Test your critical faculties: ID the BS in this story about CITGO:

[AP]

CITGO's No-No?
By Stephen D. Simpson, CFA Fri Jun 3, 3:35 PM ET

There's another aspect to the current row in Venezuela between the government and foreign oil companies like Chevron (NYSE: CVX - News), BP (NYSE: BP - News), and Royal Dutch/Shell (NYSE: RD - News). Namely, will success in Venezuela's attempts to shake down oil companies give its American refinery business CITGO Petroleum an unfair advantage?

Here's a refresher. The Venezuelan government has launched a multi-arm strategy to reap greater benefits from its oil assets at the expense of foreign partners. Royalty rates have already gone from 1% to 16.6%, and the government is now engaging in retroactive taxation to pull even more money out of the coffers of foreign oil companies.

Petroleos de Venezuela (PDVSA), the state oil company of Venezuela and the owner of CITGO, has announced a policy of paying less than market value for oil deliveries. It is also paying for some of this oil in Venezuelan bolivars instead of U.S. dollars, and it has held up new drilling licenses. Through it all, the government is attempting to strong-arm foreign oil companies into replacing existing legal contracts with new agreements that will give preferential status (and majority control) to Venezuela.

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Given that the United States has denounced government subsidies for Airbus, it'll be interesting to see what, if anything, comes out of Washington on this matter. On one hand, you have a foreign government shaking down American companies and possibly using the benefits to gain a competitive edge in the U.S. gasoline market. But on the other hand, the Bush administration clearly does not want to further antagonize a major nearby oil exporter. What's more, if PDVSA/CITGO uses its resources to lower the price of gasoline, who wants to be seen as coming out against cheaper gasoline for consumers?

It's a complex issue, and it's one that will not be resolved quickly, if at all. While I wouldn't suggest that it's a major priority for the U.S. government to play the role of recess monitor and protect the profits of American companies' overseas business ventures, the whole deal smells bad. What's more, if it ends up harming domestic refiners, it could end up being a problem for all of us someday.

http://news.yahoo.com/news?tmpl=story&cid=1483&e=3&u=/fool/20050603/bs_fool_fool/111782730924

[tech3149]

1. You mean besides the totally biased tone of the article?

It's their oil and they want tosee more benefit from it. That's strong arming? If Chevron, BP, and Shell don't like the deal, don't take it.

[AP]

2. Oil companies pay those royalty rates everywhere else in the world.

So, why isn't venezuela able to benefit from the value of their oil like every other oil producing country in the world? That's one thing.

The oil companies are making record profits. That's another.

And isn't the argument that privatization of everything is a better model? Shouldn't the private companies be so efficient that they should be beating the pants off PDVSA despite the royalty rates?
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