Posted on 06/25/2005 2:34:54 AM PDT by Cincinatus' Wife
President Hugo Chavez lashes out at oil companies, causing alarm bells to ring among foreign investors
WASHINGTON - Until a few months ago, Big Oil was nice to Venezuelan President Hugo Chávez. Its top executives would visit him in the presidential palace and declare themselves ''enthusiastic'' over the country. One even urged the U.S. Congress to go easy on him.
But these days, few are making soothing statements about Venezuela, and one company is even threatening to take the government to court. Chávez, who leads a self-described socialist and ''revolutionary'' government, has hiked the oil companies' royalty payments on many projects from 1 percent to 30 percent, accused them of owing billions in back taxes and demanded the state-owned PDVSA oil company be made a majority partner in all oil ventures.
The companies, including several that are U.S.-based, stand to take a big financial hit. But the implications go beyond the bottom line.
Such drastic measures, analysts say, are likely to dissuade foreign investors from pumping new money into Venezuela, which by some estimates has more oil reserves than Saudi Arabia. In the mid-term this will keep oil supplies tight -- and pump prices higher -- given Venezuela's position as the fourth largest crude-oil supplier to the United States.
U.S.-based oil firms such as Exxon Mobil, ChevronTexaco or ConocoPhillips, or others such as the Dutch-British Royal Dutch/Shell and the Spanish-owned Repsol YPF, together have more than $25 billion invested in Venezuela. PDVSA owns the U.S.-based Citgo chain of gas stations and refineries.
The foreign oil companies have agreed meekly to negotiate new contracts with the Chávez government before the end of the year in what industry observers say is the result of high oil prices.
''The leverage at this moment is with Chávez. You swallow hard, you hate what's going on, but as a practical matter, what can you do about it?'' said Lawrence Goldstein, president of the New York-based Petroleum Industry Research Foundation.
Big Oil invested heavily in Venezuela in the 1990s to take advantage of a deregulatory spree as PDVSA essentially allowed foreigners to exploit fields it did not want to operate itself. Such deals now account for about 1.2 million barrels of oil per day, roughly 40 percent of overall output.
Some speculate Chávez is merely playing the nationalistic card ahead of municipal and legislative elections later this year. His political opponents accuse him of adopting increasingly authoritarian ways to stay in power. Others say he is trying to divert attention from problems at PDVSA, which is giving billions to finance Chávez's popular social programs at the expense of its own investment needs.
But with oil prices at around $60 a barrel, Venezuela is hardly alone in demanding a better deal from oil companies. Russia and Nigeria, for instance, have also been pressuring firms for a bigger share of the pie.
''If oil prices were at $10 a barrel, then it would be the oil companies that would be demanding to renegotiate contracts,'' said Luis Pacheco, a former PDVSA vice president for planning.
But what sets Venezuela apart is that Chávez government officials have framed the issue in terms of politics, not profits, Pacheco added. Oil minister Rafael Ramírez recently told oil workers the government was heading into a ''confrontation with the multinational interests and their lackeys in the country.'' He has also accused companies of conspiring to wreck PDVSA.
The Venezuelan offensive is being closely watched on Wall Street, which quietly cheered when Chávez defeated a recall referendum in August, believing it would end the political crisis lashing the nation for some four years.
''The thinking at the time, and I shared it, was that you watched what Chávez actually did rather than listen to what he said,'' said Alex Kazan, an analyst with Bear Sterns, an investment bank. But now, he added, Chávez is backing his rhetoric with actions.
Among his latest actions: an announcement that PDVSA would start paying foreign oil companies in Venezuelan currency, not just U.S. dollars. That means oil firms will be subject to Venezuela's stringent foreign exchange controls, inserting a further element of risk in their business.
Venezuela's ambassador to Washington, Bernando Alvarez, said the foreign oil companies are still welcome in Venezuela, but that they invested there in the 1990s under a wrongful interpretation of the investment law.
The government campaign, Alvarez added, is aimed at ''restoring the legality'' of oil investments in terms that are ``fair.''
Venezuelan officials have claimed that while the government took in 66 cents for every $1 of oil the country exported from 1976 to 1993, the number dropped to 33 cents from 1993 to 2002.
Pacheco said the Chávez tough talk is probably a ploy to soften up companies as the government negotiates the oil deals. After all, PDVSA would have to pay billions to oil firms for a stake in their oil contracts.
The companies have issued few public statements about the matter. ConocoPhillips and ChevronTexaco, which have big stakes in Venezuela, did not return Herald calls seeking comment for this story.
Only in February, Ali Moshiri, ChevronTexaco's top man for Latin America, told aides to Sen. Richard Lugar, a powerful Indiana Republican who suggested that the United States should reduce its oil dependence on Venezuela, that the U.S. energy relations with Venezuela ''had to be separated from political relations,'' one staffer recalled.
But Exxon Mobil has been critical of the new Venezuelan measures.
''Any time a government begins to exhibit characteristics of not wanting to honor contracts, that's going to cause you a lot of pause with respect to your enthusiasm for putting more money into that particular location,'' Roy Tillerson, the firm's president, told analysts in March.
This week the firm told the Associated Press that ''arbitration remains an option'' if Venezuela does not respect its original contract in its Cerro Negro heavy crude project, although the company would continue to press for a friendly solution.
Many are wondering how far Chávez will go.
Asked if Chávez could simply nationalize the foreign oil companies' assets in Venezuelan assets -- in effect seize the property -- Matthew Simmons, who runs a Houston investment bank specializing in energy, said he had no doubts.
''Oh yes,'' he said. ``In front of our eyes.''
AP FILE
HELLO BIG OIL: Venezuelan President Hugo Chavez, known for his enthusiasm, has tightened control over foreign oil interests by rasing royalties, accusing companies of owing billions in back taxes and demanding the state-owned oil firm be made a majority partner in all ventures.
ping
This is the reason I don't use 7-11
Lie down with dogs and get fleas...
A good start would be to boycott Citgo. I don't believe I've ever gotten gas there.
No accidents in Venezuela?
This is nothing new. Didnt the Arabs do exactly the same thing? We find and drill for the oil then they take it?
Why dont they call Jimmy Carter to work this out , he and Chavez get along well.
Althnough I would agree with boycotting anything that lines Chavez or his government's pockets, consider this, in this area at least, Citgo is 3-5 cents per gallon cheaper than the other gas stations.
That being said, Bush should have Porter Goss (CIA head) make plans to invade Chavez' cranium with a .308 (or any other bullet for that matter)...
Yes. They can invite Castro and all have a good laugh.
We need to change our attitude & get back to leading the pack to get these non-alpha wolves in line.
Chavez does not look like a world leader. He looks like some smalltown mayor who doesn't have a wife. Such a loser, this guy is.
"The Venezuelan offensive is being closely watched on Wall Street, which quietly cheered when Chávez defeated a recall referendum in August, believing it would end the political crisis lashing the nation for some four years."
Arguably, the citizenry needs to take a can of RAID to Wall Street. That quote tell me that the "wizards of Wall Street" are a part of the problem. How could so called capitalists support a Commie like Chavez?
Both need a good wackin', as they're rather bothersome to good hard working folks with decency & common sense.
PROFIT
In front of our frickin eyes.
Incredible but true. The thug has told us what he thinks of us and he intends to drive the point home. This thug has got to go.
Zackly, brother. I heard the crap talk from these minions and think they need to take some big losses to teach them a lesson. And if the market can't punish them, let's sic Eliot Spitzer on them, he'll find something.
Scumbags.
He doesn't have a wife all right, I think at least two of them walked out on him.
And right you are he is beneath his office.
I'm not boycotting Citgo. The red Chinese will buy what we don't and the only people it will penalize are the marketers (gas stations) and it sure as heck isn't their fault that Hugo Chavez bought their parent company. Don't boycott Citgo.
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