Online Extra: Venezuela: Open for Business

CVP President Eulogio Del Pino says the country isn't hostile to foreign capital in the oil industry

Once Venezuela's President Hugo Chavez and Oil Minister Rafael Ramirez decided to change the terms of operation with foreign oil companies, they turned to Eulogio Del Pino to negotiate new deals. Del Pino, 50, is President of CVP, PDVSA's wing for joint ventures with the private sector. Along with Deputy Oil Minister Bernard Mommer, Del Pino handled negotiations with companies like Royal Dutch Shell (RDS ) and Chevron (CVX ) to turn their operating service contracts into joint ventures, with state-owned PDVSA as the majority partner. Del Pino gets high marks for keeping things cool and professional. He remained firm on key points, such as imposing a Mar. 31 deadline on talks, and insisting that only investment in the fields -- not the future value of the contracts -- would be compensated.

A geophysical engineer with a master's degree from Stanford University, Del Pino is a 26-year PDVSA veteran. In an interview in his office on the 12th floor of PDVSA's Caracas Tower he sought to calm fears that Venezuela was turning hostile to foreign capital in the oil industry. But he was firm that foreign companies could hope for no more than 49% of Venezuelan oil projects. Edited excerpts from the conversation follow:

Do you think you broke contracts when you renegotiated the operating service agreements?

We didn't break a contract. We did not consider [the operating service agreements] legal. You can't break something not constitutionally legal. In practice these were concessions, not contracts.

After the final decision was taken, one option we had was to cancel all the operations of those fields and go to legal discussions with every company. But we didn't want to do that. We considered that the companies were in a transparent bidding process and had done a lot of investment in this country. They had the right to [change these contracts to joint ventures]. ExxonMobil though, thought [this approach] was illegal. Every company that signed now thinks they did the right thing.

Why didn't ENI and Total sign?

Those two companies were trying to recover the whole [value of the contracts]. We recognized only investment up to the time of [the end of the contract].

Where do things stand now?

We have very good feedback from Total. They are not interested in bringing legal action. We are interested in talking to them about making Sincor [Total's heavy oil company] a better business.

Will you compensate them?

We are ready to recognize the level of investment. We are not ready to make a joint venture. If that happened it wouldn't be fair. It was very clearly established that Mar. 31 was the final date.

What's the role for foreign companies in Venezuela now?

Under the new law it is very transparent. They can have up to 49%. Only the minister and the state can decide [the ultimate level of private participation]. Now a sixth, or 16%, of production is with the private sector. In time whether it reaches 49% or remains 16% depends on the behavior of the sixth.

Venezuela is a country with no risk in terms of oil. Here the economic conditions may get harsh but the technical risk is lower. You average all those risks and take decisions accounting for that.

What are the plans for the heavy oil projects?

I haven't received any instructions at all. Every company knows that it is the next step [to shift to majority ownership by PDVSA]. We are proposing to the partners, "let's increase the recovery factor." We can produce more barrels, but we can't under [minority ownership for PDVSA]. As long as Conoco-Phillips has the capacity to produce 130,000 barrels per day, it doesn't matter what percentage they have.

How are things at PDVSA now?

During the crisis in 2002 (when much of the company went on an anti-government strike) I was running the offshore business. It was awful, very bad to mix politics with the company that is so valuable for the people of Venezuela. [Management] considered the company did not belong to the people but to PDVSA. It was managed as a kind of private company. Now the feeling is that PDVSA belongs to the people.

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