I used to think that capitalists were too smart to fall for the same ruse twice:
It is a telling sign of how deeply the global economic crisis has cut: President Hugo Chávez, who initially reveled in describing the crash as proof of capitalism’s flaws, is now quietly courting Western oil companies once again.
Until recently, buoyed by the surging price of oil, Chávez had pushed foreign oil companies here into a corner by nationalizing their oil fields, raiding their offices with the tax authorities and imposing a series of royalty increases.
But faced with the plunge in oil prices and a decline in domestic production, senior officials here have quietly begun soliciting some of the largest Western oil companies in recent weeks, including Chevron, Royal Dutch Shell and Total, in the hope of getting them to invest in Venezuela again.
These days I’m not so sure.
If they go back they are idiots. I would like to say bankers are more intelligent than that, but we are in the schoolhouse of hard knocks learning differently on that as well.
Us Oil Companies have been in and out of Venezuela for years. I think most of them will be watching to see how the legal battles of Exxon Mobil and ConocoPhillips turn out. US companies have been repeated burned in Latin America by nationalizations, another word for theft, in mineral extraction many times. I hope they hold out for a very good deal, and one that some dictator will have a very hard time going back on. If such is possible.
I think they will go back. Like they went back to Russia after the Russians first got their investments and then kicked them out with the Russian “partners” taking over the whole project. Then when the opportunity arose, they went back.
You’d hope that they learn, but becaue they are capitalists, they will go back. Likely that they will play it slow and draw out the process and wait till 2012. That would be the smart move.
Odd thing about a lot of Chavez’s oil is that only the U.S. is capable of refining the particular crude. In other words, Chavez currently has little choice for a good deal of his production. What an ingrate!
Political risk –i.e. are the bastards going to steal it from me after I’ve built it–or if they don’t steal it from me, will they change the terms of the royalty deal?–is just one factor to be weighed in making an investment. In the late mid 1990’s I spent a lot of time as a lawyer working on developing a Venezuelanproject for a consortium of oil companies. There were about 5 such consortia at the time. There’s a belt of very heavy crude oil along the Orinoco River Basin. You need to understand that the time line for such projects from start to finish is about 50 years (i.e. somebody finds the oil, gets an idea about how to solve the technical problems necessary to develop the field, builds the pipelines and oil field equipment necessary to get it to the coast and on the water to world markets–then operates the field for perhaps 20 years until it’s exhausted or needs an overhaul). With that sort of time line, you frequently go into places where the political environment is less than optimum.
Some days you eat the bear, some days the bear eats you. But that’s what oil men do. By the way, my particular company was one of the first to pull out of Venezuela in the 1990s. Others were a little slower. I think Exxon held on to 2005.
Who was it who said that the capitalists would sell the communists the rope they would use to hang those same capitalists? Some things never change.
It sure would be interesting to talk with someone from one of those companies and ask how they do their risk assessment for this scenario. Nationalization is one of those risks big companies take in foreign direct investment that can be compared somewhat to natural disasters: hurricane, dictator, earthquake…
May they not/hold out long enough that they will both suffer the ignominy of fossel fuels being replaced with renewable energy souces so undermining the depth of the cashcow from which the capitalist stench emanates. Not that capitalism is the problem, merely the vast majority of those in the front row at the trough.
Vigilis,
absolutely correct. Really heavy crude, and most refined at HOVENSA in St Croix, a Hess owned co. Not likely that the Chinese and others will invest (not right now) into a huge refinery for PDVSAs oil. And Hovensa is one of the top 10 refineries with capacity of 500k bpd.
While a lot of the oil talk coming out of Chavez is just rhetoric, at some point simple economics will rule the day.
Mal Briggs: “capitalist stench emanates” And what do you propose as a better alternative system?
It will be a while before fossil fuels are replaced by renewable energy sources. Since oil at below $50/bbl, can’t recall seeing anymore T. Boone Pickens commercials for his windfarms…
claudio
Sorry to have to say so, Mal Briggs, but “front of the trough” sounds more than a bit bitter and envious in a socialist sort of way. You ever hear “Who dares, wins”? The oil companies, and their founders, dared and won big…and they lose big from time to time, while the financially meek souls just continue to drive their Priuses(sp?) and complain about those who risked heavily to put gasoline in their cars.
Hey Mal Briggs – Send me an email as soon as “renewable energy resources” become more ecomonmically viable than the demon oil… I’ll be on board. Until then, please know that many people that read this blog have educated themselves and work very hard to throw off the yoke of fossil fuels.
You probably don’t want to think so but it is actually true.
I am freezing to death here, writing this as I don’t want to increase my “fossil footprint” by heating my house to anything over 63 degrees.
I never gave PayPal my info so I could speed dial Al Gore my indulgence for heating my house at 72…
Get a life…