Exxon, Conoco Abandon Oil Projects in Eastern Venezuela

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Exxon, Conoco Abandon Oil Projects in Eastern Venezuela

Two huge American companies will leave lucrative oil projects in Venezuela, a victory for Hugo Chavez.

On Tuesday, Venezuelan officials announced that Exxon Mobil Corp. and ConocoPhillips will abandon their lucrative oil projects in eastern Venezuela rather than sign a new contract ceding control of their operations over to state-owned Petroleos de Venezuela. The announcement signalled a victory for Hugo Chavez, Venezuela’s staunchly anti-American president.

In February, Chavez announced that all six foreign companies extracting oil from Venezuela’s Orinoco Belt region had until June 26 to agree to a new contract that would transfer majority ownership and operating control to himself. Whether the six foreign companies agreed or not, he later said, he was “taking over the [oil] fields,” according to the Los Angeles Times (June 27).

By walking away from its Orinoco projects, ConocoPhillips, America’s third-largest oil company, stands to lose nearly 5 percent of its global oil production. In addition to lost oil revenues, the Houston-based company said in a statement, according to the Los Angeles Times, that it was also “bracing for the loss of the entire $4-5 billion value of its two Orinoco projects,” though it is pressing Chavez for “appropriate compensation.”

The loss wasn’t as dramatic for Exxon Mobil, America’s largest oil company: It will lose only 2 percent of oil production. “Exxon Mobil has learned it’s not about the oil, it’s about the money,” said Michael Lynch, an oil analyst with Strategic Energy and Economic Research. Though agreeing to Chavez’s conditions would have kept Exxon’s Orinoco operations open in the short term, Lynch says the deal for Exxon was lousy in the long run.

The marginalization of these U.S. companies from Venezuala is another socialist triumph for President Chavez. Tuesday’s victory brought him two steps closer to the full nationalization of Venezuela’s oil industry, and also gave him the satisfaction of striking at the United States, his greatest enemy.

The short-term ramifications of Exxon’s and Conoco’s departures from Venezuela appear minor. But the long-term impacts could be more serious. “Lynch said the effect would come later if the Orinoco projects ‘lose efficiency and reliability. It’s not clear the Venezuelans can maintain it without outside help’” (ibid.). About one fifth of Venezuela’s overall output comes from the Orinoco fields, and a drop in production from this region could sharply reduce the volume of oil flowing out of Venezuela. As the fourth-largest supplier of oil to America, any drop in oil output from Venezuela has the potential to negatively impact American gas prices.

Tuesday’s announcement also spotlights the unraveling relations between Venezuela and the United States. Chavez’s efforts to take over or sideline American oil companies are just the latest demonstration by the South American dictator of his venomous hatred for the United States; others are his warming relations with nearly every other anti-American state around the world, as well as his justifications for his recent acquirement of more sophisticated military hardware.

America need not worry about being invaded by Venezuela. But it should be concerned when a nation in such close proximity and carrying a card as important as oil is being directed by a man whose mind and politics are bathed in anti-American sentiment. Chavez can’t overrun the United States, but he certainly has the potential to make life more difficult.