Saturday, May 23, 2009

Mick Gregory

By Mick Gregory

Funny that the Houston Chronicle with its 400 reporters couldn’t run down this story.

President Hugo Chavez announced a month ago that he hopes to sell off its refineries in the United States and build a new network of refineries in Latin America as part of a plan to offer his allies in the region a stable oil supply. He must have a buyer lined up.

In 2005, he said that within two years he would sell off Citgo and the refineries of the heavy sour crude.

This July, it will have been two years.

Attorneys with a prominant Houston law firm are in Venezuela now with closing documents on the sale of assets.

The Citgo brand is worthless, but the refineries can easily be converted to handle the oil-tar sands of Canada and heavy oil of Mexico, the latter being a much closer trip.

On June 26, Venezuela’s state-owned oil company officially took over multibillion-dollar projects owned by ConocoPhillips and ExxonMobil, Rafael Ramirez, the country’s energy minister, said.

The action was being taken following a failure to agree the terms of a handover of operations in the oil-rich Orinoco belt, said Mr Ramirez.

The oil groups refused to sign an agreement on how the Venezuela’s state-owned oil company PDVSA would take majority control of heavy crude oil projects in the Orinoco belt, which are valued at a total of at least $25 billion.

The loss of its Venezuelan operations would be a particular blow to ConocoPhillips. Its operations in the Orinoco belt were valued at about $6bn and accounted for about 10 per cent of the company’s reserve base and 4 per cent of its worldwide production.

Mr Ramirez said PDVSA (owner of Citgo in the U.S.) was increasing its share in the four projects, which lie above some of he largest heavy crude oil reserves in the world, from an average of 40 per cent to 78 per cent.

Hugo “The Boss” Chavez, Venezuela’s president, announced the state takeover of majority control of operations in the Orinoco belt this year, along with the nationalisation of Venezuela’s largest electricity and telephone companies.

Mr Ramirez, who is also the president of PDVSA, said Chevron, Total, BP and Statoil had said they would sign agreements allowing them to continue operating in the area, which can produce 600,000 barrels of oil a day, a quarter of Venezuela’s output.

However, analysts said that both ExxonMobil and ConocoPhillips, which was the most exposed of the private companies in the Orinoco, refused to accept minority positions in the ventures for compensation that they considered to be below market value. The companies appeared still to be in talks with Venezuela over the handover.

Petro-Canada also pulled out of the country, saying: “We have decided not to migrate to the new commercial structure, so our working interest passes to the Venezuelan government.”

Analysts said the country needed the expertise of private companies. Venezuela’s oil industry has stagnated in recent years, with production falling 10 per cent during the past decade.

ExxonMobil said it was “disappointed that we have been unable to reach an agreement on the terms for migration to a mixed enterprise structure. However, we continue discussions with the Venezuelan government on a way forward.”

ConocoPhillips said it expected to take an impairment of about $4.5 billion in the second quarter for its entire interest in its Venezuelan oil projects as negotiations continued with authorities over compensation for the company’s stake in the projects.

So we are at a major flash point. What will the U.S. do to compensate the billions taken over by Hugo Chavez?
I share the idea that Citgo refineries will be sold to one of the U.S. oil companies who have been damaged by the Chavez shut down of their Venezuelan projects. It’s right on schedule to happen in July, both the U.S. and Venezuela have national birthdays in July. Good timing for anothe speech by Hugo!

Just days ago, Felix Rodriguez, chief executive officer at Citgo Petroleum, the U.S. refining business of Venezuela’s state-owned oil company, is being transferred to the parent company’s European operations.

Rodriguez will be replaced by Citgo Chairman Alejandro Granado, said Bernardo Alvarez, Venezuela’s ambassador to the U.S. The change will take place in a few weeks, Alvarez said Saturday in an interview in Chicago.

This is an idication that it is over for the few hundred Citgo employees who have been holding on to their jobs. Tip, get ready to apply for unemployment insurance and start checkin regularly.

Houston-based Citgo controls about 5 percent of U.S. oil- refining capacity through four plants in Texas, Louisiana, Illinois and New Jersey, according to data compiled by Bloomberg.

The company sold its 41 percent stake in a joint-venture refinery to partner Houston-based Lyondell Chemical Co. in August for $2.1 billion. Rodriguez became chief executive at Citgo in February 2005.

Hugo has proposed a national bond to raise money for social spending as he hosted a summit of “the Bolivarian Alternative for the Americas” (ALBA), a leftist bloc and trade group that includes Venezuela, Cuba, Bolivia and Nicaragua.

“I proposed that we issue an ALBA bond. I hope that we can do it. … And that we issue it here in Venezuela, as we did with Argentina, and bring in $1 billion,” said Mr. Chavez, addressing leaders April 29 on final day of their talks. The Venezuelan president said the money acquired would be put in a fund to provide credit for ALBA nations.
Mr. Chavez and other leaders signed accords for Venezuela to supply fuel under preferential terms and join other countries in cooperative projects on education, telecommunications, mining and other areas.
He said Venezuela will guarantee to supply 100 percent of the energy needs of ALBA members plus Haiti. ALBA was created in 2004 by Cuba and Venezuela as a counterproposal to U.S. backed free-trade plans.
Mr. Chavez said Venezuela eventually plans to help build a network of refineries in Nicaragua, Haiti, Ecuador, Bolivia and Dominica, and to refurbish Cuba’s Cienfuegos refinery, to provide a stable supply of oil — and the earnings it generates — to Latin American countries.
He noted that Venezuela’s Citgo Petroleum Corp. has seven refineries in the United States and said “part of our plans is to sell those refineries.”
Under special oil arrangements offered by Venezuela, ALBA member nations will be able to finance 50 percent of the bill for fuel through low-interest loans, and 25 percent of the total bill will go into a special “ALBA Fund” to support local projects using loans, he said.
Leaders attending included Haitian President Rene Preval, Nicaraguan President Daniel Ortega, Bolivian President Evo Morales and Cuban Vice President Carlos Lage, as well as officials from Uruguay, Ecuador, Dominica, St. Kitts and Nevis, and St. Vincent and the Grenadines.

Apparently the consumer boycot of Citgo has worked. Chavez will not be able to make a dollar from selling the second rate brand to help fuel his revolution to destroy America. But he will make a billion or three selling the refineries.

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