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THE NEW YORK TIMES: Venezuela Urges Control of Oil Projects

Venezuela Urges Control of Oil Projects

Published: May 12, 2006

Filed at 12:30 a.m. ET

CARACAS, Venezuela (AP) — Venezuela's congress, dominated by supporters of President Hugo Chavez, released a report recommending the state assume majority control of key heavy oil projects run by companies like Chevron Corp. and Exxon Mobil Corp. in its oil-rich Orinoco River basin.

Such a move, which Chavez has yet to publicly endorse, would bring all active oil-producing operations run by foreign companies in Venezuela effectively under state control.

Thursday's development comes as Venezuela and Bolivia both advance a series of nationalist measures to increase state control over their oil and gas sectors. The moves, aimed at extracting a greater share of profits at a time of soaring oil prices, have rattled investors, strained some diplomatic ties and become a major issue at a summit of Latin American and European leaders this week in Austria.

Oil futures settled at $73.32 a barrel on Thursday.

Venezuela's pro-Chavez National Assembly wants state oil company Petroleos de Venezuela SA, or PDVSA, to take a majority stake in four projects in the Orinoco region just as it did earlier this year in 32 oil fields previously operated under contract by private companies. Those oil fields are now run as state-controlled joint ventures.

''This congress does not accept that we don't have control of oil operations in the Orinoco oil belt,'' said Rodrigo Cabezas, the head of the special commission that drafted the report.

The report urged the government to ''revoke any agreement that does not give PDVSA and the Venezuelan state majority shares in operations to extract oil.''

The report also recommended the government to reduce drilling areas and require some companies to slash production by almost half because their output exceeds contractual limits.

BP PLC, Exxon Mobil Corp., Chevron, ConocoPhillips, France's Total SA and Norway's Statoil ASA participate in the four projects that upgrade heavy crude to lighter, marketable oils.

The recommendations would most impact a partnership between Statoil, Total and PDVSA by reducing current drilling acreage of 132 sq. miles by one-fourth and ordering output to be lowered from 210,000 barrels a day to 114,000.

Oil Minister Rafael Ramirez said earlier this week that while conditions were not in place for the government to make that move immediately, it was ''evaluating'' the situation and that eventually all oil operations would be brought under majority state control as required by a 2001 law. The comments had come as Venezuela announced a new tax targeting foreign companies.

While the tightening terms have sparked concerns, most foreign companies, including Norway's Statoil ASA, Royal Dutch Shell Plc and Chevron, have expressed willingness to continue their investments in Venezuela as there is little to indicate that Chavez plans to repeat a complete nationalization of the oil industry, which shut private companies out of the sector between 1975 and 1992.

Chavez, however, has called the sector's subsequent reopening during the 1990s a disguised privatization that handed over control and profits to foreign companies. While pledging to correct that, he says private companies are still welcome as long as they play by the new rules.

If the state assumes majority shares in the Orinoco projects, several oil fields would still remain in the hands of foreign companies under exploration contracts but none of those have yet to begin commercial production.

Chavez also has applauded Bolivian President Evo Morales for nationalizing his country's natural gas sector. Concerns over that move have threatened a rift with Brazil, a top buyer of Bolivian gas.

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