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PdV oil joint ventures in regime crosshairs

04 Jul 2017 22:25 (+01:00 GMT)
PdV oil joint ventures in regime crosshairs

Caracas, 4 July (Argus) — Venezuelan oil and gas projects with foreign participation are in the regime's crosshairs as it scrapes through its dwindling assets.

Hermann Escarra, a constitutional attorney close to Venezuelan president Nicolas Maduro's inner circle, told oil workers today that the government has already drafted legal measures to take 100pc ownership of all of state-owned PdV's joint ventures.

Escarra is a candidate for a seat in a constituent assembly that will effectively serve as another rubber stamp for the government after 30 July elections. Venezuela's political opposition is boycotting what it considers a fresh power grab, and is pledging to conduct a plebiscite on 16 July to repudiate the assembly.

Executives with foreign oil companies and local oil services companies appear to have been taken off guard by Escarra's remarks. One local executive predicted a wave of legal battles.

PdV has around 45 joint ventures. The largest are established integrated projects that produce extra-heavy crude from the Orinoco oil belt and upgrade it into lighter synthetic grades for export. PdV's minority foreign partners in these ventures include Total and Statoil in Petrocedeño, Chevron in PetroPiar and Russia´s state-controlled Rosneft in PetroMonagas. The Orinoco projects were already subject to nationalization without compensation in 2007. PdV´s former Orinoco partners ExxonMobil and ConocoPhillips still have outstanding litigation a decade later.

PdV is also partnered with China´s state-owned CNPC in the Sinovensa blending venture. A second set of Orinoco joint ventures, signed around 2010, include Spain´s Repsol, Chevron and Rosneft, among others. But these projects produce little if any oil because PdV has been unable to foot its share of investment.

In today's declarations, Escarra referred to Article 303 of the 1999 Bolivarian constitution, which he said will be changed to state that "for reasons of economic and political sovereignty and national strategy the state will retain 100pc ownership of PDVSA and its related entities including all subsidiaries, associations, companies and any other entities that are or may be constituted."

The calls by regime supporters to take over the whole of the crippled oil industry come against a backdrop of deadly clashes between anti-government protesters and security forces that have taken more than 100 lives in the past three months. Looting is widespread as Venezuelans scramble to eat.

It is not immediately clear what a full nationalization would accomplish. PdV lacks not only capital but also the skilled labor force to run sophisticated oil and gas operations on its own.

Many of its most qualified managers were forced to leave after a 2002-03 strike, and others have simply fled for better opportunities abroad.

But the takeover could provide the regime with an immediate injection of cash with the expropriation of revenue from the portion of crude sales that now goes to PdV´s partners.

If Escarra´s assertions came as a surprise to oil executives, they may not have been tuned into yesterday´s remarks by assembly candidate Fernando Travieso. In a radio broadcast, Travieso said the Venezuelan state must hold a majority stake in all gas ventures, as has been the case with all oil ventures since late president Hugo Chavez amended the oil law in 2006.

Travieso, a self-proclaimed oil expert who chairs the Socialist Petroleum Observatory at the state-owned Bolivarian University, said PdV's unionized workers "broadly support" constitutional changes that would make PdV a 60pc stakeholder in the Cardon 4 offshore gas joint venture in which Repsol and Italy's Eni currently hold 50pc apiece.

"Our proposal before the constituent assembly is that the Venezuelan state always constitutionally must control 60pc of all oil and gas ventures," Travieso said.

Cardon 4 currently produces about 540mn cf/d of gas from the Perla field in the Gulf of Venezuela. PdV buys the gas for its 940,000 b/d CRP refining complex.

The gas project is a rare 100pc private-sector venture in Venezuela. PdV has a right under the 2001 gas law, also passed under Chavez, to farm in up to 35pc, but it has not proceeded because of a lack of cash.

The Venezuelan company is currently in talks with Repsol and Eni on financing and development timelines for the second stage expansion of Cardon 4 to 1.2bn cf/d by 2020, possibly featuring floating liquefaction. Repsol and Eni have previously said separately that PdV is behind on payments for the Perla offtake.

The proposed nationalization of gas assets would deal a blow to plans by Chevron, Shell and Rosneft to develop other Venezuelan shallow-water gas deposits.

Chevron is the leading actor in the 10.25 Tcf Loran-Manatee project that straddles the maritime border with Trinidad and Tobago.

And Shell is spearheading a plan to transport gas from the Dragon field in the Gulf of Paria to Trinidad. Dragon is one of four fields in the planned 1.2bn cf/d Mariscal Sucre complex.

Rosneft has been in talks with PdV on taking a stake in the second development phase of Mariscal Sucre.