So you’re a petty tyrant who fires the skilled labor in the country’s #1 industry, which accounts for 92% of your country’s export revenues, nationalize the industry, and bring down oil production to – at best – two thirds of what it used to be and have to buy oil from the Russians to meet your commitments.
You bring your country thisclose to ruin. The Economist ranks your country’s business environment third from the bottom.
What’s a guy to do?
President Hugo Chávez, buffeted by falling oil prices that threaten to damage his efforts to establish a Socialist-inspired state, is quietly courting Western oil companies once again.
Until recently, Chávez had pushed foreign oil companies here into a corner by nationalizing their oil fields, raiding their offices with tax authorities and imposing a series of royalties increases.
But faced with the plunge in prices and a decline in domestic production, senior officials here have begun soliciting bids from some of the largest Western oil companies in recent weeks — including Chevron, Royal Dutch/Shell and Total of France — promising them access to some of the world’s largest petroleum reserves, according to energy executives and industry consultants here.
The Chinese & Iranians weren’t working out as expected, particularly since Chavez reneged on deals:
In recent years, Chávez has preferred partnerships with national oil companies from countries like Iran, China and Belarus. But these ventures failed to reverse Venezuela’s declining oil output. State-controlled oil companies from other nations have also been invited to bid this time, but the large private companies are seen as having an advantage, given their expertise in building complex projects in Venezuela and elsewhere in years past.
The bidding process was first conceived last year when oil prices were higher but Petróleos de Venezuela’s production decline was getting impossible to overlook. Still, the process is moving into high gear only this month, with the authorities here expected to start reviewing the companies’ bidding plans on new areas of the Orinoco Belt, an area in southern Venezuela with an estimated 235 billion barrels of recoverable oil. Altogether, more than $20 billion in investment could be required to assemble devilishly complex projects capable of producing a combined 1.2 million barrels of oil a day.
Eating crow for more pitiyanki money, that Hugo:
Chávez’s olive branch to Western oil companies comes after he nationalized their oil fields in 2007. Two companies, Exxon Mobil and ConocoPhillips, left Venezuela and are still waging legal battles over lost projects.
The IHT article also explains some of PDVSA’s other messes:
In the past year, with higher oil prices paving the way, Chávez also vastly expanded Petróleos de Venezuela’s power, inextricably linking it to his political program. He directed the oil company to build roads, import and distribute food, build docks and shipyards and set up a light-bulb factory. He even expanded it into areas like milk production, soybean farming and the training of athletes after a weak performance at the Beijing Olympics.
One of the oil company’s ventures sells subsidized food and extols Chávez’s leadership at its stores across Venezuela. At one frenzied store in eastern Caracas, posters hung from the ceiling last Saturday showing Chávez arm in arm with children beneath the heading, “fortifying agrarian socialism.”
Petróleos de Venezuela has also carried out nationalizations in other industries, absorbing companies like Electricidad de Caracas, the utility serving this city of five million. Top executives like Eulogio del Pino, the Stanford-educated vice president of exploration and production, spent much of 2008 negotiating unfinished deals like the takeover of a cement company.
Western oil companies would have to lose their collective minds to invest in Venezuela again, because Chavez simply can’t be trusted. As one source within the Venezuelan oil ministry reminds IHT, Chavez wound up screwing his partners in China, Iran, and Belarus by changing his mind on oil projects and shutting them down after they spent millions on start-ups. No oil project in ten years has reached completion, thanks to Chavez’ caprice. Besides, Chavez still owes two Western oil companies for the nationalization of their assets in 2007, and nothing would stop Chavez from doing it all over again.
As of the writing of this post, Texas crude was trading at $35.50/barrel.
Don’t expect Chavez to leave any time soon:
Venezuela’s national assembly has approved a constitutional amendment to remove presidential term limits
The amendment, which applies to all elected officials, must be approved by a referendum within 30 days, a vote correspondents say is set to be close.
According to Daimnation,
Halliburton, probably the left’s most hated capitalist villain, has prospered in Venezuela precisely because of Hugo Chavez’s policies. There is a God, and he’s a major shareholder.
I’ll have to do some research on that
& get back to you. Simon Romero explains
Moreover, foreign oil services companies like Halliburton, which has done business in Venezuela for 70 years, have even expanded their activities in the country as Petróleos de Venezuela grew more dependent on contractors to help extract oil from aging wells.
Romero also quotes,
“An agreement on a piece of paper means nothing in Venezuela because of the way Chávez abruptly changes the rules of the game,” said a Venezuelan oil executive who has had dealings with oil companies from China, Russia and other countries.
“In 10 years, not one major oil project has been built in Venezuela,” said the oilman, who asked not to be identified for fear of retribution. “Chávez has left his so-called strategic partners out to dry, like the Chinese, who have been given the same treatment as Exxon.”