A senior US official this weekend warned Venezuela against international isolation, while tense talks on the state taking over Exxon-Mobil production assets continued in Caracas .
As the US ’s largest oil company haggled with president Hugo Chavez’s government about compensation for control of its Cerro Negro project, Thomas Shannon, US assistant secretary of state for Latin America, told Emerging Markets that Venezuela could not afford to alienate the US .
“Just about every country recognises that to be successful they need to have the US as a partner,” Shannon said in a telephone interview. “Even Venezuela recognises that. Without its refineries in the US , Venezuela ceases to be a player on the world stage.”
In Caracas , Exxon-Mobil continued talking with energy ministry officials about the terms on which the 100,000 barrels per day Cerro Negro project will be turned into a “mixed enterprise”. Exxon and state-owned PDVSA own 41.7% each, and the government has ordered that PDVSA’s stake be raised to more than 60% by 1 May.
Venezuelan finance minister Rodrigo Cabeza told Emerging Markets in Guatemala City that the government has rejected an Exxon proposal for compensation to be calculated on the basis of potential earnings over the next 20 years.
The government wants a deal “based on a commitment that recognises the investment carried out”, Cabeza said. “We can not accept indemnification based on what could be produced over the next 20 years. That is absolutely unacceptable.”
An Exxon-Mobil spokeswoman confirmed to Emerging Markets that “value, contract sanctity, and compensation” are being discussed with energy ministry officials. She added: “Mobil Cerro Negro [Exxon’s Venezuelan subsidiary] remains open to resolving these issues amicably.”
It is understood that Exxon and other international companies are particularly incensed by a government proposal to pay compensation in production credits rather than cash. That could cause a “backlash”, with companies quitting Venezuela , a well-placed US banking source said.
Oil industry analysts say the outcome of the Cerro Negro talks may indicate how far president Chavez wants to go in his campaign against international oil companies.
As for long-term investment, Venezuela insists that it has sufficient resources to fund it, while industry observers say it can not be done without the international oil companies. Finance minister Cabeza said that PDVSA plans on investing $50 billion over the next ten years to raise production to 5 million barrels per day; he feels “absolutely certain that the oil price will not drop below $54 a barrel”, providing sufficient revenues.