BP blames Venezuela's Chavez for shortfall in production

Venezuela's left-wing government is demanding that BP give up an even greater proportion of the oil produced at its fields in the country, as president Hugo Chavez tries to claw back more of the country's oil wealth from multi-national companies.

BP - the UK's largest oil company - said yesterday that it produced less oil in the past three months than many analysts had predicted, leading some to suggest it could miss its production targets for the year.

The company blamed a more aggressive attitude by the Chavez government, which forced the renegotiation of contracts on three of BP's oil fields in Venezuela. It is believed that BP was forced to give up about two-thirds of the oil the fields were producing, handing it instead to the state-owned oil company Petroleos de Venezuela (PDVSA).

Now a fourth, even more lucrative, contract is also under renegotiation. The field, Cerro Negro, is 83 per cent-owned by Exxon Mobil and PDVSA, but BP still gets an estimated 35,000 barrels per day for its 17 per cent interest, making it its largest single interest in Venezuela.

The Chavez government has been among the most aggressive in pursuing big oil companies for a greater share of the revenues from surging oil prices. Some companies have refused to agree to new terms and given up their interests in the country, but BP said it needed to remain in countries with significant oil reserves.

Venezuela accounts for less than 2 per cent of BP's output, but changes to the first three of its contracts there were enough to push its group production total below most forecasts. In the three months to the end of June, production fell 2.5 per cent to 4.01 million barrels per day, the fourth quarter in a row that it has fallen.

BP also said it would set aside an extra $500m to cover legal bills over the Texas refinery blast that killed 15 people last year. It had previously reserved only $700m for compensation and fines.

The company promised an update later this month on the repair work at its Thunder Horse rig in the Gulf of Mexico, which was damaged during last year's hurricane season.

BP made no mention yesterday of the criminal investigation into its propane trading. It is accused of trying to corner the market by hoarding reserves and driving the price higher. BP suspended three traders on Friday, having fired two from the Houston-based team some time ago.