Conoco holds out against Venezuelan terms

Jim Mulva, chief executive of ConocoPhillips, the third-largest US oil company, is holding out against both the terms under which Venezuela is expropriating the company’s oil assets and the commercial terms under which they will be managed.

In an interview with the Financial Times, Mr Mulva said he visited Caracas last week to continue talks, even as the government went ahead with plans to seize a minimum 60 per cent stake in all foreign-controlled oilfields on May 1. The move to expropriate the oil assets of Conoco and other energy companies under the country’s privatisation programme is billed as an attempt to rid the country of what President Hugo Chávez calls the “mechanisms of materialism”.

Caracas said all the major oil groups had signed memorandums of understanding to hand over control to Venezuela, except Conoco. The government has warned it will simply expropriate Conoco’s assets if it does not follow suit.

However, Conoco has until June 26 to negotiate the formal issues of transfer, ranging from the shareholding it will be left with to settling or restructuring any public debts involved.

Mr Mulva said Conoco acknowledged the presidential decree by which operation of all of its investments in Venezuela’s oil projects had been transferred to the state oil company, PDVSA, as of May 1, but has yet to agree to the terms surrounding the transfer.

“The issues really relate to compensation for the expropriation and what are the commercial terms that are offered with respect to continuing our participation in these efforts going forward,” he said.

Conoco would continue discussions for weeks, or months, if necessary, in hopes of reaching “an amicable solution”. If that proved impossible, Mr Mulva said there were arbitration rights concerning the projects that could be invoked.

“Obviously we are trying to come to a mutual solution by which we can continue our investments in Venezuela,” he said. “If we can’t reach that understanding and agreement, that leaves us to go the avenue of arbitration, with respect to compensation for the investments that we’ve made in Venezuela.’’

Mr Mulva said the sticking points relate to the fact that Conoco invested in the country’s energy projects but is now being left with less than it originally paid for. “What is the value of that increased ownership that transfers from ConocoPhillips to Venezuela?” he asked.

He said he was also concerned with the commercial terms going forward, because they differed from original agreements. “So that relates then to what is the value of the future ongoing operations.” For example, he said Conoco was concerned about how the operations now will make “truly major decisions that relate to investments and decisions regarding operations.’’

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