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.