By Edward Klump
May 22 (Bloomberg) -- Chevron Corp. and Total SA are
pursuing new Venezuelan oil projects after President Hugo Chavez
tore up past agreements, seized assets of contractors and
expelled producers that wouldn’t accept new terms.
The strategy, producers and analysts say, is to tap crude
reserves that Chavez touts as the world’s largest. Decisions to
push ahead under a regime whose leader vows to “bury
capitalism” are bets that the companies can buy enough time to
outlast Chavez, said Peter Zeihan, a vice president at Stratfor,
a geopolitical consulting firm in Austin, Texas.
“Everybody would like to keep a flag in the ground,”
Zeihan said in a May 15 interview. “It’s a good idea, but that
doesn’t mean you’re going to see much money going into these
areas.” He said that once Chavez is out of power, perhaps in a
decade, “you can start operations in a serious manner.”
Shell, BP Plc and Total, Europe’s biggest energy companies,
and San Ramon, California-based Chevron are among 19 bidders for
stakes in three ventures that will tap new areas of Venezuela’s
Orinoco Belt, a strip of heavy-crude deposits that may hold moreoil than Saudi Arabia. Chavez took assets of service providers
this month after nationalizing oil ventures in 2007, leading
Exxon Mobil Corp. and ConocoPhillips to exit the country.
Venezuela is slated to name Orinoco winners in August. To
bid, producers paid $2 million to see data on the properties.
The foreign producers will own minority stakes in ventures with
the state oil company, and unlike the cases of Exxon Mobil and
ConocoPhillips, they won’t be given rights in their contracts to
file arbitration claims if there are disputes.

Foot in the Door

It could be a “strategic mistake” to close the door on
Venezuela, and investing rapidly in infrastructure while Chavez
is in control is risky, said Patrick Esteruelas, a Latin America
analyst at Eurasia Group in New York. Producers can get a
toehold without ramping up spending, he said.
“Companies that are buying the data packs and are thinking
of bidding are not necessarily thinking of putting in any
serious money into Venezuela,” Esteruelas said. Producers “are
looking to put a marker on the table, secure a foothold in thatmarket and open up the possibility of participating in what
could potentially be very lucrative projects under the right
circumstances.”
Chavez urged Venezuelan companies to increase investment in
the country last year, calling on them to “join forces to
advance more rapidly in the framework of the socialist
project.” He hasn’t spelled out a vision for how he sees
foreign producers making money on Venezuelan oil.

‘Down With Capitalism’

“Today is a day of national dignity, of national
independence,” Chavez said after seizing assets of overseas
oilfield-services providers on May 8. “Down with capitalism, up
with socialism.”
Chavez, 54, can seek re-election as many times as he wants
after winning a referendum in February that approved an
amendment to the Venezuelan constitution.
Just as producers can’t ignore the enormity of Venezuela’s
reserves, the government needs the expertise of international
oil companies to exploit the resource, said Chris Ross, a vicepresident at consulting firm CRA International in Houston.
“Both sides need each other, and in a rational
environment, you would expect there to continue to be
investment,” said Ross, who advised Venezuela in the 1990s on
opening its oil industry to foreign companies.
It’s possible Chavez could “modify his opinions,” as
happened in countries such as Libya, said Nansen Saleri, chief
executive officer at advisory firm Quantum Reservoir Impact in
Houston and formerly reservoir-management chief at Saudi
Arabia’s state oil company.

Libya, Iraq

The U.S. lifted sanctions against Libya, home of Africa’s
largest oil reserves, in 2004, after leader Muammar Qaddafi
stopped trying to develop weapons of mass destruction.
Countries such as Iraq and Libya are more attractive for
development than Venezuela, Stratfor’s Zeihan said. Iraq boasts
large fields and a government that’s willing to sign over
“pretty robust” concessions, he said.
“Foreign interest in Venezuela is always going to remainas long as there’s crude there, but Venezuela is nowhere near
the top of the potential investment destinations,” Zeihan said.
Anadarko Petroleum Corp. saw the proposed sale of its local
unit to PetroFalcon Corp. rejected last year by the Venezuelan
government. The country is “a very difficult environment” for
Western companies, Chief Executive Officer Jim Hackett said in a
May 19 interview. He said the company is waiting for Venezuela
to buy its asset and that Anadarko doesn’t plan further
investments until Chavez alters his approach.

Hoping for Change

“He may change policies,” Hackett said. “I think he’ll
need to at some point.”
The latest expropriations by Chavez’s government confirm
that Houston-based ConocoPhillips made the right decision to
fight the takeover of its property, Chief Executive Officer Jim
Mulva told reporters after a May 13 shareholders meeting. By
contrast, Chevron accepted new terms.
Chevron spokesman Scott Walker declined to comment on why
the company, the second-biggest U.S. oil producer, is continuingto do business in Venezuela after the latest asset seizures. Ali
Moshiri, who oversees the company’s exploration and production
operations in Latin America and Africa, spoke in a 2008
interview about Chevron’s approach to overseas investments.
“We’re in the business that we’re going to be there for
not a couple years, not 10 years, not five years,” Moshiri
said. “We’re there for 40 years, and we’ve always got to have
that in mind when we make those decisions.” Chevron’s Venezuela
investments are “safe,” he said at a conference last week.

Angola Worked Out

Moshiri cited the example of Angola, where Chevron beat
other major producers to the punch by investing in the midst of
a civil war and rebel attacks on oil facilities.
The Hague-based Shell looks at opportunities and risks in
Venezuela without taking an “emotional” viewpoint, Marvin
Odum, the company’s U.S. chief, said at a May 13 conference in
Houston. Shell spokesman Rainer Winzenried declined to elaborate
on that position.
Total was in talks with Chinese parties on a partnershipfor heavy-oil projects in Venezuela, Chief Financial Officer
Patrick de la Chevardiere told investors on a May 6 conference
call. Such partnerships are key to the Paris-based company’s
strategy, he said. Kevin Church, a Total spokesman, declined to
comment further on the company’s plans in Venezuela.
Likewise, David Nicholas, a spokesman for London-based BP,
wouldn’t comment on Venezuela strategies.
Producers seeking to outlast Chavez want to be in position
“when something more favorable comes along,” said James
Williams, an energy economist at WTRG Economics in London,
Arkansas. “The problem is, if it’s up to Chavez, nothing ever
will,” he said.
Esteruelas, the Eurasia Group analyst, said companies can’t
assume a new regime will be better. “I think that post-Chavez
bounce is going to take several years to materialize,” he said.
“If anything, things are going to get a lot worse in Venezuela
once Chavez leaves before they get better.”

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