Venezuela Tightens Grip on Oil Industry

[XXPANTHAXX]

Venezuela had a blunt message this week for Exxon Mobil, one of the
world's most powerful oil companies: Get off my crude-rich turf.

Venezuela is tightening its squeeze on the oil industry, telling oil
companies to give the state a greater share of profits — or get out.

Oil Minister Rafael Ramirez on Wednesday said Exxon Mobil Corp. was one
of the companies that would "prefer to leave ... rather than adjust" to
recent policy changes.

"We said we don't want them to be here then," Ramirez told the state TV
broadcaster adding, if "we need them, we'll call them."

Exxon Mobil indicated Thursday it had no plans to pull out.

"ExxonMobil de Venezuela continues to have a long-term perspective of
its activities in Venezuela," it said in an e-mail to The Associated
Press.

The flap helped push the price of oil above $67 a barrel on the New York
Mercantile Exchange on Thursday as the market reacted to the latest sign
of tighter state-control of energy around the globe.

Venezuela is taking on Big Oil at a time when rising oil prices,
political instability in the Mideast and Nigeria and new buyers in Asia
have put the world's fifth-largest oil exporter in a winning position.

After snubbing Exxon Mobil, Ramirez said Venezuela has other eager
partners, including state companies from Russia, Iran, China, India, as
well as traditional oil companies.

The new climate has given Venezuela the flexibility to diversify "away
from Western investors and incorporate state-owned companies from allied
countries ... more willing to abide by new, tighter terms," said Patrick
Esteruelas, analyst at the Washington-based Eurasia Group.

The government has increasingly sought projects with state-controlled
oil companies in friendly countries. Last year, Venezuela granted
exclusive licensing rights to certify and quantify reserves in blocks in
the Orinoco tar belt to seven companies, including China's CNPC, India's
ONGC and Iran's Petropars. The only western oil major included was
Spanish-Argentine company Repsol YPF.

The trend is driven by President Hugo Chavez's distaste for corporate
multinationals, which he accuses of looting his country's oil wealth
over the years. He enjoys strong support for his efforts to take more
industry profits for use in social programs for the nation's poor.

Since taking office in 1999, his government has passed legislation
requiring a majority government stake in all oil production projects,
hiked taxes and royalties on oil companies, and begun to collect
millions of dollars in what it claims are unpaid taxes from them.

On Thursday, congress approved new guidelines to turn 32 privately run
oil fields over to state-controlled joint ventures.

Among the terms faced by companies like Royal Dutch Shell PLC and
France's Total SA: a minimum 60 percent stake for the state oil company
Petroleos de Venezuela SA (PDVSA) in each field; PDVSA controlling the
boards of the new joint ventures; and a jump in income tax rates from 34
percent to 50 percent and royalties from 16.6 percent to 33.3 percent.
They will also see their potential drilling acreage slashed by almost
two-thirds.

Irving, Texas-based Exxon Mobil has often been the lone challenger to
the government.

It was the only company to reject the new joint-venture agreements.
Instead, in December, it sold off its stake in the 15,000 barrel-a-day
Quiamare-La Ceiba field to its partner Repsol YPF.

When other companies agreed without a struggle to a royalty hike in the
Orinoco tar belt in 2004, Exxon Mobil had threatened international
arbitration.

Since then, PDVSA has ousted Exxon Mobil from a multibillion-dollar
(euro) petrochemicals project, claiming the company did not meet
timetables for starting the project.

Experts say, however, that fears that Chavez, a close ally of Cuba's
Fidel Castro, is seeking to drive out private investment are exaggerated
because Venezuela needs the technological expertise of Western oil
majors to develop its vast deposits in the Orinoco belt.

Few state oil companies have the expertise to upgrade the extra-heavy
oil and tar-like bitumen found in the Orinoco into lighter, marketable
oils.

Notably, Exxon Mobil continues to hold a 41.7 percent stake in the
120,000-barrel-day Cerro Negro heavy oil upgrading project in the
Orinoco along with partners British Petroleum PLC and PDVSA.

It is also partnered with PetroCanada in the La Ceiba field, each
holding a 50 percent stake.