ConocoPhillips and the Venezuelan government were unable to reach agreement regarding ConocoPhillipsâ€™ migration to an Empresa Mixta structure mandated by Venezuela decree law 5.200. Therefore, pursuant to the decree, PetrÃ³leos de Venezuela S.A. (PDVSA) or its affiliates will directly assume the activities associated with ConocoPhillipsâ€™ interests in the Petrozuata and Hamaca heavy-oil ventures and the offshore Corocoro development project.
While negotiations are continuing between ConocoPhillips and Venezuelan authorities concerning appropriate compensation for the companyâ€™s interests, the company expects to record a complete impairment of its entire interest in its oil projects in Venezuela of approximately $4.5 billion, before- and after-tax, in its second-quarter financial results
. Although the company is hopeful that the negotiations will be successful, it has preserved all legal rights including international arbitration.
Prior to the expropriation of its interests, ConocoPhillips held a 50.1 percent interest in Petrozuata, a 40 percent interest in Hamaca, and a 32.5 percent interest in Corocoro. At December 31, 2006, ConocoPhillips had recorded 1,088 million barrels of oil equivalent of proved reserves related to Petrozuata and Hamaca, and first-quarter 2007 production from these two joint ventures, after application of disproportionate OPEC reductions imposed by the Venezuelan government, averaged 82,000 net barrels per day of crude oil. First-quarter 2007 net income attributable to ConocoPhillipsâ€™ Venezuelan operations was $27m.