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Financial Times: Venezuela takes control of private oilfields

Financial Times: Venezuela takes control of private oilfields: Tuesday 3 January 2006
By Andy Webb-Vidal in Caracas
Published: January 3 2006
Venezuela has this week taken state control of 32 privately operated oilfields in a move that will raise fiscal revenue but could damp future investment to boost output from the world's fifth-largest exporter.
The transitory contract conversions pave the way for Petróleos de Venezuela, or Pdvsa, the state-owned oil company, to formalise holdings of up to 70 per cent in the new joint ventures.
Majority state ownership over the affected oil units fulfils a policy goal of President Hugo Chávez, who has long called for greater control of Venezuela's oil reserves, which are the largest in the Americas.
Rafael Ramírez, the energy minister and head of Pdvsa, said the move signalled Venezuela's “recovery'' of oilfields over which the state had “renounced collecting royalties''. Mr Ramírez told the FT last month that the existing contracts had meant that Pdvsa lost money in those ventures.
Pdvsa said last week that it made a net profit of $9.4bn (€8bn, £5.5bn) in 2005, almost 120 per cent more than during the previous year.
About 500,000 barrels per day of Venezuela's total output of 2.7m b/d are affected by the changes. Pdvsa will define the terms of the new contracts in the months ahead, including higher tax rates.
All multinationals operating in Venezuela – with the exception of US-based ExxonMobil – accepted the January 1 deadline for conversion. Pdvsa said ExxonMobil had sold its 25 per cent stake in the 15,000 b/d La Ceiba field to Repsol-YPF of Spain.
In addition to Repsol-YPF, companies that agreed to convert to joint ventures included BP, ChevronTexaco, China National Petroleum Company, Eni, Petrobras, Anglo-Dutch Royal Dutch Shell and Total.
The existing agreements were created in the 1990s as a way of tapping foreign capital to boost output. But a 2001 law requires all oil production be undertaken by companies that are majority-owned by the state.
Output from the oilfields affected has declined in recent months, in part due to uncertainty over the impending changes. Investment banks predict that production will not recover while the new arrangements remain vague.
“Until then, we do not expect companies to make any significant investments and oil output to remain below previous levels in 2004,'' Deutsche Bank said in a report. “On the other hand, once the conditions in the new agreements are defined, oil output could rapidly recover.''
Higher oil prices have forced multinationals to accept less lucrative conditions in several oil-producing countries.

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