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ExxonMobil bids adiós

As investment conditions worsen, private-sector oil companies are pulling out of Latin America. ExxonMobil is leading the way, writes Robert Cauclanis
WHEN ExxonMobil's chief executive lambasted resource nationalism at November's World Energy Congress in Rome, he did not point the finger of criticism at individual countries. But had he done so, Rex Tillerson's accusatorydigit would probably have been levelled at Venezuela.
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Earlier this year, the supermajor abandoned the country, leaving behind a 41.7% stake in the 115,000 barrels a day (b/d), Cerro Negro extra-heavy-oil project, which accounted for 2% of the company'sglobal oil production. Having refused to accept the government's demand for private-sector investors to cede control in Venezuelan oil projects to state-owned PdV, among the options left open to ExxonMobil are a lawsuit or arbitration against the country.
ConocoPhillips, which abandoned around 5% of its global oil production when it exited Venezuela's Orinoco oil patch in June is still seeking an"amicable" resolution with the government of President Hugo Chávez. This would include negotiated compensation for the loss of the assets, chief executive James Mulva said in late November. Separately, ConocoPhillips is considering working with PdV on an offshore gasfield. However, together, the two US companies had investments of more than $3.5bn in the country.
Unpredictable environment
Oilmajors, including ExxonMobil, have operated continuously in South America for a century. But although the region holds more than a tenth of the world's oil and gas reserves (see Table 1), and despite its biggest economic growth spurt in decades, they are either leaving or scaling back operations – deterred by the unpredictable regulatory environment.
Following its acrimonious exit from Venezuela,ExxonMobil is also considering pulling out of Brazil, Argentina, Uruguay, Paraguay and Chile, according to Petrobras' international director, Nestor Cerveró, who says the Brazilian firm is interested in buying the assets. In Cerveró's words, ExxonMobil "wants to leave not just Argentina, but the whole region" – although the US supermajor has, so far, refused to comment on whether this is true or onits motives for contemplating a partial or full withdrawal.
ExxonMobil's downstream assets in South America include a wholly owned 85,000 b/d refinery in Argentina, with associated chemicals units. It also owns or holds shares in smaller refining and chemicals assets in Central America and a petrochemicals unit in Brazil. The firm also has around 4,200 service stations spanning Latin America –including owned, leased or franchised sites.
Upstream assets include: stakes in two Argentine gas blocks; a 40% stake in a promising deep-water gas-prone block, Tayrona, in the Colombian Caribbean, where exploratory drilling is under way; and a 40% stake in a deep-water exploration block (BM-S-22) in Brazil's Santos basin. The supermajor has already largely abandoned Brazil's upstream, after onlymodest exploration success – in early 2006, it sold its 30% stake in a Campos basin discovery with estimated reserves of 400m barrels of heavy crude to India's ONGC.
However, any attempt by Petrobras to buy ExxonMobil's Brazilian assets would face stiff regulatory opposition because it would strengthen the state-controlled firm's dominant domestic position, while the Argentine government wantsPetrobras to increase investment in its existing assets before sanctioning further acquisitions. Additionally, Petrobras would probably find itself in competition with PdV and local companies for the Argentine assets, while, in Brazil, Grupo Ultra, a large fuel distributor, has expressed an interest in ExxonMobil's retail network.
Mounting insecurity
If Venezuela's oil nationalism is, by now, well...