Just how well does Venezuela get on with Chevron? Very.

A couple days ago, Raúl Gallegos published a decent little column about how Chevron is, if not betting on a Hugo Chávez reelection, at least setting itself up for a long, happy relationship with the Bolivarian Republic.

Chevron has no illusions about how Venezuela works. It first set up shop there in the 1920s, when strongmen showed heavier hands than Chavez. Scores of populist governments and two oil-industry nationalizations later Chevron is still pumping crude. And when PDVSA asked for a couple of billion to invest in Boscan, a jointly-run field Chevron first came across in the 1940s, the oil major obliged. The 13-year loan is costing PDVSA Libor plus 4.5 percent, far less than the 11 percent that its 2027 bonds pay.

I quibble with a bit of the column, but basically, he’s right. Chevron in Venezuela is now too big to nationalize.

I had thought Repsol fell into the same category. But maybe not. Check out this article from last night.

Venezuela President Hugo Chavez warned Repsol SA (REP) to “think carefully” about taking action against Argentina after it nationalized its YPF SA (YPFD) unit, indicating the Spanish company may face ramifications in Venezuela.

“They have a lot of investment here in Venezuela,” Chavez said on state television after holding a meeting with Argentine Planning Minister Julio De Vido in Caracas. “What happens there in Argentina affects what happens here.”

What jumps out here is that Chávez has never made any similar threats against Chevron over its $18 billion debt to ostensible ally Ecuador. If you haven’t followed that whole story, here’s an article, the plaintiff’s version and the company’s version, but long story short, Chevron was sued in the US for polluting Ecuador. It got the case moved to Ecuador, apparently thinking courts there would be friendlier. Courts there ruled against the company and ordered a huge amount of compensation. Chevron insists that the rulings were flawed by corruption, though I think it’s fair to ask, if they were worried about corruption, why did they get the case moved to Ecuador? The whole thing is a mess.

If Chávez were ideological, you’d think that the anti-Chevron campaigners would find open ears in Venezuela, and would even now be auctioning off the Boscan oilfield to pay the Ecuador debts. Instead, I don’t think Chávez has ever mentioned the case. And Chevron is piling in ever more billions of dollars.

Those of you who think politics has anything to do with ideas might be surprised by this. Please learn.

5 thoughts on “Just how well does Venezuela get on with Chevron? Very.

  1. westslope

    “And Chevron is piling in ever more billions of dollars.”
    From Venezuela? ORLy? (Oh really? for non setti speakers.)

    Can you pinpoint that item in the annual reports please? Would be most curious to know Chevron’s return on investment (ROI) for Venezuela over the past decade or so.

  2. westslope

    Right. O RLY. Got it.

    I just re-read your post and now realize that “piling in billions” does not refer to profits but rather to investment expenditures, i.e., costs. My bad.

    “Piling in” to Venezuela as opposed to “piling in” to Chevron. Got it.

    Incidentally, if you think I’m confused, imagine how English as a second or n-language speakers respond? On that note and as a complete aside, young Chilean males used to drive me crazy because they would speak at a machine-gun pace, clip their words and use as much slang as possible.

    All that aside, I would be most curious to know the ROI on Venezuelan investments for Chevron over the past decade or so. Those who automatically assume it is either positive or sufficient on a risk-adjusted basis simply have not been observing firms for a very long time. Private companies are capable of running sub-economic returns and even outright losses for years at a time.

  3. Tom ODonnell

    The comparison of Chevron with Ecuador as v. Repsol with Argentina is well taken. One difference is the depth of Venezuelan entanglement in Argentine finances (sale of bonds through Argentina, and such). Indeed, Chevron (and Ali Mezuri in particular, it´s Atlantic basin executive) has invested a lot of efforts to keep relations with Chavismo in good standing. For whatever reason, Chevron decided to stay in Venezuela. One way they have been able to accomplish this where others have not in the face of PDVSA tech.and managerial failings, and perpetual lateness in reimbursing for JV maintenance and distributing profits is that Chevron can accept heavy crude in direct payment and process it at certain of its refineries in the U.S: I don´t know what percentage of Chevron´s payments are in crude; but compared to most everyone else partnering with PDVSA in a joint venture who has to wait till PDVSA pays up with its scarce dollars, Chevron can get paid in oil. However, Chevron has really resisted/dragged its feet on putting promised money into its Faja venture. This $2 billion investment is in their mature field (where all the infrastructure has been in place for a long long time), not in their Faja venture where, generally, infrastructure is a big problem. The mature field seems to me a much more sure thing, as far as getting an increased stream of oil/profits than the Faja with its complex new-development requirements that PDVSA has such trouble with.

    Another aspect of Chevron’s treatment as v. Repsol: Perhaps the Argentinians asked Chavez for this gesture against Repsol while their minister was in Caracas. By threatening to mess with Repsol’s Perla field project, Chavez can really put some pressure on them on behalf of Argentina.

    1. sapitosetty Post author

      Yes, all true. But your final point isn’t much of a contrast. Sure, Chavez can pressure Repsol by threatening their Perla (my preeeecious) but couldn’t he threaten Chevron far more by threatening Boscan, Petropiar, etc? And while the Ecuador plaintiffs are now trying to get their money in Canadian courts, they have not, so far, tried to do the same in Venezuela.

Comments are closed.