Lukoil Averts Venezuelan Expulsion With Letter of Apology

OAO Lukoil, Russia’s No.1 private oil producer, avoided becoming the first company expelled from Venezuela following the death of President Hugo Chavez.

Oil Minister Rafael Ramirez told reporters in Caracas today that Lukoil can continue to operate in the country after Andrei Kuzyaev, president of Lukoil’s overseas unit, sent a letter of apology explaining that reports he criticized Venezuela’s investment environment were a “misunderstanding.”

“I want to express again my most sincere remorse about the possible negative feelings that the situation could have created in you,” Kuzyaev wrote in the letter released to reporters by PDVSA. “We hope that this regrettable misunderstanding will in no way reflect in the long-running friendly relations between Lukoil and Venezuela.”

Kuzyaev was quoted as saying by Reuters March 8 that Venezuela’s legal stability is worse than Iraq’s, prompting Ramirez to say the Russian company’s activities would be suspended.

Chavez died March 5 after a two-year battle with cancer. The former paratrooper had called Russia “a true friend and ally” and said he had “entered deep into the Russian soul” during his nine trips to the world’s largest country. Kuzyaev is a former chairman of the Russian chapter of the bilateral business chamber.

Interim President Nicolas Maduro has promised to protect Chavez’s legacy, which includes the expropriation of more than 1,000 companies or their assets. Maduro leads opposition candidate Henrique Capriles Radonski in polls ahead of April 14 elections.

‘Real Position’

Lukoil holds 8 percent of Junin-6 block in the Orinoco belt, where it works with PDVSA and Russia’s OAO Rosneft and OAO Gazprom Neft. The block, which produces about 2,000 barrels a day after starting in October, holds 2 billion barrels of reserves, according to consulting firm Wood Mackenzie Ltd.

The minister said in January that Russian oil companies will invest $17.6 billion in Venezuela by 2019 to become the biggest foreign oil producer. Last year Russia exported $1.9 billion worth of goods to Venezuela, up 10 percent from 2011, mostly weapons, vehicles and oil products, according to Russia’s Ministry of Economic Development.

“These statements are very much politicized,” Yuriy Gorskiy, deputy director of the National Committee for Latin American Economic Collaboration, said by telephone from Moscow. “The real position of the leadership that comes to power will be shaped after the elections.”

India’s ONGC

Ramirez said today that he also received a “communication” from India’s ONGC clarifying issues between the companies while state-owned Petroleos de Venezuela SA has “clarified” issues with Schlumberger Ltd., a services provider.

PDVSA, as the company is known, established a “mechanism” with Schlumberger to work out financial issues, Ramirez said. Schlumberger Chief Executive Officer Paal Kibsgaard said this week that the company was reducing work in Venezuela because of trouble getting paid.

Ramirez said he held a “good” meeting with a Schlumberger executive yesterday, where the services provider ratified its interest in working with the South American country. The Schlumberger executive will again visit Venezuela’s Orinoco Belt at the end of April, Ramirez said.

Sales Fall

PDVSA increased the amount it owes to oil-services companies by 35 percent to $16.7 billion last year, Ramirez said.

The state-owned comapny’s sales declined less than 1 percent last year as it sold more crude in its home nation instead of fetching higher prices for exports. PDVSA, as the company is known, had revenue of $124.4 billion in 2012, down from $124.8 billion in 2011. Profit decreased to $4.2 billion from $4.5 billion. PDVSA will publish 2012 financial results on March 25, said Ramirez.

The decline in revenue is “not important,” he said. “PDVSA’s results guarantee the stability of the Venezuelan economy.”

PDVSA invested $12.4 billion in exploration and production and $2.9 billion in refining last year, Ramirez said. Total social contributions were $28.2 billion and contributions to Fonden, an off-budget development fund, were $15.5 billion in 2012.

PDVSA invested $25 billion last year and its assets increased from $98 billion in 2011 to $115 billion in 2012, Ramirez said.

Venezuela’s oil exports averaged $103.42 a barrel last year from $101.06 in 2011, according to the Oil Ministry’s website. PDVSA sells oil on domestic markets for less than the export price.

Before it's here, it's on the Bloomberg Terminal.