ConocoPhillips has exercised an option to buy Venezuela's state-run oil company PDVSA's 50 percent stake in Merey Sweeny LP, part owner of the Sweeny refinery in Texas, Conoco said on Friday.

Conoco said PDVSA had failed deliver crude oil as contracted to the plant since the beginning of the year, prompting Conoco to notify it on Aug. 28 that it would exercise the option under their joint venture agreement from 2000.

The move is the latest in the running battle between oil companies and Venezuela, which has moved to assert control over the sector by seizing oil fields and drilling equipment over the past three years.

Venezuela is believed to have reduced its exports to comply with OPEC's cuts of more than 4 million barrels from its members' production.

Conoco is currently in arbitration with Venezuela over compensation for oil assets the South American country appropriated from it in 2007.

PDVSA is likely to dispute the transfer. Among other actions, it could call for arbitration to settle the claim, Moody Investor Service said in a statement. The exercise of the option prompted Moody's to change the outlook for Merey Sweeny's long-term debt rating to positive. The rating was unchanged at Baa2.

PDVSA was not immediately available to comment.

Conoco has a 50 percent interest in the partnership that owns the 70,000-barrel-per-day delayed coker and related facilities at the 247,000 bpd Sweeny refinery.

The Houston-based oil major said in filing to the U.S. Securities and Exchange Commission in February that PDVSA had informed it in late 2008 that it would not deliver supplies to the refinery because of Venezuelan government-ordered production cuts.

Shares in Conoco were up 81 cents or 1.8 percent to $45.03 per share on the New York Stock Exchange.

(Reporting by Matt Daily, additional reporting by Anna Driver in Houston; editing by Gerald E. McCormick, Leslie Gevirtz)

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