April 14, 2005
Petrobras and Repsol increase their investments in Venezuela

(Stratfor) - "Bolivia's political crisis is forcing Spanish oil company Repsol YPF SA and Brazilian firm Petroleo Brasileiro SA (Petrobras) to shift their attention to Venezuela. Repsol is betting heavily on oil and gas projects in Venezuela, while Petrobras is leveraging its alliance with Petróleos de Venezuela to gain a refining foothold in the United States. Both companies expect that the growing strategic political alliances between Brasilia, Caracas and Madrid will pay off in crude oil and natural gas (.)

With Bolivian gas out of their commercial reach, Petrobras and Repsol are counting on a significant increase in their Venezuelan investments in coming years to keep their long-term global corporate growth strategies on track. Venezuela seems like a much safer bet for Repsol and Petrobras because their governments enjoy good relations with Venezuelan President Hugo Chávez (.)

The success of this strategic shift in the Latin American priorities of Repsol and Petrobras will have major long-term implications for their global expansion, profitability and corporate market valuation in coming years. If Repsol and Petrobras achieve their goals in Venezuela quickly, each could generate the revenue streams it needs to finance its diversification to other countries and regions around the world (.).

During Rodríguez Zapatero's recent visit to Venezuela, Repsol signed an agreement with Petróleos de Venezuela (PDVSA), Venezuela's NOC, to launch joint ventures. One such project under consideration with PDVSA would expand Repsol's current Venezuelan crude oil production level by 60 percent -- to 160,000 barrels per day -- and double its crude oil reserves in Venezuela to nearly 470 million barrels. Separately, Repsol also signed a letter of intent with ChevronTexaco and PDVSA to invest up to $6 billion in heavy-crude-oil upgrading projects in the Orinoco tar belt. Repsol officials in Caracas also said the company is exploring the possibility of building a liquefied natural gas plant on Venezuela's coast. The proposed joint venture with ChevronTexaco has technological transfer and financial advantages for Repsol. It also has political benefits for ChevronTexaco (.)

Petrobras is taking a different approach to its expanding relations with PDVSA. The company -- which is only 30 percent owned by the Brazilian government, making the management answerable to shareholders -- wants access to crude oil and gas reserves in Venezuela. Stratfor expects that in coming months Petrobras will sign agreements advancing its expectations of increasing crude oil production in Venezuela. However, Venezuela represents only one link in the Brazilian NOC's global expansion plans.

Though Petrobras seeks increased access to Venezuelan reserves through joint ventures with PDVSA, it also is leveraging its strategic linkages with PDVSA to develop an international presence in the United States. Petrobras reportedly is in talks with Lyondell Chemical Co. on the possibility of buying the U.S. firm's stake in Houston-based Lyondell-Citgo -- owned in part by Citgo, Venezuela's U.S. refining and gasoline distribution company. As Venezuela moves to restructure Citgo over the coming year, Petrobras also could bid for other parts of the Citgo network (.)".