THE WALL STREET JOURNAL
Chevron Stayed in
Venezuela Long After Rivals Quit. Then It Had Second Thoughts.
Profits are down and
there’s a taint from working with the Maduro government; the company also fears
a withdrawal could make things worse for the country
—For nearly a
century, Chevron Corp. has weathered dictatorships, coups and nationalization
drives to keep pumping oil in Venezuela.
But recently,
executives at the last U.S. oil major in the country have debated whether it
may be time to get out, according to people familiar with their deliberations.
For now, Chevron hopes
to hang on and outlast President Nicolás Maduro, as it did with his late mentor
Hugo Chávez and other rulers.
“We’re committed to
our position in Venezuela,” Clay Neff, Chevron’s president of exploration and
production in Africa and Latin America, said in an interview Thursday following
initial online publication of this story.
Chevron’s dilemma is
both moral and commercial. The California-based giant long enjoyed close
relations with the socialist regime that controls the world’s largest oil
reserves, and has earned big money in Venezuela—about $2.8 billion
between 2004 and 2014, according to cash-flow estimates by analytics firm
GlobalData .
The company is aware a
pullout could trigger a collapse of the government’s finances, because a
significant chunk of its scarce hard currency comes from joint operations with
Chevron.
Chevron has had to put
up with many provocations in Venezuela, including late payments, requests for
employees to attend political rallies and bickering over loans Venezuela sought
because it couldn’t afford oil-field maintenance. Chevron’s joint ventures with
the state oil company are regularly subjected to what Venezuelan prosecutors
have labeled corrupt overcharging by vendors. Graft and the risk it will worsen
have weighed on executives as they consider Chevron’s position in the country.
It has become harder
to stomach since the big money disappeared from the Venezuela operations, say
people familiar with the company. Chevron operations in Venezuela lost money
from 2015 to 2017, according to GlobalData, then eked out a modest profit this
year thanks to higher oil prices. Oil fields are aging, and unless more
reserves are opened up, Chevron’s work in Venezuela will run out of steam in
less than five years, GlobalData estimate
A turning point for
foreign companies operating in Venezuela came in 2006, when Mr. Chávez began
nationalizing oil fields managed by foreign operators and sharply raising
taxes.
Rewritten contracts
made Petroleos de Venezuela SA, known as PdVSA, the operator and majority owner
of most projects. Chevron’s top U.S. competitors, Exxon Mobil Corp. and
ConocoPhillips , balked at the changes, left, and filed suit. Exxon has yet to
recover the full value of the billions in equipment and other assets it left
behind. ConocoPhillips recently reached a $2 billion settlement.
Some European oil
companies, such as Total SA and Equinor AS A (then called Statoil), remained
but reduced their holdings.
Chevron decided to
stay, and—led by a charismatic Iranian-American executive named Ali
Moshiri—formed an array of partnerships with PdVSA. Mr. Moshiri, who was head
of Chevron’s business in Latin America and Africa, sometimes appeared in public
with Mr. Chávez, who called him a “dear friend” on one occasion.
Joint ventures Mr.
Moshiri pioneered became a model for foreign companies doing business in
Venezuela. A venture called Petropiar between Chevron and PdVSA is one of four
so-called upgrader ventures between the state oil company and foreign operators
to blend Venezuela’s tar-like heavy crude with lighter oil or other substances and
make it transportable.
Though Chevron’s bet
paid off financially for years, an oil-price crash beginning in late 2014
triggered a vicious cycle in which government revenue fell and then oil
production did, too, as the country placed priority on debt payments over the
heavy reinvestment oil fields need to stay healthy.
Since the end of 2017,
Venezuela has defaulted on more than $6 billion in debt payments,
according to Fitch Ratings, while its crude-oil industry has been reduced close
to ruins by neglect and the departure of experienced engineers.
Oil production has
fallen to 1.2 million barrels a day from 3.2 million daily in 2006, according
to the Organization of the Petroleum Exporting Countries. A country with vast
reserves now produces roughly as much oil as the U.S. state of North Dakota. As
output has declined, and thus revenue, the country’s economic crisis has
worsened.
With supermarket
shelves nearly bare and prices soaring, two-thirds of Venezuelans reported
losing 25 pounds of weight in 2017, according to a survey. Violence is rampant,
including atrocities by police and soldiers. Hospitals lack medicine and clean
water, yet the government rejects most humanitarian aid as a Trojan horse for
foreign intervention. More than three million Venezuelans have fled, leaving
those who remain to face crushing rates of murder, malnutrition and
hyperinflation
Venezuela’s energy
enterprises are under pressure from expanding corruption probes in the U.S. and
Europe. A U.S. investigation, centering on allegations that PdVSA officials
solicited vendors for bribes, has netted 15 guilty pleas, including from a
number of PdVSA honchos.
An investigation in
the tiny European nation of Andorra has led to money-laundering charges against
28 people, including former Venezuelan deputy ministers, who allegedly
took $2 billion through kickbacks-for-contracts schemes from 2007
through 2012.
Zair Mundaray, a
former Venezuelan prosecutor now in exile, said his team uncovered an alleged
scheme at the Petropiar joint venture in which PdVSA executives skipped formal
contract bidding and handpicked the vendors of a wide range of supplies, from
oil equipment to cafeteria coffee, at exorbitant prices. The profits were
distributed among certain Petropiar managers, PdVSA higher-ups and the
suppliers, the charging documents said.
PdVSA and Venezuela’s
Information Ministry didn’t respond to calls and detailed emails seeking
comment.
Venezuelan charging
documents and purchasing invoices reviewed by The Wall Street Journal allege
that contractors pilfered more than $200 million in two years from
the joint venture through markups such as $156,000 for printer/copiers and
$9,000 for ink-jet cartridges.
Among the accused was
Manuel Sosa, a former soap-opera actor who once dated a daughter of Mr. Chávez,
whose company supplied the costly printer/copiers. Mr. Sosa pleaded guilty in
December and was sentenced to four years’ house arrest in return for his
cooperation. He couldn’t be reached for comment.
“Where were the
checks? Where was the accounting?” asked Mr. Mundaray. “There’s absolutely no
way that [Chevron] did not know what was happening.” He said he has given the
evidence he collected to the U.S. Justice Department, which declined to
comment.
Pedro Burelli, a
former PdVSA board member and a Maduro critic, said Chevron “turned a blind eye
to what was going on.”
“When you’ve agreed to
work with a majority partner that is derelict, you’re just setting yourself up
for a huge risk. You get deeper and deeper, when you should be hitting the red
button, to get yourself out,” said Mr. Burelli.
Chevron said it
complies with all applicable laws wherever it operates and expects its partners
to do so as well. It said it doesn’t control the procurement process in the
joint venture, in which Chevron has a 30% nonoperating stake. In oil and gas
joint ventures, the operator typically has primary authority over costs, though
minority partners are generally consulted and sign off on certain expenses.
Chevron said nothing in documents it was shown suggested any wrongdoing by the
U.S. company.
Oversight of the
investigation changed hands just as it was picking up steam. Mr. Mundaray and
his team left Venezuela in August 2017 after their boss, former Attorney General
Luisa Ortega, criticized Mr. Maduro for alleged human-rights abuses. The
president called the prosecutors traitors.
A new attorney
general, Tarek William Saab, provided a list of people accused that lacked some
names on Mr. Mundaray’s list.
One missing name was
that of former Petropiar chief Francisco Velasquez, who the former prosecutors
said splurged on a pink Ferrari and a villa at the exclusive Casa de Campo
resort in the Dominican Republic while the oil project suffered backlogs and
delays. He couldn’t be reached for comment. Mr. Saab didn’t respond to comment
requests.
In April, two Chevron
employees working at the Petropiar joint venture were jailed by Venezuelan
military intelligence when they refused to sign a contract for oil-processing
equipment priced at what they considered well above market value. The employees
were released after six weeks of tense negotiations, but not before a thinly
veiled threat from Chevron: free them or we will leave, people familiar with
the confrontation say.
Chevron confirmed two
employees were arrested in April and released in June but said, “We have no
further information to share on this matter.”
A dwindling number of
foreign companies are still doing business with the Maduro administration,
which is facing threats of tougher sanctions by Washington. The U.S. has
sanctioned dozens of Venezuelans, including Mr. Maduro, for allegations varying
from corruption to human-rights abuses to drug trafficking. The sanctions bar
American citizens and companies from doing business with them.
Mr. Maduro has said he
wants foreign oil partners to use a cryptocurrency called the petro his
government designed to evade U.S. sanctions on Venezuelan debt. The U.S. in
March barred Americans from using the petro.
By staying in
Venezuela, Chevron risks exposing itself to legal penalties under U.S.
anti-corruption laws, some analysts say. Chevron said it “abides by a strict
code of business ethics under which the company complies with all applicable
international, U.S. and Venezuelan laws.”
Its managers’ meetings
with government and PdVSA officials “comply with all applicable laws and
regulations, including the U.S. sanctions directed towards Venezuela,” Chevron
said.
About 700,000 daily
barrels of the country’s oil production comes from joint ventures between PdVSA
and foreign companies, consultants say. That includes about 200,000 to 250,000
barrels a day from Chevron ventures.
Joint-venture output
has generated far more cash for the government in recent years than oil pumped
by PdVSA alone, because the state company’s production has gone to repay debts
to allies such as China and Russia or to be processed into gasoline the
government provides almost free. That means a Chevron withdrawal would take a
big bite out of government’s revenue.
Another foreign
company, Royal Dutch Shell PLC, is weighing an exit from most of its remaining
operations in Venezuela through a sale of its stake in a joint venture,
according to people familiar with its plans. A spokeswoman for Shell said such
a deal wouldn’t amount to a total exit, as the company is working to develop
Venezuelan gas assets offshore that would supply nearby Trinidad and Tobago.
Some analysts believe
other Western companies operating in Venezuela, such as France’s Total or
Norway’s Equinor, might feel pressure to follow a departure or partial exit by
either Shell or Chevron. At the same time, according to GlobalData, those that
stay might be able to gain access to new fields or renegotiate contracts for
better terms. Chinese or Russian companies such as PAO Rosneft could be
beneficiaries of any such departures in the long run, analysts say.
Total, Equinor and
Rosneft officials either declined to comment or didn’t respond to questions.
Signs of a troubled
relationship between Chevron and the Venezuelan government emerged a year ago
when Mr. Moshiri’s successor as head of Chevron’s Latin American and African
operations, Mr. Neff, sat down for a meeting with Mr. Maduro and other
Venezuelan officials.
Venezuelan officials
snapped a photo without Chevron’s consent and publicized it. At Chevron
headquarters in San Ramon, Calif., concerns grew that the company was being
duped into making an appearance in Venezuelan propaganda, people familiar with
the matter said.
While such photo ops
had occurred before, the country’s worsening economic collapse, plus U.S.
sanctions, are making them harder to tolerate, the people said. Chevron
declined to discuss the Caracas meeting.
The company’s
closeness with the government is generating rancor among PdVSA’s workers, who
have been quitting in droves amid hyperinflation that has pummeled their
salaries to the equivalent of less than $10 a month.
Jose Bodas, a union
leader in eastern Venezuela where Petropiar is located, said photos of sports
cars and European vacations posted on social media by managers angers workers
who sometimes lack boots and hardhats.
“I’m not opposed to
people having Ferraris and mansions, but this is all corruption,” Mr. Bodas
said. “I don’t mind saying it—if you’re a multinational working with this
government, you’re an accomplice to what’s going on.”
—Ginette Gonzalez and
Samuel Rubenfeld contributed to this article.
