NationStates Jolt Archive

ExxonMobil holds out against Venezuela

WASHINGTON, Dec 20 (AFP) - US energy giant ExxonMobil said Tuesday it was evaluating its position in Venezuela after receiving an ultimatum from the country's left-wing government to join a state-backed venture or else.

ExxonMobil is now the only foreign major active in the world's fifth-largest oil exporter that has refused to scrap its current contract and accept a minority partnership with Venezuela's state oil firm.

Through its local affiliate, Ampolex Venezuela, ExxonMobil has a 25-percent stake in the country's small Quiamare-La Ceiba oil field. The rest of the venture is controlled by Spanish company Repsol.

Repsol is said by the socialist government of President Hugo Chavez to be willing to go into partnership with the state-run Petroleos de Venezuela (PDVSA).

But the Spanish company needs the acceptance of its venture partner, ExxonMobil, which has resisted months of pressure from the populist Chavez administration.

"Ampolex Venezuela Inc. is presently evaluating the Venezuelan government's decision to modify the original contractual agreement," ExxonMobil spokesman L. A. D'Eramo said.

Venezuelan Energy Minister Rafael Ramirez, who is also chief executive of PDVSA, warned Monday that ExxonMobil had until the end of the year to sign up to the joint venture with the state-run firm or risk losing its investment.

Ramirez said all the other foreign oil firms have now agreed to partner with PDVSA, including US majors Chevron and Samson, France's Total, Eni of Italy, Anglo-Dutch giant Royal Dutch Shell, Britain's BP and Statoil of Norway.

Chavez, a constant thorn in the side of the United States, says foreign oil companies have failed to pay their fair share to the government and that it is time some of their local earnings go toward helping Venezuela's poor.

OK, the first and most obvious thing is that the battle is already lost. The contracts held with the previous government cannot be enforced in any court, the foreign oil companies got the generous opportunity to accept a higher tax rate rather than face outright expropriation, and all the European oil companies, not to mention most of the American ones involved, have already said "YES, this is a government with which we can do business." :)

All very pragmatic. And yet ExxonMobil stands alone in defying Venezuela, even though it is manifestly not in its financial interest. What reason could there possibly be? Is some grandee at the top still refusing to take retirement and is now suffering from a 'Red Panic'? :rolleyes:

When it comes to business, one golden rule is Profit >> Politics. And they are refusing to deal with socialists? If I held shares in Exxon, frankly I'd be pissed.

Maybe Exxon is holding out in order to negotiate for a better deal.

Maybe Exxon is holding out in order to negotiate for a better deal.


Would seem like a logical business move. Doubt this has to do with politics.

OK, the first and most obvious thing is that the battle is already lost. The contracts held with the previous government cannot be enforced in any court, the foreign oil companies got the generous opportunity to accept a higher tax rate rather than face outright expropriation, and all the European oil companies, not to mention most of the American ones involved, have already said "YES, this is a government with which we can do business." :)

All very pragmatic. And yet ExxonMobil stands alone in defying Venezuela, even though it is manifestly not in its financial interest. What reason could there possibly be? Is some grandee at the top still refusing to take retirement and is now suffering from a 'Red Panic'? :rolleyes:

When it comes to business, one golden rule is Profit >> Politics. And they are refusing to deal with socialists? If I held shares in Exxon, frankly I'd be pissed.


Hmmm..my understanding of a contract is that you honor it until it comes up for renewal and then re-negotiate. Maybe they are just smart enough to know that no matter what they do, in the end they will pay the communists an ungodly sum of money only to be kicked out anyway like their friend Fidel has done repeatedly. There are companies that are smart enough to learn the first time they get burned that it is on them the second.
If the new government is not honest enough to live up to existing contracts what on earth would lead them to believe they would be honest enough to live up to their new ones? Believe it or not, there is such a thing as business ethics (thin as they may be), but nullifying existing contracts is right up there at the top of never to do.

An aside: I do own shares of XOM and applaud them for it. In my opinion money going to that government is money down the drain.

They're probably willing to sell their part to Repsol before risking future renegotiations with Venezuela.

They're probably willing to sell their part to Repsol before risking future renegotiations with Venezuela.

Actually the term renegotiate is grossly out of place since the conditions are do it our way or we are going to steal it.

Hmmm..my understanding of a contract is that you honor it until it comes up for renewal and then re-negotiate. Maybe they are just smart enough to know that no matter what they do, in the end they will pay the communists an ungodly sum of money only to be kicked out anyway like their friend Fidel has done repeatedly. There are companies that are smart enough to learn the first time they get burned that it is on them the second.
If the new government is not honest enough to live up to existing contracts what on earth would lead them to believe they would be honest enough to live up to their new ones? Believe it or not, there is such a thing as business ethics (thin as they may be), but nullifying existing contracts is right up there at the top of never to do.

An aside: I do own shares of XOM and applaud them for it. In my opinion money going to that government is money down the drain.

This is probably accurate. Chavez is going to take the taxes first, and then when he's finished with that, he's going to nationalize it completely and take it all away - right now Chavez only wants to keep the foreign oil companies in there to keep running the oil pumps - as soon as Chavez can replace the foreign oil companies, he will take their equipment and that will be the end of that.

We have new oil opening in Libya since the sanctions were lifted - and Libyan crude is much more low sulfur than Venezuelan.

Chavez can't pump oil out of the ground without the expertise, and I think Exxon knows it.

Chavez can't pump oil out of the ground without the expertise, and I think Exxon knows it.
That's what the oil companies were thinking when they refused to the increase in oil exploitation right in Mexico (from around 1 Mexican cent per barrel to something like 10 or 15 cents).

"What are they going to do? Expropiate? They need us to get the oil!"

And then Mexico expropiated the oil industry in 1936. Somehow Pemex managed.

I think Exxon should know this too.

That's what the oil companies were thinking when they refused to the increase in oil exploitation right in Mexico (from around 1 Mexican cent per barrel to something like 10 or 15 cents).

"What are they going to do? Expropiate? They need us to get the oil!"

And then Mexico expropiated the oil industry in 1936. Somehow Pemex managed.

I think Exxon should know this too.
Then let Chavez expropriate - why pay him taxes first when he's going to do that anyway?

Well, BP got the rough end of the deal back in the day in Iraq and Iran, and the other companies on the list aren't exactly naive when it comes to playing the game. There is such a thing as going against conventional wisdom, but in this case I think they're being stupid.

Venezuela needs foreign expertise, and it has already got it, the other operators have signed up. They can afford to boot ExxonMobil out of the country, if they think the government is bluffing.

Then let Chavez expropriate - why pay him taxes first when he's going to do that anyway?
Agreed. But they probably will get more from selling their part to Repsol than what Chavez is going to give them. By the way, Mexico expropriated the oil industry in 1938, not 36 as I said above. After a few years of negotiation, Mexico agreed in 1942 to pay 30 million dollars in total to the oil companies, part in cash, part in crude.

Well, BP got the rough end of the deal back in the day in Iraq and Iran, and the other companies on the list aren't exactly naive when it comes to playing the game. There is such a thing as going against conventional wisdom, but in this case I think they're being stupid.

Venezuela needs foreign expertise, and it has already got it, the other operators have signed up. They can afford to boot ExxonMobil out of the country, if they think the government is bluffing.

Stupid would be to continue sinking money into a lost cause and hoping that established patterns by communist dictatorships in South and Central America change. There is of course by the very threat issued no indication of that. Exxon is by far the smartest of the oil companies named because by cutting their losses and refusing to allow themselves to be subjected to blackmail, they maintain their independence to concentrate threatened capital resources in areas less exposed to governmental blackmail, anti competitive taxes and further losses on investment such as stolen equipment.