Rex Tillerson hadn't been CEO of ExxonMobil very long when the late president Hugo Chavez made foreign oil companies in Venezuela an offer they couldn't refuse. Give the government a bigger cut, or else.
Most of the companies took the deal. Tillerson refused.
Chavez responded in 2007 by nationalizing ExxonMobil's considerable assets in the country, which the company valued at $10 billion. The losses were a big blow to Tillerson, who reportedly took the seizure as a personal affront.
Only Tillerson didn't get mad, at least in public. He got even.
Flash forward to May 2015. Just five days after former military general David Granger was elected president of the South American nation of Guyana, unseating the country’s long-ruling leftist party, ExxonMobil made a big announcement.
In the deep blue waters 120 miles off Guyana’s coast, the company scored a major oil discovery: as much as 1.4 billion barrels of high-quality crude. Tillerson told company shareholders the well, Liza-1, was the largest oil find anywhere in the world that year.
For tiny Guyana (population 800,000), the continent's only English-speaking country and one of its poorest, it was a fortune-changing event, certain to mark a "before and after" in a country long isolated by language and geography.
There was just one problem with this undersea bonanza. Venezuela claimed the waters — and the hydrocarbons beneath them — as its own.
Clearly drilling in the disputed area was potentially a good business decision for ExxonMobil, not some sort of elaborate revenge scheme by its CEO.
But revenge had been served. Venezuelan President Nicolas Maduro, Chavez's successor, was livid.
“There is a brutal campaign against Venezuela of lies, funded by ExxonMobil … which has great influence at the Pentagon,” Maduro declared, calling the dispute an attempt to corner Venezuela and precipitate “a high-intensity conflict.”
The Stabroek block where ExxonMobil and its partners struck oil is off the coast of a patch of wild South American jungle known as the Essequibo territory. Venezuela and Guyana have haggled over it with oscillating levels of vehemence for more than 100 years. Amounting to two-thirds of Guyana’s surface area, it is, by any practical measure, a part of Guyana and populated by Guyanese people, albeit sparsely.
But Venezuelan claims on the land have long kept foreign investors out. In 2013, a research vessel exploring the area for U.S.-based Anadarko was intercepted by a Venezuelan warship, which temporarily detained the 36-member crew. It was a warning to other companies thinking of partnering with Guyana. Tillerson's ExxonMobil went ahead anyway.
As soon as the company announced its big find in 2015, Venezuela loudly reasserted its claim on the Essequibo. Faced with mounting economic problems at home, Maduro seemed to welcome the distraction of an external enemy next door in Guyana, particularly the soft-spoken, U.S.-trained Granger, whom Maduro depicted as an American toady.
Maduro ordered military exercises along the border, appealed to the United Nations to intervene, and cast his country as a victim of “imperialist” aggression.
But Maduro was boxed in. Tillerson had taken him to school. And he was just getting warmed up. The company has moved quickly to drill more wells since then, racking up new discoveries in the area.
Maduro's attempts to bully Guyana backfired, driving a major wedge between Caracas and the Caribbean nations whose support Chavez had tried to cultivate through billions in oil subsidies.
CARICOM, the association of Caribbean states that benefited from the largess of Chavez’s PetroCaribe agreement, ended up siding with Guyana in the Essequibo dispute. CARICOM’s new chairman is none other than Guyana President Granger.
The United Nations has extended its attempt to mediate the dispute for another year, after which the U.N. secretary-general may refer the matter to international courts. But given that Venezuela’s economically failing government already sits on the world’s largest petroleum reserves, much of the Western Hemisphere seems to be rooting for underdog Guyana.
Tillerson has not commented publicly on the Guyana find or the Venezuela dispute. He was scheduled to visit Guyana last month when President-elect Donald Trump nominated him for secretary of state, forcing him to cancel the trip, according to local press reports.
Lauren Kerr, an ExxonMobil spokeswoman, confirmed that Tillerson and Granger have met, “though as a matter of practice we don’t comment on discussions with government officials,” she said.
Kerr said the claims by Venezuela’s Maduro that ExxonMobil financed Granger’s 2015 presidential campaign were baseless.
“ExxonMobil does not make political contributions in any nation other than the United States and Canada,” she said.
ExxonMobil signed its deal for the Stabroek block with the Guyanese government in 1999. The country’s ruling leftist party had generally warm relations with Chavez’s Venezuelan government, and shipments of subsidized oil may have also diminished the urgency to drill in Essequibo waters and risk renewed tensions.
In March 2015, ExxonMobil hired a ship, the Deepwater Champion, to begin drilling exploratory wells, according to the company.
Asked to explain the delay between ExxonMobil signing the agreement with Guyana in 1999 and the company's first wells, Kerr said the timeline was not atypical. “Exploration and production projects may span the course of decades, including significant front-end engineering work,” she said.
The company’s wells in the Stabroek block are beneath about 6,000 feet of water and 11,000 feet of rock. It has the majority investor in a group that also includes the smaller Hess Corp and the large state-run Chinese energy giant CNOOC.
Pavel Molchanov, an industry expert at the financial services firm Raymond James, whose portfolio includes ExxonMobil and Hess, said countries such as Guyana that have no existing oil industry are considered “frontier” locations, and typically offer the most lucrative terms to foreign companies willing to invest.
Guyana’s foreign partners stand to earn 60 to 65 percent of profits, he said, a far larger share than what more established nations are willing to offer investors.
“An investment in Guyana is not a political statement to hurt Venezuela,” Molchanov said. “It’s an example of an early-stage exploration opportunity that has the benefit of good fiscal terms.”
At current oil prices, the Liza deposits could be worth $70 billion, more than 30 times the size of Guyana's annual GDP.