Venezuelan President Hugo Chavez makes a turnaround, courts big oil companies

Venezuelan President Hugo Chavez has never hid his contempt for the big oil companies and has tried his best to rid his country of them in the recent past. However, with income from oil revenues declining by the day due to falling crude prices, he has apparently had a change of heart. He is reportedly quietly courting companies such as Chevron, Royal Dutch Shell and Total and promising them access to some of the world's largest petroleum reserves.

Despite Chavez's criticism of US-style capitalism, it has become clear that state-owned Petroleos de Venezuela SA needs both the cash and expertise of Big Oil. These international oil companies have made windfall profits in recent years, but analysts doubt many will want to invest again given Chavez's history of seizing foreign stakes in Venezuela's oil.

Venezuela's oil wealth funded a bonanza of social spending that has made Chavez a populist hero not only in Venezuela, but also across much of Latin America. But times have changed since Chavez nationalized Venezuela's last privately run oil fields in Orinoco in May 2007, shouting "Down with the US empire!" as Russian-made fighter jets streaked overhead. (See: Venezuela wrests control of oil assets from oil majors / Venezuela to nationalise fuel distribution )

The government took majority control of those projects, siphoning off more of the profits and reducing private companies to minority partners. Exxon Mobil Corp. and ConocoPhillips pulled out altogether, while Chevron Corp. and others begrudgingly accepted the new terms. (See: Exxon Mobil, ConocoPhillips to exit Venezuela)

Not long ago Venezuela's state run oil company PDVSA boasted of creating the nation's own powerhouse oil industry. However, currently it is in a precarious position with oil prices plummeting more than 70 per cent since July, a far cry from the $300 a barrel once predicted by Chavez. (See: Venezuelan president Chavez threatens oil at $300)

Venezuela's heavy crude is particularly expensive to upgrade to usable crude - not a problem when prices were sky-high. Now shrinking profit margins make it harder to finance production. Venezuela also needs new upgraders to make this extra-heavy crude refineable - which is why PDVSA is requiring bidders to help build three of the facilities. Oil Minister Rafael Ramirez each would cost $6 billion, to be completed by 2014.

The world's major oil companies may end up bidding on the Venezuelan projects in the end, simply because global supplies are dwindling, and much of the remaining reserves are locked up by governments from Iran to Mexico. But first, Chavez may have to find ways of reassuring them that he won't seize their investments again.