Venezuela takes over oil fields

Published May 2, 2007

BARCELONA, Venezuela - President Hugo Chavez's government took over Venezuela's last privately run oil fields Tuesday, intensifying a power struggle with international companies over the country's petroleum deposits.

Oil Minister Rafael Ramirez declared that the fields had reverted to state control just after midnight. State television showed cheering workers in hard hats raising the flags of Venezuela and the national oil company over a refinery and four drilling fields in the Orinoco River basin.

Chavez, a strident critic of the United States and a leader of the leftist movement in Latin America, traveled to the refinery for a ceremony with red-clad oil workers on May Day, the international workers' holiday. The military planned a flyover by Russian-made fighter jets.

While the state takeover had been planned for some time, BP PLC, ConocoPhillips, Exxon Mobil Corp., Chevron Corp., France's Total SA and Norway's Statoil ASA remain locked in a struggle with the Chavez government over the terms and conditions under which they will be allowed to stay on as minority partners.

All but ConocoPhillips signed agreements last week agreeing in principle to state control, and ConocoPhillips said Tuesday that it too was cooperating.

Analysts say the companies have leverage because Venezuela's state oil company, Petroleos de Venezuela SA, cannot transform the Orinoco's tar-like crude into marketable oil without their investment and experience.

"They're hoping ... that as time passes Chavez will realize he needs them more than they need him, " said Michael Lynch, an analyst at Winchester, Mass., Strategic Energy and Economic Research. He predicted most oil companies - with the possible exception of Exxon Mobil - would stay.

Chavez says the state is taking a minimum 60 percent stake in the Orinoco operations, but he is urging foreign companies to stay and help develop the fields. They have until June 26 to negotiate the terms. The oil companies, meanwhile, still needed convincing that Venezuela will be a good place to do business.

Chevron's future in Venezuela "will very much be dependent on how we're treated in the current negotiation, " said David O'Reilly, chief executive of the San Ramon, Calif., company.

Chavez is also nationalizing electricity companies and the country's biggest telecommunications company, and has threatened to take over private hospitals if they continue raising prices for care. He says radical changes are needed to help the poor benefit more from the country's oil wealth.