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Exxon Mobil and ConocoPhillips Say No to Chavez as Other Oil Players Comply

On Tuesday, Exxon Mobil Corporation and ConocoPhillips refused to comply with deadlines imposed by Venezuela and its leftist president, Hugo Chavez. The effect of failure of either oil major to sign onto deals that would have imposed significantly tougher business conditions was effectively muted by the apparent willingness of four other oil firms to do just that, however. As such, most analysts did not think the refusal of the two companies to sign new deals would have a major impact on the ability of Venezuela to continue to move supplies from the region.

Oil Minister Rafael Ramirez had previously warned foreign oil companies that refusal to comply with the new deals would result in their expulsion from Venezuela. Petróleos de Venezuela, S.A. (PDVSA) has said that it was taking ownership of both ConocoPhillips’ and Exxon Mobil’s positions in the country. The move leaves the two oil majors’ $17-billion investment in the Orinoco projects in jeopardy of being lost altogether. PDVSA had already taken over operational control of Venezuela's last privately run oil fields on May 1 as part of its nationalization drive.

Although oil analysts don't expect ConocoPhillips' decision to have significant impact on world crude oil supplies or energy prices, Venezuela’s production will likely be directed to other parts of the globe. And while that trend may not be felt immediately, the South American country seems bent on weaning itself from having to sell its oil in America. At this point, they have little choice. That will change over time.

How all of this will affect PDVSA’s U.S. subsidiary, CITGO, is not yet known. But, the spurned oil majors are not likely to go away without looking for compensation and if they can’t get satisfaction in Venezuela, then Houston will be the next best scenario. Venezuela claims that foreign oil firms owe billions of dollars in back taxes. If that stance sounds hauntingly familiar, then that’s because it is the same pry with which Russia’s Vladimir Putin put Yukos to a slow and lingering death, not too long ago.

Anyone who thinks this soap opera is over is not paying attention. Venezuelan oil, representing a huge chunk of America’s current oil imports, is going away. But before that happens, Chavez will have renegotiated this current round of deals numerous times until it is no longer palatable for anyone to do business there.

Exxon Mobil and ConocoPhillips, if the latest reports are indeed true, will be shown to have done the right thing while everyone else is still throwing bad money after good. Of course, it would be far too much to hope that both of these courageous players would show similar intestinal fortitude in Alaska, where billions of cubic feet of (proven) natural gas await production and transportation south to the lower 48. Faced with a far more benevolent (and patient) local government in Sarah Palin and her so-far friendly legislature, all they’ll have to do is dig “it”(*) up and send it south. Sounds simple to me but what do I know?

(*) It: large volumes of enormously (warehoused for thirty years) profitable, domestic natural gas.

Joseph Keefe is the Managing Editor of
The Maritime Executive. Reach him after 8 July at jkeefe@maritime-executive.com