Companies began investing in the Orinoco belt in the 1990s when oil prices bottomed. Eager to increase production, Venezuela offered generous terms like 1 percent royalties. Houston-based ConocoPhillips, Exxon Mobil, ChevronTexaco and other firms sunk $17 billion in four major projects in the Orinoco basin that produce 600,000 barrels per day.
Now, Venezuela wants more.
Last week, Chavez announced that his government will increase taxes from 34 percent to 50 percent on petroleum from the Orinoco basin and that royalties will double to 33.3 percent. On Thursday, the Venezuelan Congress, dominated by Chavez allies, recommended that the state convert the four Orinoco projects to joint ventures with the state oil company — known by the acronym PDVSA, pronounced pay-day-VAY-sa — assuming majority control and management.
Fair enough...Prices have what, gone up by 700 percent.
Playing the fine balancing between bombast, and reassurance...Oh hell, who are we kidding its Baby Hugo, the loudmouth.
Still, some critics say the Chavez government may be overplaying its hand and discouraging private investment.Chavez recently denounced the multinationals as criminals when his tax agency sought to collect fees dating back to 2002. Ramirez has told the foreign firms to expect the unexpected, and Chavez has threatened to torch the oil fields if the U.S. military ever invades.
"The government should just keep its mouth shut," said Mazhar al-Shereidah, an Iraqi who teaches oil economics at Central University of Venezuela in Caracas. "Can you imagine the oil minister of Saudi Arabia talking so much to the press?"
But the multinationals expect to make that money back. Its all about a barrel of oil at 70 + bucks a barrell, then it makes sense to take less of a share, if profits are higher. And Venezuela would be stupid not to try to cut a bigger deal.
Question is, who is minding the shop>????
Questions also surround PDVSA, which used to be considered one of the top state-run oil companies in the world.
Charging that PDVSA ignored the plight of the poor, who make up his base of support, Chavez has skirted the Central Bank and directly spent billions of petrodollars on health clinics and subsidized food. Largely as a result, Chavez is heavily favored to win another six-year term in December's elections.
"We've had oil for more than 100 years, and this was the poorest of countries," said Alfredo Salazar, a supervisor of mechanics at PDVSA's port operations in Puerto La Cruz. "The new PDVSA dedicates more to the needy."
A 30-year employee, Salazar is one of the few veterans left at PDVSA. During the nine-week national strike that tried to force Chavez from office in 2003, the president fired 19,000 oil workers for joining the work stoppage. The strike failed, mainly because key PDVSA supervisors remained on the job, including Salazar.
Chavez then packed PDVSA with loyalists.
Even pipelines carry pro-Chavez graffiti.
Incompetentence, not in the new PVDSA??
Trouble for joint ventures?
But political fervor sometimes seems to outstrip technical know-how, said Victor Poleo, a Caracas oil analyst.
PDVSA workers used to average about 15 years on the job, but since the strike, that number has dropped to about four years. A recent report in the Caracas daily El Nacional said that nine PDVSA workers had been killed in fires and explosions at refineries over the past six months, an unprecedented number, Poleo said.
"This country lives on oil, but its best people are gone," Poleo said.
That could spell trouble for the new joint ventures because PDVSA, rather than private companies, will manage the operations. The company plans to ramp up production to 5.8 million barrels per day by 2012. But since the pre-strike days of 2002, daily production has dropped from 3.3 million barrels to 2.6 million.
Although some foreign oil executives are concerned that Chavez may one day confiscate their companies' assets, Poleo says that PDVSA's lack of expertise and investment stands as the best argument against nationalizing the oil industry.
"They can't nationalize," Poleo said of Chavez's government, "because they don't have the money or the knowledge."