The Wall Street Journal-20080131-Venezuela Set to Pay Total- Statoil

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Venezuela Set to Pay Total, Statoil

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Venezuela will pay two European oil companies $1.1 billion in compensation for last year's nationalization of a multibillion-dollar oil project, less than half the estimated market value of their stakes, according to a copy of a compensation agreement reviewed by Dow Jones Newswires.

Venezuela's state-run oil giant, Petroleos de Venezuela SA, agreed to pay France's Total SA and Norway's StatoilHydro ASA for their reduced stakes in the Sincor heavy-oil venture with a combination of crude oil and cash, according to the documents.

Statoil and the Venezuelan company, known as PDVSA, declined to comment. A Total spokeswoman declined to comment on the amount but said its compensation will be in oil instead of cash.

The agreement offers an inkling of what U.S. oil majors such as Exxon Mobil Corp. and ConocoPhillips might expect as they carry on compensation talks with PDVSA. Unlike the two European concerns, which decided to stay on as minority partners in the projects, the U.S. companies rejected the new terms, left their projects and are seeking compensation. Exxon began arbitration proceedings in September.

Exxon had no comment. Officials at ConocoPhillips couldn't be reached.

In May, Venezuela President Hugo Chavez nationalized four multibillion-dollar projects begun in the 1990s, in some cases by unilaterally raising the government's ownership stake in each from a minority to a majority stake. Located along the Orinoco River belt, one of the richest oil deposits in the world, the projects all take sulfur-laden crude and turn it into lighter, more marketable oil for export.

Statoil now owns 9.7% of Sincor, down from an initial 15% stake, and Total holds a 30.3% stake, down from its initial controlling 47% stake. The rest is owned by PDVSA, whose stake went from 38% to 60% last year.

PDVSA's decision to pay the Sincor partners $1.1 billion for the 22% stake essentially puts a $5 billion price tag on the entire project, less than half its estimated value. A UBS study in February put Sincor's net present value at $10.8 billion and valued all four ventures at $28 billion.

As part of the deal, Total and Statoil don't get to keep their entire compensation. They must hand over $130 million of that money "owed . . . as a bonus" to fund the new Sincor joint-venture company, the agreement states.

From the remaining compensation money, Total will receive $735.3 million in the form of quarterly crude-oil shipments, in a payment schedule that can extend until May 31, 2010, the agreement further states. Statoil will receive $234.7 million in cash before Dec 31, 2008, according to the contract. Statoil and PDVSA can also agree on a crude-oil payment, the contract notes.

Payments aside, the Sincor project still had $236 million in debt outstanding as of Dec. 31, according to PDVSA figures. It isn't clear how soon PDVSA intends to pay that off and what portion, if any, of that debt will be covered by the partners.

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Guy Chazan and Russell Gold contributed to this article.