Posts Tagged ‘total oil’

Venezuela : Chavez returning to dirty tricks ?

hugo-chavez-venezuela1For the last 4 years, soaring worldwide oil prices and 9% growth rates have underpinned President Chavez’s generous social programs & his (none too successful) campaign to build an international anti-American alliance. The oil windfall saw the socialist government of Venezuela threaten to divert oil exports from the US to competitors in China and India, even though the Asian markets would be costlier to serve. Currently 60% of Venezuela’s production goes to the States.

As if Venezuela were not doing well enough, the government then imposed crippling tax increases & royalties on the IOCs (International Oil Companies) working there. Snapping up majority shares in oil-producing joint ventures & effectively forcing the multinationals to either take smaller roles or leave Venezuela. Now with oil revenues failing due to lack of demand on global markets, Chavez looks as though he is turning his attention to agriculture.

Chavez is hugely popular with Venezuela’s poor due to his heavy spending on social services, however,  continued investment in social programmes is not sustainable with the crash in oil prices. Oil accounts for 94 percent of Venezuela’s exports and about half of the national budget. Chavez decided on Wednesday (04/03/09) to take over at least one rice plant owned by Cargill Inc, the largest U.S. agricultural company, extending his grip on food producers as the government seeks to slow inflation.

“We’re going to continue to tighten the screws,” Chavez said during a cabinet meeting that was broadcast on Venezuelan state television. “Begin the process of expropriating Cargill. This is a flagrant violation.”

Chavez, has also threatened to seize all plants run by Empresas Polar SA, Venezuela’s biggest privately owned company, in his push to increase state control of the economy. Venezuela has the highest inflation rate in Latin America, and food prices rose 43.7 percent in January from a year earlier. Over the last four years, following Chavez’s re-election as president, Venezuela has increasingly moved to a government-run economy, announcing takeovers in the electricity, cement, telecommunications and now food production industries.

In the 1990s, Venezuela offered discounted taxes and royalties to entice IOCs such as BP, ConocoPhillips, Exxon Mobil & Total to develop the Orinoco basin deposits. The Orinoco Belt holds over 1.2 trillion barrels of extra-heavy oil which is refined locally. Previous estimates claim that the Orinoco Belt may contain more than 250 bn barrels of recoverable synthetic crude, making Venezuela potentially the biggest source of oil in the world, topping Saudi Arabia. Following more than $16 bn of direct investment, four international “strategic alliances” began producing synthetic crude in 2001. Production now totals about 600,000 barrels a day, roughly one-quarter of Venezuela’s total output.

In May 2007, Chavez announced the nationalisation of oil assets in the Orinoco belt, prompting Exxon Mobil Corp. and ConocoPhillips to pull out of the country and seek international arbitration. Total remained & is still attempting to work under tough government constraints, which saw its stake in the Sincor project reduced from 47% to 30%. Massive revenues generated by high oil prices have managed to mask years of economic mismanagement. Currently, inflation stands at 35%, capital is fleeing the country & unemployment is rampant. Continued rhetoric about revolution, socialism and expropriation has caused foreign investment, which is vital to the oil industry, to dry up. Venezuela’s private sector recorded zero growth in 2008, according to the central bank.

Back to today & a reliance on his populist support seems to have forced, Chavez to maintain his 2007 pledge that the government would secure supplies of basic food staples, as the country experienced widespread shortages of milk, beans and rice. Chavez issued a raft of  decrees last year, increasing government control over food storage and distribution and allowing the state to jail company owners for hoarding. This week, he set new production quotas for food makers to boost supply of price- controlled foods. The Cargill seizure follows troops being deployed in rice plants across the country, in a blaze of publicity, claiming that private owned companies are hoarding rice stocks in order to manipulate prices.

“Cargill is committed to the production of food in Venezuela that complies with all laws and regulations,” Mark Klein, a spokesman for the Minnetonka, Minnesota-based company, said by email late yesterday. “Cargill expects the opportunity to clarify the situation with the government and is respectful of the Venezuelan government decision.”

Chavez hasn’t specified whether the Cargill expropriation order would apply to all of the company’s plants in Venezuela. According to Cargill’s Web site, it has operated in Venezuela since 1986, and runs 13 plants that produce foods including rice, pasta, flour and juice.

Meanwhile, Venezuela is courting Asian countries for FDI for future growth in the oil indusry, recently China & Venezuela announced a $12B pact for a JV in the Orinoco belt, part of China’s ongoing spree of buying into national projects. Vietnam via its state owned oil company PetroVietnam has also entered into a JV with Petrolos de Venezuela, where the expecation is to extract 200,000 barrels per day for export to Vietnamese refineries, as previously discussed. This follows inconclusive talks with neighbour Brazil regarding an accord with Petrobras, whcih would have seen the Brailian giant investing 40% into the construction of a $4Bn / 200,000 barrel a day refining operation.

With this latest bout of  “nationalisation”, Venezuela is surely set to lose more friends in the West & also on its doorstep. Chavez has been pouring billions into local economies to shore up Latin American support for his Bolivista government, but now the revenues have dried up, he is seen as a political blusterer.  It is clear that Asian nations starved of natural resources will make deals at favourable rates right now whilst oil prices are in a slump, however, it will be interesting to see which rabbit Chavez will pull out of the hat when oil goes back over $70 a barrel.

Total continues emerging markets investment & expansion

total-oil-logo1Total SA (NYSE – TOT), France’s largest company, announced the highest annual net profit in French corporate history last week, sounding a rare positive note in todays grim financial meltdown. In 2008 the firm made a profit of  €13.9 Bn ($18.0 Bn) thanks to record oil prices in the first half of the year, which helped offset the second half collapse in oil prices. Profits began to fall in the fourth quarter of 2008 as the credit crunch hit demand, sending crude prices tumbling. Total is now preparing for the future by investing in increased capacity in new fields, especially in Africa & the Middle East, whilst putting the brakes on production in Canada & the North Sea.

“Unprecedented volatility marked the 2008 market environment,” said Total chief executive Christophe de Margerie, noting that oil had peaked at about $150 a barrel last year before plunging to as low as $35

With regards to its North Sea operations, Total has reviewed its capital expenditure for 2009 due to the fall in oil prices. Senior vice president for Northern Europe, Michel Contie, remarked that an oil price of $40 per barrel was required to realistically develop new fields in the North Sea, as many new offshore discoveries are “not economic today.”  The Joslyn & Surmont heavy-oil ventures in the Canadian Athabasca project are among the “building blocks” for boosting output from 2016, the oil sands projects are expected to provide Total with almost 300,000 barrels a day of production capacity by 2020, as reported by Bloomberg : Total is “reevaluating costs, technologies, structure and timing of Canadian projects”

In a recent aggressive move, Total has offered to buy Canadian oil-sands explorer UTS Energy Corp for $ 617 million Canadian ($505 million), which rejected the bid as “inadequate.”  UTS has advised shareholders that the bid should be rejected, as the book value of the company is pegged at twice the unsolicited offer. Total reiterated today that oil sands need crude prices at $80 a barrel for investment, which to my mind displays that they are looking to bank up potential reserves for a time when oil demand will flip to the upside. Until then, Total looks as though it is banking on emerging markets to provide the spur to growth for the forseeable future.

In Nigeria, Total is the lead company in the Apko offshore oil field, where it is partnered with MSV’s favourite oil firm, Petrobras (NYSE – PBR) & state-owned Nigeria National Petroleum Corporation, the field is estimated to have reserves of up to 1.6 billion barrels of sweet crude in reserve. In order to help fund the project, the three existing shareholders agreed to auction off a 45% stake in the field to Indias state controlled ONGC for an estimated $2 Bn.

In Yemen, Total will soon start shipping liquefied natural gas from the Gulf of Aden, bringing into operation a $4 billion project begun less than four years ago. The shipments will make Yemen the newest member of the world’s small club of gas exporters & should earn the government as much as $50 billion in tax revenue over the next 25 years.

In Angola, as discussed in a previous post, Total is set to continue with a $9 billion investment to raise production, despite the huge drop in crude prices since July last year. In a joint venture with Chevron (NYSE – CVX) & others, the Tombua-Landana oil field is expected to come online, contributing a further 120,000 bpd to Totals existing operations. Meanwhile, Total’s third production hub in Angola’s offshore Bloc 17, is expected to begin pumping oil from depths of up to 1,200 metres,beginning in 2011, according to the company’s website. Presently, Total is the third biggest oil producer in Angola after Exxon & Chevron, pumping over 500,000 barrels per day.

During his presentation lat week, CEO  de Margerie stated that Total is also interested in entering the upstream sector in Brazil, particlualrly in offshore projects such as the Santos basin and is also eying new acreage in Venezuela.

“We have had discussions with Petrobras and told them officially that we would be interested either in entering existing discoveries or taking part in the next bids on new acreage,” de Margerie told reporters at a briefing in London.

He stressed that Petrobras needed financing to develop the reserves in the offshore basin, but that Total was not interested in merely becoming a financial partner in Brazil. De Margerie also said Total would be interested in bidding for new exploration acreage in the extra heavy crude oil Orinoco Belt in Venezuela.

“There is room for additional development  & we will be one of the companies to get access to the bid data, and we may bid,” he said. “We need to operate in Venezuela in good conditions, but it is an important target in terms of acreage” .

De Margerie said Total was right to stay in Venezuela despite the nationalization by President Hugo Chavez of large swathes of the country’s oil industry in 2007. Chavez nationalized oil fields when crude prices were on what looked like an unstoppable bull run, and as a result ExxonMobil and ConocoPhillips left Venezuela and are still runiing legal battles over disputed projects. It was reported earlier this year that Venezuela is now looking for new bids to develop fields from both global majors and state-run oil companies. Total which saw its stake in the Sincor project reduced from 47% to 30.3% in Chavez’s ambitious move remains committed to the project.

“We have to make sure our existing Sincor project delivers–this is still a real challenge,” he said.

Looking at Total from an independent viewpoint, it is obvious the management are playing a canny game. We have seen them exit or scale down high cost projects, such as Saudi Arabia, UK & Canada, whilst at the same time, investing heavily in emerging market prospects, as is clear from this article. What also impresses me about this company is its track record of working well with IOCs such as Chevron as well as local state entities & as long as it continues with this “nimble” approach along with a prudent focus on legacy operations, the future looks very bright indeed.