Two Oil Giants Exit Venezuela

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PDVSA has hired international firms to assess the reserves, which if confirmed, would make Venezuela the country with the world's largest potential oil reserves, above Saudi Arabia.

Venezuela has been counting on developing the Orinoco Belt to boost its overall oil output. Oil production has declined 25% since Chávez took office in 1999, in large part because he fired more than 20,000 experienced PDVSA engineers and executives after they joined a 2002-03 strike protesting government interference in the oil company's operations and demanded Chávez' removal from office.

Uncertainty Ahead

But the government could face a protracted legal battle over ExxonMobil and ConocoPhillips, as the two companies seek to recoup their investments, which total more than $3.5 billion. ExxonMobil, in a statement released in Caracas, said it is "disappointed that we have been unable to reach an agreement on the terms for migration to a mixed enterprise structure." The company added that discussions with the government "on a way forward" are continuing. The company, though, has no other remaining operations in the country: ExxonMobil sold its 49 branded gas stations in Venezuela in mid-June. The only operation that ConocoPhillips will retain in Venezuela is a minority interest in a venture developing an off-shore natural gas field.

Talks for compensation for the two companies could last up to six months. The parties must go to international arbitration if no accord is reached. That could pave the way for the U.S. companies to seek permission to attach PDVSA assets in the U.S., such as refineries of its subsidiary, Citgo Petroleum, pending a final agreement. "One of the reasons to pull out now is to have the option to go after Venezuelan assets in the U.S. now before Chávez can sell them," says WTRG Economics analyst Williams. Chávez has repeatedly said he could sell Citgo or cut off oil sales to the U.S., which gets 14% of its oil imports from Venezuela.

Terms of the deals the other companies signed with Caracas have not been revealed. "Negotiations have been tough as expected, but have been conducted in a professional and fair manner with satisfactory results for both parties," said Thore Kristiansen, president of Statoil Venezuela, in a statement.

Wilson is a special correspondent based in Caracas. Smith is BusinessWeek's Mexico bureau chief.