CARACAS, Venezuela – President Hugo Chavez's government took over Venezuela's last privately run oil fields on Tuesday, intensifying a struggle with international firms over the development of the world's largest known petroleum deposit.
Oil Minister Rafael Ramirez declared that the Orinoco fields had reverted to state control just after midnight. Television footage showed oil 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 planned a more elaborate celebration later on May Day, the international workers' holiday, with red-clad oil workers, soldiers and a flyover by Russian-made fighter jets.
The companies ceding control include BP PLC, ConocoPhillips, Exxon Mobil Corp., Chevron Corp., France's Total SA and Norway's Statoil ASA.
All but ConocoPhillips have agreed in principle to state control, and Venezuela has warned it may expropriate ConocoPhillips assets if the company doesn't follow suit.
Chavez is urging the private companies to stay as minority partners. The two sides are locked in contentious negotiations and have until June 26 to negotiate the terms, including compensation and reduced stakes.
The companies appear to be taking a tough stand, demanding conditions — and presumably compensation — to convince them 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.-based company. "That process is going to have a direct impact on our appetite going forward."
The stakes are high for both sides.
After the fanfare of the takeover, Chavez will need outside investment to develop the Orinoco region, which could help Venezuela surpass Saudi Arabia as the nation with the most reserves.
If Chavez scares the big oil companies off, the region could be starved of investment capital and the technical know-how needed to transform its tar-like crude into marketable petroleum. Chavez says state firms from China, India and elsewhere can step in, but industry experts doubt they are qualified.
But pulling out would be damaging for the companies, too.
They have already invested more than $17 billion in their Orinoco projects, which are estimated to have grown in value to some $30 billion. Venezuela has indicated it is inclined to pay the lesser amount for taking over control — with partial payment in oil and, some experts suspect, tax forgiveness.
And there are fewer options around the world. State oil monopolies now control three-quarters of the world's proven oil reserves, so Venezuela may still prove enticing even under Chavez's new, tougher terms.
Nationalization of the oil industry has been tried in Venezuela before, though with a different tack. Venezuela shut private companies out of the oil sector completely between 1975 and 1992 before beginning a series of partial privatizations — a period known in Venezuela as the "oil opening."