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NEW YORK – Oil refiners and marketers Exxon Mobil Corp. and ConocoPhillips are leaving multibillion-dollar investments in Venezuela, providing evidence that relations between Western oil companies and oil-rich countries such as Venezuela are more troubled than at any point since the 1970s, reported the Wall Street Journal.
Earlier this week, the two oil companies refused to join four other oil companies that gave majority stakes in large oil projects to Venezuela's state oil company -- Petroleos de Venezuela SA, or PdVSA -- which nearly doubled its stake in four major projects, with a combined value of $31 billion, to about 78 percent, according to the report.
However, Conoco did not sign a deal, and by doing so, kept open the option of pursuing compensation through arbitration, the report stated. Conoco will take a $4.5 billion impairment charge in its second-quarter earnings due to its decision in Venezuela. The company's assets there represent about 5 percent of its oil-and-gas equivalent production last year. Exxon's Venezuelan assets are about 1 percent of its overall output for 2006, according to the report.
Meanwhile, Exxon declined to reveal if it would consider arbitration.
The rising tension forces companies to choose to accept less control of investments and smaller returns to remain in countries with ample natural resources, which could have large implications for Western oil companies that are having trouble tapping new reserves, as well as for global consumers and their growing thirst for oil, the report stated.
While the companies feel they won't get adequate value from the Venezuelan government, they may pursue arbitration rulings that could mean a long wait for compensation, the Journal reported. However, the need to replace significant holdings could intensify exploration and result in new finds elsewhere.
The current disagreement comes from increased demand for products from nations with abundant national resources. These countries are taking a second look at contracts signed years before, when commodities prices were low and the same nations offered generous terms to attract Western investment, according to the report.
With the recent high prices, these nations are seeking more favorable terms and higher prices as they rewrite contracts and develop new terms for investment. The majority of Western oil companies have accepted the new terms. However, new contracts, combined with higher taxes, steeper royalty rates and rising costs are beginning to erode profitability for oil companies, the report stated.
As margins are slimmed, oil-rich nations looking for better terms run the risk of pushing too far. "Governments can overprice themselves," Richard Gordon, an energy consultant in Overland Park, Kan., told the Journal. "And when they do, companies have to make some tough decisions."
The situation in Venezuela remains clouded. Energy Minister Rafael Ramirez said the two companies will lose stakes in the oil fields altogether.
Irving, Texas-based Exxon said it would continue discussions "with the Venezuelan government on a way forward," the report stated.
Meanwhile, Chevron Corp., BP PLC, France's Total SA and Norway's Statoil ASA accepted new terms and with it, a new minority stake.