Talks between Venezuela and private oil companies over the take-over of four multibillion projects are increasingly focused on how decisions will be made in the future joint ventures, industry officials said.
Venezuelan President Hugo Chavez has ordered oil giants, like Exxon Mobil to give the government a majority stake in the Orinoco Belt projects as part of a nationalisation drive toward his self-described socialist revolution.
Two industry officials, who asked not to be named because negotiations are ongoing, said a crucial point in talks is private companies' ability to oppose controversial decisions made by state oil giant PDVSA, which will hold at least 60 percent stake in the operation. Discussions center on whether PDVSA, with a simple majority on the board of directors, could force private partners to accept decisions that would benefit the government at their expense.
The issue may further complicate negotiations for Exxon Mobil and ConocoPhillips which may be considering leaving the country, while the other four partners are likely to stay, according to a group of industry officials. "The issue of corporate governance is enormous," said one official. "A minimum requirement would be a clear right of veto for major investment decisions."
PDVSA and the private partners have "fundamentally misaligned" interests, the official said, because private companies need a profitable business, while PDVSA wants to maximise tax and royalty payments to the government. Companies ordered to convert subcontracting deals to state-majority "mixed companies" in 2005 also insisted on similar rights on their respective boards, requiring a qualified majority and in some cases unanimous votes on issues such as investments.
The four Orinoco projects, which can process around 630,000 barrels per day of tar-like crude into valuable synthetic oil, include investment from Exxon Mobil, ConocoPhillips, BP Chevron Total and Statoil. The companies are working down to the wire to hammer out deals by June 26 that outline their future participation in the projects and are likely to include thorny issues such as valuation of assets and compensation for lost value.
The Orinoco partners handed over operations of the projects to PDVSA on May 1. Industry officials also said Exxon Mobil in particular has taken a hard line on the issue of the value of its assets, which the government has said it will calculate on the basis of "book value" rather than the market value sought by companies.
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