Venezuela Seizes Last Private Oil Fields

(CBS/AP)  President Hugo Chavez's government took over Venezuela's last privately run oil fields 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 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, a strong critic of U.S.-style capitalism and a leader of the leftist movement in Latin America, 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 included BP PLC, ConocoPhillips, Exxon Mobil Corp., Chevron Corp., France's Total SA and Norway's Statoil ASA.

All but ConocoPhillips agreed in principle to state control, and Venezuela has warned it may expropriate the company's assets if it doesn't follow suit.

Chavez is worried about keeping the big oil companies as minority partners. Industry experts say the state oil monopoly, Petroleos de Venezuela SA, doesn't have the expertise to transform Orinoco's tar-like crude into marketable petroleum.

But multinationals pumping oil elsewhere in Venezuela, one of the leading suppliers of oil to the United States, submitted to state-controlled joint ventures last year because they were reluctant to abandon the profitable operations.

"Because of the strategic importance of both Venezuela's oil deposits and its distributorships in the U.S., including CITGO, Chavez's decision to go ahead with the takeover of privately held oil fields creates a showdown with the U.S.," said CBS News foreign affairs analyst Pamela Falk. "As the conflict escalates, Americans are likely to see higher prices at the pumps."

Chavez also is in the process of nationalizing Venezuela's electricity companies and its biggest telecommunications company. He threatened a month ago to take over private hospitals if they continued raising prices for health care.

The president is operating with special powers given by congress to issue laws by decree in energy and other areas, which he has used to nationalize big companies. He justifies the takeovers as necessary to give the government control of sectors "strategic" to Venezuela's interests.

Chavez hopes to radically make over Venezuela, saying big changes are needed to make sure the poor benefit from the country's wealth and not just the elite.

Using the country's burgeoning revenues from high oil prices, he is financing widespread programs for the poor. He has built new clinics, refurbished state hospitals and sent thousands of doctors to live in poor neighborhoods and provide free medical care.

The campaign has brought popularity for Chavez, who takes to the airwaves almost daily to address the nation, delivering tirades against the rich, the media, international capitalism and his particular enemy — the U.S. government.

In Orinoco, Chavez says the state will take a minimum 60 percent stake in the operations, but he is urging the foreign companies to stay and help develop the fields. They 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 work with heavy, tar-like crude oil. 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."

[eggy1620]

Anyone who thinks that Chavez is a socialist is dead wrong. He is a capitalist in every sense of the word. Only the scale there is different from here. He is attempting to create a very large for profit corporation %u2013 Venezuela Inc. And believe me, capitalist market forces will determine the level of his success. If his CEO style proves distasteful to enough corporate partners, they will sever ties with Venezuela Inc and the global market will adjust against Chavez%u2019s favor. His alienation of Venezuela Inc%u2019s elite, or educated, professionals will most likely be the largest contributor to such an outcome.

[gundu61]

Please DO NOT play wordsmithing. %u201CSeize%u201D means grab or confiscate or something like that right? Shouldn%u2019t the right word for this be %u201CSecure%u201D? Good media is supposed to tell the truth impartially!

[feelfree1]

Congratulations to our Venezuelan brothers and sisters. You really give us something to strive for. Imagine- a legitimate democracy, where modern day robber barons are not welcome. I would like to try that here.

Very good Venezuelans! Many North Americans are also rooting for your success!

Viva, Venezuela!

[toolmangler-2009]

The only one who will get the money produced by the Oil is CHAVEZ.......

[toolmangler-2009]

superchez1, I have been saying that for a while now, There is only one outcome when a Dictator has absolute control of an entire country.

[afmca]

Now Chavez has really made Bush mad. Any day now the CIA will prove the existence of alQaeda cells in Venezuala and give us reason to invade. Big oil raped and pillaged 3rd world countries for decades with the backing of the American government and military. They are now awakening to the fact that American capitalism has the money flowing one way - to the gringos in the North. If Bush has accomplished one thing in 6 years it is to totally expose the immorality and corruptness of the American economy where so many work to profit the few. Venezualians will now have health care, food, a decent wage, and a better chance of using their natural resource to better their lives; not an American CEO. If corporations were less greedy and more long term oriented this would never happen. The blame is not Chavez but Exxon/Mobil.

[brianp55]

Watch....he will now turn these oil fields over to Chinese companies.

[markster6]

edjohn66

I agree that oil execs are significantly overpaid. However, the money going to "Big Oil" also benefits many American employees and shareholders, not just the execs.

Regarding second point, yes, good government will create incentives and disincentives for private industry through the tax code and other methods. Our government also has research programs (usually in partnership with private industry or universities). You made the point that the Soviet Union put the first man in space. The amount of resources they put into their defense and space programs caused their collapse. I suppose if you put the resources of an entire country into one research project, you may innovate in that area.

For the US to become energy independent, it will take new technology. We will not achieve it by converting corn to ethanol. We will see private industry primarily driving the innovation. Government can be a benefit or obstacle in that process.

[edjohn66]

markster6,

I've made no representations about Chavez's motives. I happen to agree with you: his "gift" of heating oil was a PR move, and a really smart one at that.

I only said that I'd rather have my money go to helping poor people in Venezeula than to Big Oil executives here in the States. Some people challenged the notion that Chavez spends money on the poor, and they are wrong. Simple.

HOWEVER, seeing as how you've raised a whole new issue, I challenge your notion that "innovation and creativity comes through a capitalist model." Brazi's energy independence came about as much because of government support and money than any capitalist innovation and creativity. And weren't the socialists the first humans in space?

In the end, high gas prices will lead to energy independence here in the States. Big Oil and governments sympathetic to Big Oil have kept energy independence off of the table here in the States long enough. But the pressures of $3 + /gallon of gas will FINALLY force the issue. So much for your capitalist "innovation and creativity."

[markster6]

edjohn66,
Please consider the following thoughts.

You seem to believe Chavez contributes heating oil to poor Americans based on purely altruistic giving. I believe he does it to try to undermine our capitalist society. Chavez is saying, look...socialism is better! His behavior is based on the desire for power through socialism, not based on altruism. If it were not for Venezuela's oil wealth, Chavez's Venezuela would be just another Cuba (a failed socialist model).

Innovation and creativity comes through a capitalist model. Capitalism creates incentives to be innovative. It is why the future fuel technologies will be developed by capitalists (both big companies and one-man shops). Hopefully, we are on our way to energy independence, as Brazil has done. I look forward to the day we are no longer beholden to the despots of the world.