NationStates Jolt Archive

http://www.iht.com/articles/2009/01/15/america/15venez.php

So much so, that he's wanting the oil companies that he threw out, to come back. Apparently it's not as easy to keep oil pumping, and to exploit new fields, just by socialist expropriation - and calling friends from Iran, China, and Belarus has had no effect on Venezuela's declining output.

Under the current bidding rules, the onus for financing the new projects lies with the foreign companies, even though Petróleos de Venezuela would maintain control. Banks might balk at such a prospect. Distrust also lingers in dealing with Petróleos de Venezuela.

"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."

But the severity of the drop in oil prices may ultimately dictate the terms on which Venezuela re-engages with foreign oil companies.

"Chávez is celebrating the demise of capitalism as this international crisis unfolds," said Pedro Mario Burelli, a former board member of Petróleos de Venezuela. "But the irony is that capitalism actually fed his system in times of plenty," he said. "That is something Chávez will discover the hard way."

I hope that due to the worldwide slack in oil demand, the oil companies put off drilling down there. Until his government collapses. You would have to be a fool to go back in, and provide all of the financing and all of the expertise, just so he can re-nationalize everything.

Chavez is a troll, just ignore him. That said I'm amused his nationalization came back to bite him in the ass.

"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."
And so, Chavez has screwed himself over once more.

Mm, I hate when people who is on his way towards becoming something of a dictator claim to be ideological, and then betray the whole thing to hold onto power.

Always so negative. I suppose its not surprsing you capitalist pigdogs hate the modern-day Lenin so much :p

This is what happens when you fail.

The oil companies will go back for more. The potential rewards are too great, and it's not their money they are gambling with.

The Oil companies shouldn't go back for more of the Chavez treatment, because the man's already shown his hand-if they go back, the losers will be their shareholders, 'cause once the money's been spent to develop those fields, he'll just re-nationalize it all and leave them with the bill.

If the Corporations want to serve their shareholders, they won't make bad investments, Venezuela under Chavez is a bad investment.

The oil companies will go back for more. The potential rewards are too great, and it's not their money they are gambling with.

Not to mention they know the ball is in their court and they'll be dictating the terms this time around. People forget that oil companies operate on 10, 15, even 30-50 year timeframes for major projects and opportunities, so they're perfectly happy to wait if need be for the situation to shift to their favor.

Fortunately, Neville's too dead to be running an oil corporation.

Not to mention they know the ball is in their court and they'll be dictating the terms this time around. People forget that oil companies operate on 10, 15, even 30-50 year timeframes for major projects and opportunities, so they're perfectly happy to wait if need be for the situation to shift to their favor.

Well terms aside, which are always subject to change, operating in corrupt mercurial regimes is part of the job. So their risk profile is substantially different to other companies.

In any case, like you say, extractive industries operate on much longer time frames, and they have to be looking at the state of Cantarell and doing the sums. Plus, the next few years will be an astonishingly cheap time to invest in this sort of thing. The upside, once the current supply glut and the worst of the economic malaise is over, is absolutely enormous.

(I also tend to think that the spanking Russia got from capital flight in the aftermath of the whole BP debacle last summer serves as a warning to others about these sort of things. At least for a while.)

The oil companies will go back for more. The potential rewards are too great, and it's not their money they are gambling with.
Yeah, it's their bankers' money. And I'm going to personally call whoever sends through a deal for approval involving country risk in Venezuela, and laugh at them for about 23 minutes non-stop.

I forget, does Chavez have any substantial support base on the left anymore?

Yeah, it's their bankers' money. And I'm going to personally call whoever sends through a deal for approval involving country risk in Venezuela, and laugh at them for about 23 minutes non-stop.

Everybody knows what the country risk is, so it's a fair punt. I'm sure there will be a premium charged as a consequence so I really don't see the problem. (It's not the banker's money either BTW).

Everybody knows what the country risk is, so it's a fair punt. I'm sure there will be a premium charged as a consequence so I really don't see the problem. (It's not the banker's money either BTW).
Well, whoever's money it is in the end, bankers are at least partially in charge of making sure it's not wasted. The guys who actually work out the deals at the moment are desperate to get any business at all, and they have less concern for the threat to the bank's capital than they should. Fact of the matter is that in the current environment even many great projects don't get finance. For something in the, frankly crap, Venezuelan oil resource sector to get any money it all, it's gotta be just about the best piece of oil production in the history of mankind.

Otherwise that money could go to dozens of other locations around the world. And besides, let's face it, with oil prices as they are, pouring extra money into expanding capacity is not the priority of producers, nor their financiers.

Well, whoever's money it is in the end, bankers are at least partially in charge of making sure it's not wasted. The guys who actually work out the deals at the moment are desperate to get any business at all, and they have less concern for the threat to the bank's capital than they should. Fact of the matter is that in the current environment even many great projects don't get finance. For something in the, frankly crap, Venezuelan oil resource sector to get any money it all, it's gotta be just about the best piece of oil production in the history of mankind.

Otherwise that money could go to dozens of other locations around the world. And besides, let's face it, with oil prices as they are, pouring extra money into expanding capacity is not the priority of producers, nor their financiers.

I don't see the current glut as an argument not to do it. As I understand, these fields will take years before they are producing, so in that respect it will probably pay off handsomely.

And I am not minimizing the size of the country risk: it is huge*. But that is the nature of extractive industries. They do their business in shit-holes. But what else can they do? Not expand capacity? (People went into Russia with their eyes just as open, but did it anyway). Thing is, extra capacity probably will be needed by the time it comes online as other major fields are in decline.

Anyway, oil is probably not a horrible long term bet compared to most things out there right now. Like everything it will come down to price I suppose. YMMV however.

*I would think the risk is a lot less than 18 mos. ago. You have to remember that Russia was taught a salutary lesson a few months ago, and Mr. Chavez allies are not quite as flush as they once, apparently, were.

Edit: And see how you talked about bankers, and making sure money wasn't wasted, and how I didn't go there. I thought that was very restrained. :p

I am not a big fan of nationalization but he totally failed at it.

don't kick out the other companies.
1st what you do is watch them and steal their better employees away with offers of better pay.
2nd. Tax oil production use part of the taxes to subsidies the locally owned or state owned oil company.
3rd generously offer to buy private foreign oil companies land at discount price as they cant compete with a subsidized industry.

The oil companies will go back for more. The potential rewards are too great, and it's not their money they are gambling with.
I think the oil majors will even accept to work with Chavez and a more-or-less socialist Venezuela (this means basically paying more taxes for the oil they pump out). After all Venezuela, even with no major new oil extraction projects in the last 10 years, is still in the top 10 of the oil producing countries' ranking iirc (see CIA factbook anyway).

I think the oil majors will even accept to work with Chavez and a more-or-less socialist Venezuela (this means basically paying more taxes for the oil they pump out). After all Venezuela, even with no major new oil extraction projects in the last 10 years, is still in the top 10 of the oil producing countries' ranking iirc (see CIA factbook anyway).

The oil majors will work with and under the Venezuelan government if two things happen: 1) They can make money, and 2) there is sufficient stability to make them believe they will continue to make money. They're kinda rational that way.

The oil majors will work with and under the Venezuelan government if two things happen: 1) They can make money, and 2) there is sufficient stability to make them believe they will continue to make money. They're kinda rational that way.

Yah, but their definition of sufficient stability is not the same as yours. Not by a long stretch.

One of the things that has really kneecapped the extractive industry is the silly domestic laws that prevent them from paying off the locals. Some hue and cry about 'corruption' - as if that wasn't 95% the fault of the CIA and such in the first place.

Really, our time would have been better spent monitoring banks - as we now see. Can't help our inner Ida Tarbells I suppose.

Really, our time would have been better spent monitoring banks - as we now see. Can't help our inner Ida Tarbells I suppose.

Yay. Total bank secrecy gotta go: sorry for the Swiss, Cayman etc, but really, it cannot be accepted anymore.

I forget, does Chavez have any substantial support base on the left anymore?
In the UK? Err... not really...

Anyway, there is no way a bank will finance any company wanting to go back in there, because when the price of oil comes back up, he'll chuck them out again.

I don't see the current glut as an argument not to do it. As I understand, these fields will take years before they are producing, so in that respect it will probably pay off handsomely.
Eventually, and for a while. But Venezuelan oil is of crap quality and sits high up on the cost curve. It really only earns money at $80 or more. That makes for an uncertain revenue stream even if it wasn't so obvious that Chávez will just steal the lot of it as soon as things start making a profit. There are much better projects going on in Kazakhstan for example, and even those aren't getting any cash.

The whole resources sector has the potential to pay up big, I completely agree. Most prices are below the cash costs of most producers, and assets are being sold off at bargain prices. When you have the cash and the time, it's there for the taking. But the banks aren't the places to go to right now, they have their own priorities money-wise - and taking on the few years it will take for these projects to pay out, with depressed assets serving as collateral in dodgy countries just doesn't fit into that. If the majors can raise the money by themselves, good on them, they can go and risk it. But I don't think they'll have much luck raising finance from the banks.

Thing is, extra capacity probably will be needed by the time it comes online as other major fields are in decline.
And I'm sure that's what the sales guys on the phones will be speculating on. But then there is another level of people in a bank who are supposed not to be making assumptions, but simply to make sure we'll be getting our money back. I mean, you can't even offer collateral in Venezuela because property rights don't exist there. So you need to set up complicated structures to make sure lots of money and whatever else of value is kept somewhere else outside Hugo's range. The smaller companies in particular won't be able to do that. Again, the point is that there are better projects to be giving money to.

Edit: And see how you talked about bankers, and making sure money wasn't wasted, and how I didn't go there. I thought that was very restrained. :p
And I'm quite thankful too. ;)

The oil companies will go back for more. The potential rewards are too great, and it's not their money they are gambling with.
This .... always.

-snip-

I would say though that the size of the reserves and the convenient geography with Venezuela make it very attractive though. You have to remember that Chavez is an historical anomaly too (who might be less of a factor after Feb. in any case). Compare that to Kazak, which is surrounded by problems and will be so for the foreseeable future.

As for the financing, the way I see it is that banks are apparently going to have a lot of shiny new cash - courtesy of the taxpayer - and no one to lend to, so I really do think they'll be happy to punt because they have to do something with the money, they can't just sit on it. (As they did in giving money to Russian oligarchs, and funding ventures in Russia, which everyone knew would end in disaster). Anyway, nobody listens to negative nellies.

Yah, crap oil. But that's an inevitable part of the future.