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The Houston Chronicle: Time of the essence in Venezuela

March 2, 2007, 12:33AM
ConocoPhillips CEO says talks vital on decree but haven’t happened yet

ConocoPhillips CEO James Mulva said Thursday that his company has yet to talk to the Venezuelan government about President Hugo Chavez’s intent to wrest control of oil production projects from foreign oil giants, but time is running out to get a dialogue moving.

“It’s a challenge for our company and all the international oil companies because of the size and scope of our investments. It’s important for us to have those discussions,” Mulva said Thursday, shortly before he gave a speech at Rice University about working with national oil companies.

Earlier this week, Chavez was widely reported as saying that he had decreed that Petroleos de Venezuela, or PDVSA, would take majority control of foreign-run oil production projects in the country’s Orinoco River basin by May 1.

“May 1, obviously there’s not a lot of time,” Mulva said.

PDVSA, Venezuela’s government-controlled oil company, is a minority partner in such projects run by ConocoPhillips and several other companies, including Exxon Mobil Corp., BP and Chevron Corp.

Exxon Mobil, BP and Chevron all declined comment this week about Chavez’s comments. On Thursday, Mulva declined to speculate on the timing or outcome of such talks with PDVSA and the Venezuelan government.

But he said the projects were “very large” and technologically challenging in terms of operation, and “we have to understand what this means to our projects.”

Mulva’s speech kicked off a two-day conference highlighting a massive study released by Rice’s James A. Baker III Institute for Public Policy and the Institute of Energy Economics in Japan. In the study, researchers led by Rice energy analyst Amy Jaffe examined the roles of national oil companies in the international energy spectrum. Companies studied ranged from those like PDVSA that are completely under government control to others that are partially or wholly privatized, such as Lukoil, Russia’s largest oil company.

The study found that national oil companies control the vast majority of the world’s oil and natural gas reserves. They also have surpassed international oil companies like Exxon Mobil, Royal Dutch Shell, BP and Chevron as the world’s dominant producers.

“This is a really dramatic change in the structure of the industry,” Jaffe said.

And the International Energy Agency has projected that in the next three decades, $2.2 trillion in new investments will be needed to meet world demand for oil.

Mulva didn’t specifically mention the Chavez controversy in his speech. But he said there was “no question” that the oil industry’s success hinges on continued cooperation and collaboration between national oil companies and publicly held international oil companies.

Mulva said national oil companies are “in a stronger position to bankroll big projects on their own as well as make acquisitions,” and international oil companies also no longer necessarily have a lock on technological expertise.

So international oil companies need to understand their countries’ geopolitical issues and tailor strategies for building relationships to each national oil company “to give us an entree if not direct access,” Mulva said.

He said the key to collaboration is to share cost and risk, maintain good relationships with oil company leaders, and “a commitment to uphold the sanctity of contractual agreements.”

ConocoPhillips has 35-year contracts that give the Houston company a majority stake in two Orinoco projects in which PDVSA has a minority interest.

Also, Mulva said energy policy needs to be more open to allowing national oil companies to invest in the United States, sending a “clear signal” that their contributions are vital.

Victor Zhikai Gao, general counsel of China National Offshore Oil Corp., or CNOOC, China’s state-owned offshore oil and natural gas producer, said in a later speech that the company has moved on from its failed 2005 bid to buy Unocal.

CNOOC bid $18.5 billion, but faced a storm of political opposition to a Chinese company gaining that foothold on energy supply. Chevron bought Unocal for $18 billion.

“I really do believe CNOOC’s offer was a better deal,” he said. “It did not go the way we wished, not for commercial reasons, but for other reasons.”

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