Now Chevron -- the only U.S. company to submit a bid for Venezuela's first oil auction in 11 years -- is cashing in on what once seemed a questionable bet at best. The U.S.-based company was awarded a contract to develop heavy crude oil reserves in Venezuela's Orinoco Oil Belt -- one of the world's largest undeveloped hydrocarbon deposits. Spain's Repsol was awarded a separate contract to lead another project with Petronas of Malaysia and India's Oil & Natural Gas Corp. Venezuela's state-owned PDVSA will hold a 60 percent stake in both projects.
Chevron's project, which will include the production and refining of oil, could cost it more than $15 billion, although the pay off is huge. Production in each of the three auctioned oil blocks is estimated to plateau at 400,000 barrels a day over 40 years.
Still, some have questioned whether it's worth the risk -- even if Chevron enjoys a cozy relationship with Chavez and a long history operating in the country. FT's Energy Source criticized Chevron for encouraging governments in other oil-rich states to change terms of their contracts with international oil companies on a whim.
The risk is real. Chavez has a history of and an affinity for anti-foreign activity, including the sudden seizure last year of oilfield companies in Lake Maracaibo. And Chevron got a reminder Wednesday of the risk that Chavez' looney tunes expectations might pose for the company. As a ceremony began, Chavez turned to Chevron's chief for Latin American and Africa and told him "we want you to help us improve our situation, our relations, with the U.S. government," Dow Jones reported. And then he followed up with the more traditional rant U.S. officials are liars.
But Chevron has made the calculated, correct choice. There are fewer options available to Western oil companies these days and Chevron knows it has to cast its lot somewhere. And by choosing to stay when others left, their holdings actually expanded. It would be far riskier if Chevron, which is already operating in Venezuela, hadn't bid at all. Companies have to find the oil somewhere if they hope to meet the world's estimated 105 million-barrel-a-day appetite in 2030 -- a 24 percent increase from 2008.
And Chavez' vulnerability right now helps. He needs oil companies as much as they need Venezuela's resources. Oil production in the country has faltered after his nationalization of oil projects in 2007 back fired and a number of companies including Exxon and ConocoPhillips left.
The true test will be when oil prices rise above $100 a barrel -- which happened to be the last time Chavez' nationalistic efforts went into overdrive.