Venezuelan and U.S. authorities are looking into sales of oil products by Venezuela's state-owned oil company to international trading firms that cost the South American country tens of millions of dollars in potential revenue and may have violated U.S. laws.

In the chaotic months following a crippling oil-workers strike in Venezuela early this year, U.S. and Swiss oil-trading firms were given favorable treatment by executives at Petroleos de Venezuela SA, or PdVSA, according to internal company documents and e-mails reviewed by The Wall Street Journal. The beneficiaries include Swiss trading firm Glencore International AG, and U.S. firms Chemoil Corp. and Westport Petroleum Inc., according to these documents.

Venezuela is an important commercial partner with the U.S., providing about 14% of the U.S.'s oil imports. But the two-month strike, which for a time virtually stopped Venezuela's oil production, and political unrest aimed at President Hugo Chavez, have cast doubt on this relationship. Earlier this month Venezuelan officials met with Congressional leaders and three Bush administration cabinet members to reinforce the message that Venezuela is a "reliable partner" and oil supplier.

Officials in the government began reviewing the questionable oil sales in recent months, according to the PdVSA internal documents and people familiar with the matter. Since the strike, U.S. officials also have obtained hundreds of pages of documents detailing the deals. The documents have been turned over to U.S. intelligence and law-enforcement authorities, said one U.S. official.

"The U.S. government is looking at the papers to see if there's been any violation of U.S. law," the official said. He added that it would be premature to say whether there have been any violations of the U.S. Foreign Corrupt Practices Act, which bars U.S. company officials from paying bribes abroad to win deals.

The trading companies cited in the documents say their dealings with PdVSA were above-board and that they didn't do anything illicit to obtain more-favorable deals from the Venezuelans.

Senior PdVSA official Aires Barreto acknowledged that the company made a series of unfavorable trades early in the year, but said he had seen "absolutely no evidence" of corruption. He said foreign oil traders knew PdVSA had to move its product quickly to avoid bottlenecks as it ramped up oil production after the strike, and that they therefore negotiated from a position of strength with a relatively inexperienced and overworked PdVSA marketing force. "We were desperate to sell because if we didn't our inventories would build up and you'd have to stop production," said Mr. Barreto, currently vice president in charge of supply and trading. He said PdVSA has put in place a committee of managers to review trading and is studying ways to further strengthen internal controls.

The probes come as Venezuela is set to begin on Friday gathering signatures for a referendum being called by opponents of Mr. Chavez who want to remove him from office. Mr. Chavez, who led an unsuccessful coup attempt in 1992, swept into office five years ago on a campaign promising to rein in what he saw as a bloated state oil company that was failing to funnel enough of Venezuela's oil riches to the poor. By firing about 18,000 workers after the strike ended in February -- about half the work force -- and setting in motion a company restructuring, Mr. Chavez has gained effective political control over PdVSA. But PdVSA lost most of its marketing and commercial department and many of its internal controls over deal making, according to former managers and people close to the company.

With the company in turmoil, PdVSA's commercial department, which markets the company's production, engaged from March to September in several deals to sell fuel oil that cost the company millions of dollars in potential revenue, according to more than 400 pages of internal documents. The documents show that certain PdVSA managers awarded contracts for oil products to certain traders even when their bids were lower than those of rival bidders. In some cases, PdVSA cargoes were inexplicably sent to less-profitable destinations, while in others, company managers changed cargoes' destinations without authorization.

PdVSA's own security department, which conducts internal investigations of thefts and losses, estimated that $80 million in potential revenue was lost in March alone because of unfavorable deals, one internal document showed. An internal analysis of fuel-oil sales in March and April presented to PdVSA's board on May 2 showed that 57% of sales in that period went to just two companies, Glencore and Chemoil. According to the document, Victor Rojas, then a member of the company's internal-security department, told the board, "For certain March deals pricing periods were observed that were highly unfavorable to the corporation [PdVSA]." Three Chemoil cargoes alone cost PdVSA $7.6 million in lost revenue, according to the analysis. Mr. Rojas couldn't be reached to comment.

Adrian Tolson, Chemoil's vice president of sales and marketing, said that refinery problems and a sudden oversupply of fuel oil on the U.S. West Coast had contributed to a price crash that hurt PdVSA. Regarding San Francisco-based Chemoil's transactions, "We did it straight on, above board and on the up and up," Mr. Tolson said. Still, in May, PdVSA ceased doing business with Chemoil and Glencore. PdVSA management has yet to reverse its decision, Mr. Tolson said.

During March, PdVSA also sold a cargo to Glencore for the Far East for $3.57 a barrel less than the company could have reaped had the cargo been sent to New York, the internal presentation to the PdVSA board said. Total lost revenue for PdVSA: $1.5 million.

By May some inside the company began to question certain deals. In a June 30 letter to President Chavez, the company's internal-security management noted that the sale of two million barrels of fuel oil to China's state-owned PetroChina Fuel Oil Co. produced a loss in revenue to Venezuela of $2.8 million compared to a better offer from BP PLC. The letter blamed Nelson Reyes, who headed the supply-and-marketing division, for allowing the deal to happen. PetroChina didn't respond to requests for comment.

In a Sept. 25 letter, Mr. Rojas, who by then had moved to the commercial department, told his boss that Mr. Reyes also presided over the awarding of fuel oil contracts at "giveaway prices" to Glencore and Chemoil. Mr. Rojas suggested suspending relations with both trading firms. A Glencore spokeswoman, in an e-mail response, said that transactions with PdVSA in March and April were arm's-length and "correctly reflected the commercial and logistical conditions prevalent in Venezuela and international markets at the time."

Another company, Westport, "was favored" in sales making up 30% of the total volume of PdVSA's fuel oil sales, the letter says. PdVSA sold cargoes of fuel oil to Westport in May for less than offers from other companies, including Sempra Energy in San Diego. For May and June alone, PdVSA sold Westport three million barrels of fuel oil, or 45% all sales in the period, according to a document prepared in July.

Emmett Lynch, chief operating officer for Westport, which is based in Pasadena, Calif., said the company had been acting "totally straight" and that criticism of pricing is "second guessing."

In a management reshuffling in late July, Mr. Reyes was moved out of his post. Mr. Reyes couldn't be reached to comment. Mr. Barreto, the PdVSA official, said he had seen no sign that Mr. Reyes had profited personally from the oil sales. He added that Mr. Reyes is being reassigned to Europe but is attending to a "personal tragedy."

Updated November 26, 2003

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