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Venezuela Seizes Total, ENI Oil Fields

State Also Assumes Control
Of Five Other Properties
As It Pursues Sweeter Terms
By BHUSHAN BAHREE/Wall Street Journal
April 4, 2006; Page A2

Venezuela stepped up its battle to extract more-favorable terms from big international oil companies operating in the petroleum-rich country, by seizing control of two oil fields run by France's Total SA and Italy's ENI SpA and taking back five others voluntarily given up by other firms.

The two companies said they had failed to reach an agreement with the government to cede majority ownership in the two fields -- called Jusepin and Dacion -- to Petróleos de Venezuela SA, or PdVSA, the state-owned oil company, by a deadline at the end of last month. The fields, seized by PdVSA officials over the weekend, produce a combined total of about 85,000 barrels of oil a day. Together, the seven fields produce a total of 115,000 barrels a day, said Venezuelan Oil Minister Rafael Ramirez.

Venezuela, which pumps about 2.6 million barrels a day of oil, is the third-largest producer in the Organization of Petroleum Exporting Countries and is a major supplier to the U.S. It also has been among the most aggressive of the many oil-producing countries seeking to get a greater share of revenue or reclaim ownership of energy concessions from international oil companies, at a time when high oil prices are swelling treasuries and emboldening governments.

Worries from oil-producing nations such as Iran and Nigeria have renewed upward pressure on oil prices. In New York, the price of the benchmark crude-oil futures contract rose 11 cents to $66.74 a barrel.

Some nations, like Bolivia, are going further and trying to nationalize their oil industries, though details of exactly what government officials intend to do remain unclear. On Sunday, the chief executive of Brazil's state-run oil company, Petróleo Brasileiro SA, or Petrobras, said he preferred a negotiated solution in a dispute over Bolivia's plan to nationalize the oil and natural-gas industry but also warned the company would respond with unilateral actions if Bolivia took unilateral action. Petrobras has operations in Bolivia.

In Venezuela Friday, just before the government deadline, 16 companies -- including Royal Dutch Shell PLC, Chevron Corp. and Spain's Repsol YPF -- signed deals changing terms of their contracts. Some others, notably Exxon Mobil Corp. and Norway's Statoil AS, are selling their interests to their partners or to PdVSA. As part of its new deal, Repsol returned two of its four fields, and Japan's Teikoku Oil Co. returned one of its two fields. Smaller Colombian and Venezuelan companies each returned a field.

Under Hugo Chávez, Venezuela's populist president, the country has been insisting on revising terms on dozens of oil-field contracts signed by previous governments in the 1990s. Through higher taxation, royalties and other levies, Venezuela wants more of the share of revenue and profit.

Venezuela in the 1990s signed 32 agreements known as service contracts with 22 foreign oil companies to invest and produce oil from specific fields. The companies operate the fields, and PdVSA pays a fee and buys the oil produced at market-linked prices. The fields under these service contracts produce 500,000 barrels a day of oil, about a fifth of Venezuela's total output.

In 2001, the Chávez government passed a law raising royalties and guaranteeing PdVSA majority stakes in joint ventures. Since then, the government also has said foreign companies must pay a tax of 50% on their Venezuelan profit rather than a previously agreed-upon rate of 34%. Venezuela tax authorities have claimed back taxes under this new interpretation.

The changes have forced oil companies to look carefully at the economics of operating in Venezuela. Many have concluded that they can still turn a profit. But some, like Exxon, Total and ENI, have balked. Exxon decided to sell out. In contrast, industry officials say, Total and ENI appear not to have decided yet whether to operate the fields under new terms or to sell their interest to PdVSA or another buyer.

A spokeswoman said Total hoped to resume talks with Venezuelan officials. She said Total had handed over to PdVSA officials the keys to the Jusepin field, which produces 25,000 barrels a day of oil.

In Milan, ENI issued a statement saying PdVSA had unilaterally terminated its contract to operate the Dacion field, which is estimated to produce 60,000 barrels a day of oil.: "This action is a violation of contract rights," ENI said. "It is ENI's intention to offer PdVSA a period of time in which a full reparation of ENI's contract rights can be agreed." If no agreement is reached, ENI said it would pursue legal means to claim its rights.

--Peter Millard contributed to this article

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