Exxon to cede oil project ops to Venezuela by May

By Enrique Andres Pretel

CARACAS (Reuters) - Exxon Mobil Corp. (XOM.N) plans to hand operations of a multibillion-dollar oil project to the Venezuelan state before a May 1 deadline imposed by President Hugo Chavez, industry sources told Reuters on Thursday.

Chavez this week signed a decree for the government to take a majority stake in four heavy crude upgrading projects in the Orinoco basin by May 1 as part of a nationalization drive toward Cuba-inspired socialism.

The move shows Exxon, the world's largest company, complying with Chavez's order to cede control of the Cerro Negro project despite doubts over whether private companies will in fact meet Chavez's ambitious deadline.

Energy authorities in 2006 extended an initial deadline to take control of oilfields operated by private and foreign oil companies, which operated the fields for three months as negotiations continued.

Exxon Mobil has always been expected to take the toughest line with Venezuela, according to industry analysts, who have cast doubts over whether PDVSA has the technical capacity to run the complex operations valued at an estimated $30 billion.

"Exxon is preparing to hand over operations by May 1, in line with Chavez's instruction that after May 1 Exxon is not the operator of Cerro Negro," said an industry source, who asked not to be named because he was not allowed to speak for the record.

Another industry source described an internal memo signed by the president of Exxon's Venezuela division saying the company was preparing a transition before May to give state oil company PDVSA control of the project.

Cerro Negro is a joint venture between BP Plc (BP.L), PDVSA and Exxon Mobil, which operates the project through a subsidiary. Exxon did not respond to an e-mail requesting comment on the issue.

The four Orinoco projects provide nearly a quarter of all oil production in Venezuela, according to the United States -- which relies on the South American nation for about 11 percent of oil imports.

Chavez, a Cuba ally and Washington foe, in January ordered the government to accelerate the takeover of the projects amid a broad nationalization push that led to quick takeovers last month in the telecom and electricity sectors.

TOUGHER NEGOTIATIONS

But analysts say Venezuela faces much tougher negotiations for the Orinoco projects, which turn low-quality tar-like oil into about 600,000 barrels per day of valuable synthetic crude that can be processed by traditional refineries.

Other companies involved in the projects, which include Conoco Phillips (COP.N), Chevron Corp. (CVX.N), France's Total (TOTF.PA) and Norway's Statoil (STL.OL), have expressed doubts that they will be able to meet the deadline.

"We have had no meaningful discussions with the Venezuelan leadership," said Conoco Phillips CEO James Mulva on Thursday in conversations with reporters.

Chavez has used oil revenues to finance a massive social development program for the nation's poor majority that helped him win a landslide reelection victory last December.