Conoco Could Keep A Foothold In Venezuela

ConocoPhilips may have had to pull out of Venezuela, but it could still keep its foot in the country. Venezualan President Hugo Chavez is in talks with Russian Lukoil, which ConocoPhilips has stakes in, to develop projects in the country.

A spokesman for LukOil (other-otc: LUKOY - news - people )confirmed a meeting took place Wednesday between Chavez, who is currently on a visit to Russia, and the oil company’s president and founder, Vagit Alekperov. The spokesman didn't offer any detail except that the company was in discussions about two potential projects; the first to develop heavy oil fields in the Orinoco river basin, and the second to rehabilitate already existing oil fields. He stressed that nothing was confirmed but that if everything worked out as planned, Lukoil’s venture could begin by the end of the year.

If the venture goes ahead it would be the first time a Russian energy company sets foot in South America.

The news comes just a week after ConocoPhilips (nyse: COP - news - people ) and Exxon Mobil (nyse: XOM - news - people )announced it was pulling out of Venezuela on the grounds that the government was attempting to impose tougher terms on their contract for pumping oil in the country’s Orinoco River basin.

ConocoPhilips has a 20.0% stake in Lukoil.

Yesterday the Russian daily Kommersant reported that Chavez was considering inviting Lukoil and Gazprom to develop projects that included a pipeline linking Argentina, Bolivia, Brazil, Paraguay, Uruguay and Venezuela.

Lukoil did not comment on Gazprom’s involvement and the state-owned company could not be reached for comment.

But the plans to invite both energy giants fits in with President Hugo Chavez’s plans to solidify links with countries it perceives as sympathetic to its aims and ambitions. On Wednesday Chavez held talks with Russian President Vladimir Putin.

As its relations with the U.S. grow tenser, Venezuela is hoping to forge a deeper relationship with countries like Russian and China. The Lukoil and Gazprom ventures could lead to further ties, including technology transfers, between the two countries.

Lukoil has ambitious growth plans for the future. It has launched new projects including some in northern Africa, and Saudi Arabia, and is considering further ventures in Central Asia. Earlier this year it released an updated plan for the next ten years, which includes a target to double their production of oil and gas by 2017. Last year Lukoil, which after Gazprom is Russia’s largest energy company, produced more than 94 million tons of crude oil. For the past seven years the company’s production has been growing by an average of 7.0% a year.

Still the company is not without problems. On Friday it reported that its profit for the first quarter of 2007 fell 22.0% to $1.84 billion from $2.36 billion, due to a 22.0% rise in excise and export tariffs imposed by the Russian government.

By contrast Gazprom announced on Friday that its net profit for the year grew by 90.2% to 856.1 billion roubles ($33.2 billion) from 450.1 billion roubles ($17.46 billion), thanks to a harsh winter in Europe, which fuelled demand for its exports.

Apart from the political strategic benefits to Russia and Venezuela from a tie up, the South American venture makes excellent economic sense for the companies. Other companies such as Chevron (nyse: CVX - news - people ), BP (nyse: BP - news - people ), and Norwegian Statoil (nyse: STO - news - people ) have all remained in the country as minority partners in ventures by the state-run Petroleos de Venezuela, despite tough conditions being imposed.