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THE WALL STREET JOURNAL: Venezuela Returns Fire Against Exxon

February 9, 2008; Page A3

Venezuela reacted angrily Friday to Exxon Mobil Corp.’s move to freeze $12 billion in overseas assets of Venezuela’s state-run oil titan, Petroleos de Venezuela SA, calling it “legal terrorism.”

Exxon is taking Venezuela to international court over last year’s move by President Hugo Chávez to give the state a majority share in four big oil projects that were being managed by private oil companies. In recent weeks, the Texas-based oil company won court orders in countries including the United Kingdom to freeze assets owned by PdVSA, as the Venezuelan company is called, in order to ensure payment in the event Exxon wins its case.

Venezuela vowed it would prevail in the legal battle, and accused Exxon of trying to destabilize the country.

“[Exxon] aims to subject us to a situation of judicial terrorism, of legal terrorism,” Venezuela Oil Minister Rafael Ramirez told reporters.

Meanwhile, Stockholm-based Nynas — which is jointly owned by PdVSA and Finnish oil company Neste Oil — is also contesting Exxon’s move, which affects four of its refineries in the U.K. and Sweden.

The showdown could influence relations between big oil companies and other oil-rich nations. Higher prices in the past few years have spurred many oil exporters — Venezuela and Russia, to name two — to claim more of the bounty for themselves, sometimes tearing up contracts in the process.

Major oil companies have been divided in their response to Mr. Chávez’s resource nationalism. The fighters, notably Exxon and ConocoPhillips, fear other oil states will follow suit, if they cave in to Mr. Chávez’s demands for more control and profits. The peacemakers, including Royal Dutch Shell PLC and Chevron Corp., figure that in a world of dwindling oil treasures, any access to Venezuela’s bounty is better than none. And good relations with Mr. Chávez could help in the future if Venezuela decides to reopen the country to private investment.

Even as Exxon racks up some legal wins, it could be mired in court for years. The peacemakers, meanwhile, may be getting an early payoff. In the past few months, Venezuela has suddenly started taking a much softer line with private oil companies. The country recently announced its first bidding round for new oil exploration since Mr. Chávez took power in 1999. PdVSA has also signed oil-study deals this year with majors including France’s Total SA.

The shift in Venezuela’s stance has implications for big oil. Exxon could find itself on the outside of any new activity in the oil-rich nation, while others cash in. Total and Shell, which caved in to Mr. Chávez, are sitting down with the Venezuelan state firm to jointly develop new areas of the oil-rich country. Total briefly considered international arbitration in 2006 over a seized oil field, but the French oil company went on to reach a settlement and retain a minority stake in a huge production and upgrading project last year.

Venezuela may be treading more softly because the country is growing alarmed about the rot in its oil industry after years of underinvestment to fund Mr. Chávez’s social programs. PdVSA has been overstretched, its output is falling, and its debt mounting. The value of the country’s oil sector fell 5.3% last year despite record prices, because of weaker production, according to figures from the central bank.

Until now, Mr. Chávez has planned to develop the Orinoco, considered the largest hydrocarbons deposit on the planet, exclusively with state firms from politically sympathetic governments, such as Cuba, Iran and China. PdVSA signed deal after deal with obscure state firms with no experience producing the extra-heavy Orinoco crude. But with domestic production in steep decline, Mr. Chávez is now favoring private technical expertise over political allegiance.

Total is not the only company benefiting from Venezuela’s desire to boost production. Late last month, Shell signed a deal with PdVSA to expand joint operations at the Urdaneta field in the Lake Maracaibo. Shell used to run the show at Urdaneta, but became a minority partner in 2006.

This month, PdVSA announced a bidding round for the Carabobo field in the Orinoco, where PdVSA previously planned to work exclusively with Brazil. The heavy price tag, more than $10 billion, scared off the Brazilians, who are busy drafting plans for their own massive Tupi offshore discovery.

–Raul Gallegos contributed to this article.

Write to David Luhnow at [email protected] and Peter Millard at [email protected] and its sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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