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04/15/2006:

"Venezuela tightens oil grip"

CARACAS, VENEZUELA - Powering ahead with stringent nationalist reforms, Hugo Chávez's Venezuela is showing multinational oil firms little mercy.

Tense relations between private firms and Mr. Chávez's government escalated last week when the government seized fields operated by two European oil giants - France's Total and Italy's ENI - after the two companies snubbed government demands to convert their contracts to joint ventures with the state by April 1.

"This country does not allow itself to be blackmailed," says energy minister Rafael Ramirez. "These two multinational companies resist adjusting to our law. Our sovereignty isn't under negotiation."

Sixteen companies - including Chevron and Shell - did agree to new terms giving state oil company PDVSA at least a 60 percent state stake, a success which analysts say could embolden Venezuela to demand a majority stake in more valuable projects in the country's Orinoco heavy-oil belt. Heavy oil's viscosity makes it more expensive to drill and refine than regular oil. However, high oil prices have attracted top companies to Venezuela's heavy oil, which could boost the country's reserves count to the largest in the world - ahead of Saudi Arabia.

"Chávez is in the driver's seat because he has what everybody wants," says Roger Tissot, energy analyst at PFC Energy consulting firm, about Venezuela's heavy oil. "It's not any kind of oil. It's the oil of the future."

But more forced contract changes could further increase investor fear and make it more difficult for US oil companies to access one of the largest long-term sources of oil left on the planet.
csmonitor.com