Venezuela's oil policy

A sticky proposition

Take a tiny bit of it, or leave it

IN A world in which oil is scarcer, the 272 billion barrels of heavy crude that Venezuela reckons are contained in the oil sands of its Orinoco basin ought to seem like a more attractive proposition to multinationals and state oil firms alike. Yet three times this year Petróleos de Venezuela (PDVSA), the state oil company, has postponed bidding for seven blocks in the Orinoco which officials think would yield 1m barrels per day of synthetic oil. The reason: the terms on offer are even stiffer than those being contemplated by Brazil’s government (see article), and the uncertainty is even greater.

The risk is not geological. Everyone knows where the oil is. The upgrading and refining facilities required to turn tar to oil cost billions of dollars, but the technology is tried and tested. Environmentalists, so vocal about Canada’s tar sands (see article), have so far been silent over Venezuela’s bitumen.

It does not help that PDVSA wants a 60% share and operational control in each block while not putting up any money. On top of that the government will take a 33% royalty and a windfall tax. Even so, state-owned oil firms from China, Russia and India have expressed interest in the blocks, along with Brazil’s Petrobras and multinationals such as BP, Chevron, Royal Dutch Shell and Total. Two things have prompted them to hesitate, says Michelle Billig of Pira Energy, a consultancy. The first is the world recession and the fall in the oil price—factors that lay behind disappointing bidding rounds in Algeria and Iraq earlier this year. The second is political risk.

Over the past two years Venezuela’s president, Hugo Chávez, has nationalised large parts of the economy, including dozens of oil-service companies (which are still awaiting promised compensation). Two oil giants—Exxon Mobil and ConocoPhillips—are mired in arbitration over government changes to their contracts for their operations in the Orinoco belt. The proposed new contracts contain no provision for arbitrating disputes.

Such is the thirst for oil that some companies, especially state-owned ones from countries, such as Russia and China whose governments are friendly to Mr Chávez, may eventually hold their noses and dive into the Orinoco’s sticky sands.