US firms reject Venezuelan deal

Two major US companies have rejected a deal that would keep them working in Venezuela's most important oil field, according to state oil firm PDVSA.

The government is taking over majority control of operations in the Orinoco Belt, as it extends state control.

PDVSA said four firms - BP, Chevron, Total and Norway's Statoil - had signed deals to take minority stakes, but Exxon Mobil and ConocoPhillips had not.

President Hugo Chavez set Tuesday as a deadline for foreign firms to agree.

In May, PDVSA took over control of exploration projects in the Orinoco Belt, which had been among the last privately-run fields in the country.

See a map of the oil fields, projects and companies affected

It is the country's most important oil area, with massive potential.

There are proven reserves of at least 80 billion barrels, but there could be enough there to make Venezuela the world's biggest source of oil.

President Chavez demanded that private companies hand over majority control to the state as part of a nationalisation drive.

The six international firms working there had little choice, but there had been intense negotiation over compensation.

Compensation claim

Sticking points in the talks included asset valuation, compensation for lost value and rules about decision-making in the future joint ventures, industry officials told Reuters news agency.

The fields are worth at least $25bn, according to Matthew Shaw of Wood Mackenzie.

PDVSA said it now controlled 78% of the Orinoco projects, including full ownership of ConocoPhilips' Petrozuata operation.

Before its announcement, news agencies had quoted unnamed ConocoPhilips officials as saying the company had decided to withdraw from Venezuela, effectively pulling out of a $2.5bn investment.

The head of Exxon Mobil, Rex Tillerson, had said that he expected negotiations to continue beyond the Tuesday deadline, and it is unclear what the firm will do now.

Nationalisation drive

Mr Chavez began a widespread nationalisation drive in January, after winning a landslide victory in the elections last December.

He says the aim is to close Venezuela's massive wealth gap.

His critics say his plan is all about power and question the state's ability to run big companies effectively.

While Mr Chavez was able to pay cash compensation to nationalise the telecoms and energy sectors, analysts suggest that he would not have the funds to pay for a full-scale nationalisation of the oil sector.

Developing the new fields is vital to Venezuela's plans to double oil output by 2012, as its existing fields in Lake Maracaibo are declining.

(Published by BBC, June 26, 2007)

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