Not everyone is seduced. The Times goes on

Some foreign oil companies that had shown interest in the auction — including Royal Dutch/Shell, Brazil’s Petrobras and Total of France — opted not to bid. Mr. Chávez is moving ahead with nationalizations in other industries, like the seizure last month of stores controlled by the French retailer Casino, which appears to have scared foreign investors.

A contract for a third area in the Orinoco Belt was not awarded, reflecting the reluctance of other oil companies to take part in the auction.

Will the relationship work this time? Is it true love?

”I’d say it’s very risky (to invest in Venezuela) because once you’re investing money in the country, the government is your partner,” William Edwards (an oil analyst with the U.S.-based Edwards Energy Consultants) said in a phone interview from Katy, Texas. ”They could set one set of rules to invite you in, then they can change the rules, and that’s risky.

Some private energy executives here doubt that the oil projects will materialize due to technical difficulties.. Moreover, Mr. Chávez announced only the award of the deals; final operating agreements must still be negotiated and signed. Recent attempts to reach other oil production ventures with companies from China, Belarus, Russia, Italy and Vietnam have advanced slowly, if at all. AP 2-10-10

“Here now I wander alone as I wonder/Why you did leave me to sigh and complain./I ask of the roses, why should I be forsaken,/ Why must I here in sorrow remain?” — Early One Morning, folk song










Jodi Liss

Jodi Liss is a former consultant for the United Nations, the United Nations Development Programme, and UNICEF. She has worked on the “Lessons From Rwanda” outreach project and the Post-Conflict Economic Recovery report. She has written about natural resources for the World Policy Institute's blog and for Punch (Nigeria).