Conoco: Exercising Option To Buy PdVSA Merey Sweeny Stake

ConocoPhillips (COP) said Friday that it is opting to buy Petroleos de Venezuela's 50% stake in their jointly owned Merey Sweeny L.P. refinery in Texas because the state-owned oil company has defaulted on supply contracts.

The Houston-based oil company claims that PdVSA hasn't been meeting its obligation to supply crude to Merey Sweeny, which owns a major unit at the Conoco refinery in Sweeny, Texas.

The 70,000-barrels-a-day delayed coking unit allows the refinery to process heavier crude, which is produced in Venezuela.

The joint venture was formed in 1999 during a time when U.S. refining companies were looking to increase their ability to process heavier crude, which was abundant and selling for a deep discount to the light, sweet crude.

As in this case, other state-owned oil companies have bought interests in U.S. oil refineries. In such arrangements, the U.S. companies operate the plants.

On Aug. 28, Conoco notified PdVSA that it would exercise the rights under their joint-venture agreement to acquire PdVSA's interest, company spokesman Rich Johnson said in an email.

PdVSA officials weren't immediately available for comment.

PdVSA can dispute the transfer, and the two companies could wind up in court, according to Moody's Investor Service.

PdVSA already has a strained relationship with ConocoPhillips as well as other major integrated oil companies.

It is involved in a legal battle with Exxon Mobil Corp. (XOM) over changes in control and ownership of ventures producing heavy crude in Venezuela's Orinoco River Basin.

The dispute has affected the type of crude run at Chalmette Refining LLC's refinery in Louisiana, which is jointly owned by PdVSA and Exxon.

-By Susan Daker and Naureen S. Malik, Dow Jones Newswires; [phone]; [e-mail]

(Dan Molinski contributed to this report).