Chavez's tough talk

Chavez's tough talk does not scare off big firms

Venezuelan President Hugo Chavez has rattled oil markets with tough anti-capitalist talk, higher royalties and oilfield takeovers, but petroleum companies operating in the world's fifth-largest crude exporter are hardly running scared.

With crude prices soaring and oil reserves growing scarcer, the South American nation is still an attractive proposition for top petroleum operators even as the country's socialist leader demands a bigger cut of the black gold revenues.

Chavez has accused Big Oil of robbing the nation's resources, and last week seized two privately operated oilfields, but global oil giants like Chevron Corp., Royal Dutch Shell Plc and Total are still seeking opportunities in Venezuela. "A large majority of companies are willing to accept tighter terms," said Patrick Esteruelas, a consultant with the Eurasia Group in New York. "Venezuela has large untapped potential reserves and oil prices remain very high."

A group of 16 companies this month converted subcontracting deals to joint ventures giving state company PDVSA a majority stake even after the government imposed tough conditions including retroactive tax demands and mandatory contract changes that companies have often considered illegal.

Venezuela increased oil market jitters early this month by taking over fields operated by Italy's ENI and France's Total after the companies failed to reach an agreement to create joint ventures with PDVSA. But both companies later said they would avoid a legal battle, and have signaled goodwill by agreeing to pay off a combined total of $126.6 million in back taxes to Venezuela.

Only Texas-based oil giant ExxonMobil Corp. has resisted the Chavez government's orders, selling its stake in a small oilfield operation to avoid creating a new joint venture.

The populist Chavez, a former paratrooper elected president in 1998, has promised a revolution to end chronic poverty and has spent billions of dollars in windfall oil income on social programmes for the country's impoverished majority.

Though his fiery, lengthy speeches often attack the evils of capitalism, Chavez's negotiations with oil companies have been practical and allowed him to cut deals with multinationals.

Still, analysts say Chavez's ambitious social program-me has drained much-needed investment from the nation's oilfields. PDVSA says it is producing 3.3 million barrels per day (bpd), but market-watchers including Opec say production is only 2.6 million bpd.

The company lost many of its skilled workers after a massive walk-out in 2002 meant to force Chavez's ouster led to the dismissal of close to 20,000 employees.

Possibly the biggest draw for oil companies is the massive 235 billion-barrel Orinoco Belt reserves, a largely undeveloped area of tar-like heavy oil that Venezuela argues constitutes the world's largest reserve of crude.