Venezuela threatens to take over oil fields

By PETER WILSON
Tuesday, September 27, 2005 Page B14
Bloomberg News

CARACAS -- Venezuela, the world's fifth-largest oil producer, may take over fields operated by private companies if they don't convert operating contracts to joint ventures by a Dec. 31 deadline, Energy Minister Rafael Ramirez said yesterday.

State-run Petroleos de Venezuela SA plans to end all such operating contracts by the end of the year and will make no exceptions, Mr. Ramirez said. The company will hold as much as 80 per cent of the shares of the ventures, said Mr. Ramirez, who also is president of Petroleos de Venezuela.

"These operating contracts are illegal," Mr. Ramirez said. When asked what Petroleos de Venezuela would do if private producers refuse to convert the operations, he said, "We will assume production of the fields ourselves."

Petroleos de Venezuela currently has 32 contracts with 22 companies that operate and manage oil fields for it. The companies include Chevron Corp., Repsol YPF SA and Petroleo Brasileiro SA. Transitional agreements were signed with eight of the companies in August.

The companies hold oil production contracts under which they're paid per-barrel fees that have ballooned as oil prices more than doubled over the past three years. Mr. Ramirez has repeatedly criticized the contracts, which were granted before Venezuelan President Hugo Chavez took office in 1999.

The companies are currently producing about 500,000 barrels of oil a day for Petroleos de Venezuela.

"There will be no more operating contracts," Mr. Ramirez said. "The only option that these companies have is a joint venture."

Petroleos de Venezuela will save $3.8-billion (U.S.) by ending the contracts, Mr. Ramirez said. The company said in March that it lost $260-million last year on 16 of the 32 operating agreements.

Petroleos de Venezuela will seek more than just majority control over the ventures, Mr. Ramirez said. Last month, he said the company would seek only a 51-per-cent stake in the ventures.

"In some ventures, we will take a 60-per-cent shareholding, in some 80 per cent, in some 70 per cent," Mr. Ramirez said.

Proposed rules for governing the joint ventures will be submitted soon to Venezuela's National Assembly for approval, he said. The rules will include provisions for transitional bodies, he said without elaborating.

Rules governing the oil industry, and complementing the Hydrocarbons Law, will be released the first week of October, Mr. Ramirez said.

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