Business Week International International Business: VENEZUELA
VENEZUELA TOSSES OUT THE `NO TRESPASSING' SIGN (int'l edition)
In eastern Venezuela's Quiriquire oil field, palm trees and banana plants long ago grew up among the rickety oil derricks. But these days, the 66-year-old field is showing signs of revival. On a new asphalt highway, painted markings point the way for seismic crews seeking untapped pools of oil. The teams are working for Dallas-based Maxus Energy Corp., one of 26 foreign companies that have been awarded long-term contracts to manage rundown Venezuelan fields--and boost the country's oil revenues.
The foreigners' arrival is a harbinger: Venezuela's oil industry is on the verge of a massive reopening, two decades after the government nationalized foreign-owned oil producers. To increase exports and raise cash, the government also proposes to allow foreign companies to explore for and produce oil in 10 swaths of Venezuelan territory, estimated to contain up to 23 billion barrels of oil. If Venezuela's Congress approves, foreign companies would set up "profit-sharing" joint-venture deals with state oil monopoly Petrleos de Venezuela (PDVSA).
"SUCCESS." Venezuela's financial distress is putting pressure on legislators to ratify the plan in a vote that could come as early as May. The country badly needs more revenue to pay for a multibillion-dollar bailout of failed banks and restart its economy after two years of recession. And PDVSA, drained of cash by free-spending Venezuelan governments, needs to focus its resources on other parts of a $50 billion program to boost oil output by nearly 50%, to 4 million barrels per day by 2003. PDVSA President Luis Giusti sees other benefits from international partnerships. "Even if we had a lot of money and could do all the exploration and production ourselves, we have to be part of the globalization of the world economy," he says.
Venezuelan President Rafael Caldera's endorsement of the proposal carries weight with the country's nationalists and protectionists because he sides with them on many other issues. "We are open to foreign investment," Caldera told BUSINESS WEEK in an interview during the Summit of the Americas in Miami in December. To mobilize added political support and give Venezuelan companies a piece of the action, PDVSA is looking for ways to include private Venezuelan investors in the ventures.
Already, the takeover of rundown fields by foreign contractors is a "success," Caldera says. Companies from 9 countries are renovating 13 marginal fields under 20-year contracts with PDVSA. They range from giants such as Royal Dutch/Shell Group, whose former Venezuelan operations were nationalized in 1976, to Japan's Teikoku Oil. By 1998, they are expected to produce 400,000 barrels per day--equal to more than 15% of the current output of PDVSA, which had 1994 revenues of $22.5 billion. They are also providing new jobs. At Quiriquire, Houston-based oil-field service company Western Geophysical has employed up to 450 workers in the seismic surveys that it is carrying out for Maxus.
With commitments to invest $1.2 billion by 1998, the contractors are betting that they can make big profits by applying state-of-the-art knowhow to revive the old fields and find other oil pools at greater depths. They won the contracts with bids to deliver oil to PDVSA at prices from $5 to $13 per barrel. At Quiriquire, Maxus is planning a 6,400-meter exploratory well costing $17 million. "New technology lets us see deeper," explains Luis E. Ardila, general manager of Maxus Venezuela. In partnership with British Petroleum Co. and a Venezuelan engineering company, Maxus is hoping to produce 100,000 barrels per day by 1999--a quantity worth $275 million annually at Maxus' delivery price of $7.50 per barrel.
TOEHOLDS. Such ventures are toeholds for future expansion in Venezuela. "Some companies that marched out of here swearing never to return are back, talking about a new world," says a foreign executive in Caracas. Mobil Oil Corp., whose Venezuelan operations were nationalized, and other U.S. companies such as Amoco Corp. and Chevron Corp. have recently opened offices in Caracas. Maxus, an independent with 1994 sales of $682 million, agreed on Feb. 28 to be acquired by YPF, the privatized former national oil company of Argentina.
In the 1970s, Venezuelan nationalists referred to the oil expropriation as an act of sovereignty. Now, rejecting that view, PDVSA has also signed preliminary agreements with companies such as Conoco and a group led by France's Total for ventures costing up to $2 billion apiece that will upgrade heavy oil. "There is no worse loss of sovereignty than poverty," Giusti explains. The petroleum wealth that foreign partners are tapping ought to help Venezuela to extricate itself from that trap.By Ann Charters in Quiriquire