Venezuela seeks oil investment after 2007 crusade

CARACAS (Reuters) - Less than a year after Venezuelan President Hugo Chavez launched a nationalization crusade, the OPEC nation is boosting efforts to bring in private oil investment amid growing energy-sector problems.

Venezuela has announced a string of deals with oil companies and the first oil field bidding round since Chavez took office in 1999, and industry sources report a marked change in tone from last year’s wave of takeovers.

State oil company PDVSA may be seeking to stem growing cash flow and operational problems, only months after a wave of nationalizations that drove out two of the world’s biggest energy companies.

Energy Minister Rafael Ramirez on Saturday spoke about the need for cooperation with private business after years of focusing on Chavez’s leftist agenda to boost ties with other state oil companies.

“Now that we have completed this (nationalization) process we are ready to attract private capital,” he said in a statement.

One oil sector contractor who asked not to be identified said PDVSA this year has been speeding up contract talks.

“Last year they were telling me, ‘You’ll never see this work again’ -- and now it’s all about extending contracts and negotiating rate increases,” he said.

This year alone, PDVSA has signed deals with Royal Dutch/Shell RDSa.L, Total TOTF.PA and Statoil STL.OL for oil-field studies.

Last week the energy ministry announced a bidding round for the Carabobo I block of the vast Orinoco heavy crude belt. It was the first such bid since the opening of Venezuela’s oil sector in the 1990s -- a process that Chavez largely rolled back in the last two years.

The bid comes after Venezuela for years snubbed private company proposals to develop the vast Orinoco belt, instead offering fields to state oil companies from politically allied nations like Cuba and Belarus with limited oil experience.

OPERATIONAL PROBLEMS

With heavy contributions to Chavez’s social development crusade draining PDVSA of much-needed investment, the warming to the private sector may signal a call for help.

Market observers say Venezuela’s output is around 25 percent below official production figures of 3.2 million barrels per day, while exports to the United States of refined products tumbled last year amid chronic refinery outages.

Venezuelan central bank figures show oil-sector GDP, which measures activity in oil production, processing and transport, shrank 5.3 percent last year despite record income at PDVSA and borrowing of close to $13 billion in 2007.

Analysts say PDVSA’s resources are being stretched thin by enormous social spending obligations that now include importing and distributing food to ease nagging shortages of groceries.

REALITY CHECK

A rapprochement with the private sector will be difficult unless PDVSA pays up debts to partners, offers them more operational control over projects and convinces them their investments will be safe despite repeated contract violations.

Private operators in Venezuela since 2004 have faced unilateral contract changes, retroactive royalty and tax hikes and forced reductions in their ownership of oil projects.

ConocoPhillips COP.N and Exxon Mobil Corp XOM.N have announced lawsuits against Venezuela for taking over their holdings in multibillion-dollar Orinoco projects.

PDVSA still owes private partners billions of dollars, company sources say, for oil produced by PDVSA’s private partners in companies created after the 2006 takeover of subcontracting ventures.

And companies will also want significant control over strategic oil field activities like drilling decisions or marketing of crude oil -- things the energy ministry has insisted PDVSA must control.

“There has been an unmistakable change in tone over the last couple weeks,” said one industry source who spoke on condition of anonymity. “But the question is whether they will actually do what they need to do to make things happen.”