Venezuela tightens oil grip

Powering ahead with stringent nationalist reforms, Hugo Chávez's Venezuela is showing multinational oil firms little mercy.

Tense relations between private firms and Mr. Chávez's government escalated last week when the government seized fields operated by two European oil giants - France's Total and Italy's ENI - after the two companies snubbed government demands to convert their contracts to joint ventures with the state by April 1.

"This country does not allow itself to be blackmailed," says energy minister Rafael Ramirez. "These two multinational companies resist adjusting to our law. Our sovereignty isn't under negotiation."

Sixteen companies - including Chevron and Shell - did agree to new terms giving state oil company PDVSA at least a 60 percent state stake, a success which analysts say could embolden Venezuela to demand a majority stake in more valuable projects in the country's Orinoco heavy-oil belt. Heavy oil's viscosity makes it more expensive to drill and refine than regular oil. However, high oil prices have attracted top companies to Venezuela's heavy oil, which could boost the country's reserves count to the largest in the world - ahead of Saudi Arabia.

"Chávez is in the driver's seat because he has what everybody wants," says Roger Tissot, energy analyst at PFC Energy consulting firm, about Venezuela's heavy oil. "It's not any kind of oil. It's the oil of the future."

But more forced contract changes could further increase investor fear and make it more difficult for US oil companies to access one of the largest long-term sources of oil left on the planet.

While it is not uncommon for governments to change contract terms when high oil prices boost their bargaining power, analysts say Chávez is inspiring other leftist leaders in the region to further their own nationalist energy reform.

"Chávez has been settling the precedent," said Pavel Molchanov, energy analyst at Raymond James, a financial planning services provider.

Bolivian President Evo Morales came to power in January on a platform to nationalize the nation's natural gas industry, while presidential candidate Ollanta Humala won the first round of elections in Peru on Sunday on a nationalist platform that includes renegotiating contracts with multinational companies. And Ecuador's Congress passed a bill to boost the state's share of windfall oil profits earlier this month.

"Nationalism is in the air in Quito [Ecuador's capital] and this certainly could be a path [Ecuadorians] take as they move closer to the [October] elections," says Riordan Roett, director of Latin American studies at Johns Hopkins University.

Last April, Venezuela's energy ministry gave private firms one year to eliminate 32 operating service agreements that governed mostly marginal fields accounting for about one-fifth of the country's production. None of the contracts were due to expire until 2012, at the earliest.

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