09-10-09 The state oil corporation, Petroleos de Venezuela (PdVSA), announced that it had purchased ConocoPhillips's exploration and production rights to natural gas reserves in the Deltana Platform, a huge offshore hydrocarbons reservoir in waters east of the Rio Orinoco estuary.
"We did sell it to PdVSA effective yesterday," Charlie Rowton, a ConocoPhillips spokesman, reportedly told. The sale "is not related to nor does it have any impact on the expropriation of our assets in Venezuela in 2007 or the arbitration proceeding concerning that expropriation."

PdVSA said the move paved the way for it to take a 61 % share in a proposed "mixed company" with Chevron, which is also based in the United States, to operate in the areas in which both had been partnered by ConocoPhillips.
Inevitably, news of the sale inevitably sparked speculation about ConocoPhillips's motives for selling its gas rights to PdVSA. In some circles, it's suggested the company may have not had much choice, or that it's discreetly calling it a day in order to make its way out of Venezuela for good.

Be that as it may, it's noted that ConocoPhillips is in a protracted dispute with President Hugo Chavez's government over compensation for assets in an extra heavy crude oil (EHCO) field in the Orinoco Basin, also known as the Faja.
The dispute stems from Chavez's decision in 2007 that the state should have majority equity stakes and controlling interests in oil and gas fields throughout the country. He set the minimum state interest at 60 %.

Until then, the Orinoco heavy oil fields had been seen as a special case. The extra heavy crude was considered by some to be more akin to tar rather than conventional oil, and would need to be extensively processed before it could be used even as fuel at power stations, with very large investments needed from experienced Western partners.
Four fields were partnered with large foreign oil companies under the Oil Opening policy of the 1990s, before Chavez re-invented himself from a failed, jailed and freed coup-monger into a democratically-appointed leader at the presidential elections in late 1998.

Less than a decade later, Chavez unleashed his nationalist tendencies by demanding majority control across the oil industry. That included all four extra heavy oil fields in the Orinoco Basin which until then had been deemed special cases.
Partners in two of the fields went along with the demand that they hand over a controlling interest. They included big European names which had seen the same thing happen in other parts of the world, not least in the Middle East after the Organization of Petroleum Exporting Countries (OPEC) first flexed its muscles in the early 1970s.

But two United States giants balked at the expropriation so soon after their multi-billion dollar investments. One of them was ExxonMobil, quite simply the biggest oil outfit on the planet. The other was ConocoPhillips, which is not that far behind in Big Oil.
ExxonMobil is said to have dug its heels in with aflat No from the very start. Chavez swooped with a 100 % takeover. ExxonMobil went to international law, at first stumbling when a judge in London ruled that its case lay outside British jurisdiction.

Today, ExxonMobil is stuck in an impasse with PdVSA with cases yet to be ruled upon in courts in The Hague and New York. Nobody is taking bets on how long high-paid corporate lawyers can tie each other up in knots on this one.
ConocoPhillips also resisted but adopted a lower profile approach to its dispute with the Venezuelans in the Orinoco Basin. It's said to have opted to negotiate.

For months, Energy and Oil Minister Rafael Ramirez -- who's also president of PdVSA -- repeatedly claimed that a deal was just around the corner, only for no such thing to materialize so far. ConocoPhillips then upped the ante by lodging a case at an international arbitration tribunal under the auspices of the World Bank in Washington. Provision for this in the event of a dispute had been made in the original Orinoco contract.
The case has yet to get anywhere -- and in the meantime, ConocoPhillips and PdVSA have come across another issue upon which to disagree. This is an oil refinery at Sweeny, Texas, that's jointly owned 50:50 by the two companies.

ConocoPhillips confirmed on September 4 that it intended to "exercise an option" on buying PdVSA out of the refinery. It complained that PdVSA hadn't been supplying the specified crude oil. The refinery has a throughput capacity to process 70,000 bpd of oil. It is also said to have been tailor-made to process the Venezuelan mix.
PdVSA responded by contesting the buyout and saying that it had a sovereign right not to deliver the crude as contractually promised. PdVSA indicated that they would be going to court to defend their position.

In the meantime, and for whatever reasons, ConocoPhillips is walking away from a big field with an estimated potential to produce 750 mm cf a day of gas. This would be the equivalent of more than a tenth of overall Venezuelan gas production, which at present averages 6.3 bn cf a day and is projected to rise to 11.5 bn cfpd in 2012.
The gas is "non-associated" -- that's to say, it's stand-alone gas rather than located in an oil deposit, and hence less expensive to produce. It will be transported from well-head via an underwater pipeline to the onshore Gran Mariscal de Ayacucho Industrial Complex now under construction at Guaire.

Gran Mariscal is a symbol of how much Venezuela's attitude towards its gas has changed. Venezuela once largely turned its back on its vast reserves of natural gas, regarding the fuel as an adjunct of oil production.
For years, gas was wastefully flared off at oil field well-heads, or at best re-injected to enhance oil flow rates. Outsiders thought this all the more odd, given that Venezuela was sitting on huge amounts of gas, which even then was increasingly coming to be regarded as a clean, environmentally friendly fossil fuel.

Current estimates are that Venezuela's proven gas reserves total 153 tcf, the largest of any country in the Americas. With large swathes of the country still to be explored, hydrocarbons analysts suggest there's a whole lot more out there still to be found.
Chavez, though no expert on hydrocarbons matters, abruptly about-turned on the policy of seeing natural gas as a nuisance rather than an asset. Early in his decade in power, he ordered that Venezuela should make much more efforts to develop and exploit its gas.

The president, and even his critics give him credit for this, was intent not just on cutting waste. He saw gas as a way of helping to conserve Venezuela's oil reserves, which at present output rates are forecast to last a further 60 years excluding further discoveries.
Furthermore, he is said to have taken on board the potential of gas as a raw material or feedstock for industrial purposes. Were it not for the Deltana gas, analysts say, the giant Mariscal Sucre complex simply wouldn't exist.

The accent in gas development policy is on adding value. Gas is seen as a key element of Venezuela's plans to take a seat at the high table of the world petrochemicals league.
Time was when Venezuela was seen as a sluggard in the burgeoning world of international trade in natural gas as consumer nations sought alternatives to oil and coal, not least because of growing concern about the environment. In particular, the country was deemed to have badly missed the boat on supplying liquefied natural gas (LNG) to lucrative export markets in the United States and Europe.

LNG is a long-term capital-intensive business, requiring construction of gas liquefaction plants at point of departure, re-gasification plants on arrival and purpose-built carrier vessels to transport the gas in liquid form between the former and the latter.
Stymied by indecision, Venezuela watched on as Trinidad and Tobago tapped its share of the Deltana Platform gas reserves to set up the Atlantic LNG complex to feed ever-hungry energy markets in the United States.