Venezuela ratifies agreements with foreign oil firms

[Judi Lynn]

Venezuela ratifies agreements with foreign oil firms

04-02-10 Venezuelan President Hugo Chavez has ratified the exploitation of the country's oil reserves with foreign partners according to sovereign national laws as enforced in recent agreements.

He was comparing these agreements, which were favourable to national interests, with those done previously by right wing governments with transnational companies that merely paid 1 % oil royalty, a rate set at 30 % and did not pay taxes, while now it is 50 %. Also, there was no taxation on extraction -- now that is 3.3 %. These figures, he indicated does away with the "fallacies of the opposition on alleged policies of oil barter".

Chavez stressed that his government's oil policy of diversification allows marketing of hydrocarbons in countries of Latin America, the Caribbean, Europe and Asia as opposed to previous dependence on the United States.

While commemorating his 11 years of government, Chavez said that recent studies indicate that Venezuela has the world's largest reserve of hydrocarbons with an estimated drilling capacity, just in the Orinoco Belt, of 513 bn barrels. He said that Venezuela, which produces more than three mm bpd, signed an agreement for the joint exploitation of the Junin 6 block of the Orinoco Belt for $ 18 bn with a Russian company.

More:
http://www.gasandoil.com/goc/company/cnl101204.htm

[protocol rv]

1. Did you notice the change in oil prices?

When the original deals to invest in the Orinoco oil fields were made, the oil price was around $15 per barrel. Today it's about $70 per barrel. So let's grab the calculator. The royalty was set at 1 % of $15, meaning the royalty was 0.15 cents. That left the consortium $14.85 per barrel to cover their other taxes, pay costs, and earn a profit (yes, dear, they did pay taxes). Today, the system provides for an overall tax load, including the royalty and extraction tax, of 30 % + 3.3 %, or 33 %. But the oil price is $70 per barrel. So let's take 2/3 of $70 per barrel and what do we get? $46.62. Now apply the 50 % income tax to it (assume there are no expenses), and we get one half of $46.62 or $23.31

So, before, when the original projects were launched, the oil companies got to keep a maximum of $14.85 per barrel produced. Now they get to keep a maximum of $23.31 per barrel produced. To be more accurate, we would have to deduct the operating expenses and the capital depreciation, but that only makes the deal better for today's producers. So what did the government really do? They tightened the screws and took more of the income stream because oil prices skyrocketed. But that's what most nations have done.

So what was done by Venezuela wasn't exceptional, unique, nor special. And the way it was done was sort of dumb, with a lot of drums and dancing, but little understanding of the underlying industry. So the net result is that today production is down. And the oil companies get to keep more than they did before. So much for socialism of the 21st century.

[Judi Lynn]

2. The oil companies pay MORE taxes to Venezuela, which go into public works. n/t

[protocol rv]

3. That's right

They pay more taxes to the government. Oil prices went up over four fold, and most governments raised their taxes on oil producers. This isn't a big issue - and as I pointed out oil company revenues are up around the world in spite of the higher taxes. They are also paying a lot more in operating expenses, because they had to increase wages and the money they pay to contractors.

I do have another point to make, the money collected by the Venezuelan government doesn't "go into public works". I happen to live in Venezuela, and we don't see those "public works". To us, public works means roads, hospitals, universities, power plants, and other infrastructure. And there's very little of that, if we consider the huge amount of money the government gets due to the higher oil prices.

What we see is a lot of money being spent on useless things. A refinery in Santo Domingo, purchasing Ecuadorian and Argentinian bonds, russian fighter bombers and tanks, a lot of money has been spent propping up the bolivar at the obscene exchange rate we had until January, which cost us so dearly (the devaluation was way way overdue).

You see, this government is one of the most poorly managed governments on earth. It can be compared with African governments such as Mugabe's and Idi Amin's.

[Peace Patriot]

4. The views of a Chevron-Texaco apologist and a blogger who makes racist comments* and

who constantly spouts rightwing opinions, are worthless--except that they inadvertently point us to the truth, by reversal: As with Bushwhacks, whatever you say, the exact opposite is very likely true.

-------------------

*Racist comment here, in the course of your promotion of Chevron-Texaco...

Comment 36, here: “Indian presenting a complaint?”
http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=405x30994

[naaman fletcher]

5. I have asked repeatedly, what is the racist comment?

If you are going to accuse someone of being a racist, you can at least explain. What is racist about what he wrote?

[Wilms]

6. It's been explained.

[naaman fletcher]

7. Where?

If it's so easily explained, then surely it would be no problem to explain it again or point me to where it's been explained.

[Meshuga]

15. If you can't take it at face value

Then you must be right wing. You right wing you! :-)

[protocol rv]

8. Irrelevant

Why not discuss the issue at hand? I am well prepared to discuss the issues, point by point, if you are interested.

The Venezuelan government isn't going to be remembered for its competence running the oil industry. Now debate that point, and stop trying to smear me. :-)

[protocol rv]

9. Oh well

He keeps cut and pasting the same material over and over. Is there anybody out there willing to have a good debate anymore?

[protocol rv]

10. I guess not

When it comes to debate, they don't seem to like it.

[protocol rv]

11. An editorial about oil's influence on nations with oil

"A nation heavily dependent on oil sees its currency soar, making it harder for local manufacturers to export. Skilled workers leave manufacturing and agriculture to service the rich. Using oil as collateral, governments build up foreign debts and squander revenues to buy support. Profits go to the elites and existing power imbalances are worsened. The elites see no advantage in sharing the benefits of oil with the poor.

Oil enables clannish elites to become even richer and establish dynastic kleptocracies that cling to power. It increases the risk of conflict, particularly where there are separatist tendencies and ethnic tensions, and gives terrorists targets for sabotage. The need to protect installations against terrorists brings repression and the desire of the elites to protect their ill-gotten gains threatens freedom of speech and human rights in general."

http://open.salon.com/blog/padraig_colman/2009/06/30/shell_and_the_devils_excrement

[protocol rv]

12. Chairman of Repsol-YPF sees no business risk in Venezuela

"Antonio Brufau, the Chairman of the Spanish-Argentine oil producer Repsol-YPF, said on Tuesday that the company faces no "business risks" in Venezuela. He expects issues other than business "be resolved as soon as possible.""

I don't know what issues other than business have to be resolved for Repsol as soon as possible. I do know they won one of the blocks in the Carabobo bid round. I also know there has been zero activity by Repsol and PDVSA after the announcement was made. Friends who work in the oil business tell me PDVSA managers are very busy trying to build power plants, so they have no time to meet with the multinationals to negotiate the fine print. Others tell me the multinationals came up with a trick to justify their investments, they plan to borrow the money they invest from banks. But the banks want international arbitration to issue the bonds - and they want teeth in the agreements so they can take PDVSA properties abroad and confiscate their oil tanker loads if the projects fail to pay off on the bonds.

So I asked friends who work in real estate if they hear anything about Repsol bringing in employees (if they bring people in they have to rent), and there's no activity in the expensive market, where these foreigners go (Valle Arriba, La Castellana, El Rosal, etc). Finally, Repsol isn't visiting campuses to recruit from the July 2010 engineering class. This tells me they have nothing solid going on, and they're not getting ready. The same applies to the other companies, ENI, Chevron, the Russians, the Chinese...none of them are doing much to gear up for large projects.

PDVSA isn't either, by the way. One would think they must hire as many young engineers and geologists as they can if they are going to start projects where they own 60 %. But they haven't even hired from the 2009 class, never mind the 2010 class. In their case, the problem is compounded because jobs at PDVSA are now given out as political patronage, and most high quality engineering and geoscience graduates come from the middle class - and they won't get jobs because they are demonstrating against the government all the time. Most of them just leave the country as soon as they can.

[protocol rv]

13. OPEC Report Shows Drop in Activity in Venezuela's Oil Fields

I noticed an interesting fact in the OPEC report on Page 61: the number of active drilling rigs in Venezuela is much lower now than a few years ago. The lower number of rigs, if the data indeed is true, is an indicator that PDVSA lacks the money to drill wells - or they just lack the people to figure out where to drill? This backs my evolving sense that oil sector activity is indeed ramping down, and that these deals with foreign oil companies so far are not being reflected in the field - the activity level just doesn't seem to be going up.

An alternative - Venezuela and OPEC aren't getting along, and OPEC is publishing bad data. This would mean the Arabs and Venezuela aren't seeing eye to eye.

http://www.opec.org/opec_web/static_files_project/media/downloads/publications/MR032010.pdf

[protocol rv]

14. Russians sign deal to form JV in Venezuela

Will produce 50 thousand barrels by the end of the year. Wow. That's 50 thousand barrels, or about 10 % of what it takes to fill one tanker. Let me take my calculator to figure out what that really means: 0.006 % of the volume Venezuela produces per year. At today's market prices, 50 thousand barrels of the low quality Orinoco goo is worth about $3 million USD. Or about 10 % of the cost of a Su-30 fighter bomber Chavez has been buying from the Russians. I think we're getting a lousy deal.

[protocol rv]

16. I see Putin is coming

So this is the arrangement, it seems: the Russians "buy" the rights to develop the heavy oil field with PDVSA, and produce 50 thousand barrels. Putin comes over, and will be selling weapons and (I suspect) nuclear power gizmos. As if we didn't have to worry about our own problems, now we got to worry about the Russians installing something like they did at Chernobyl. Hopefully it'll take them so long to get anything done, we can change the government before they do get some radioactive material in here.

[protocol rv]

17. It's all hot air

They won't be producing oil from that area for at least four years.