Wednesday, November 16, 2005

Progress has a price 

Previously, I posted on the operating agreements that Venezuelan state oil company PDVSA has with a number of foriegn oil firms to exploit some of Venezuela's older oil fields. Venezuela loses a significant amount of money on these agreements, which were negotiated by Chavez's predecessors, because of inflated costs which reduce the royalties and profits paid to the Venezuelan treasury. Venezuelan is trying to put a stop to that by insisting on majority ownership of all these ventures which would give them total operational control and allow Venezuela to maximize its share of the revenue.

More than two-thirds of the companies involved in these operations have agreed to accept the new contracts. But a few hold outs are determined to be difficult. Witness this report:

CARACAS, Venezuela (AP) - Private oil companies that pump crude under contract in Venezuela have cut output in a bid to gain more favorable terms in negotiations with the government, the country's oil minister said Tuesday.

"We have discovered, much to our displeasure, that companies are trying to pressure us by lowering production," said Rafael Ramirez, who is also president of the state oil firm Petroleos de Venezuela S.A., PDVSA.

The government is requiring companies operating 32 oil fields under contract to convert their agreements into joint ventures with the state oil company. Officials have said PDVSA will have a majority stake in each joint firm, holding as much as 80 percent ownership.

Ramirez did not specify how many of the 32 fields had cut production, but cited the companies' actions as further justification for the government's move to take majority stakes in the fields.

"Because of that we will take control of all those fields very soon," he said. "It's hoped that we may have an important increase in our production there."

This is an outrageous act by the companies involved and Ramirez should be more than "displeased", he should be enraged. In fact, this action shows exactly why all these ventures need to pass to majority Venezuelan ownership as soon as possible.

Because Venezuela does not have ownership it cannot control that actual operations of these ventures - neither what their costs are nor even how much they produce. This is simply an unacceptable lack of control that is now leading to further monetary losses. How much revenue is being lost to this? I don't know. But the numbers I have heard in terms of production cutbacks are 25,000 to 50,000 out of an estimated normal daily output of 550,000 barrels from these ventures.

Fortunately, Venezuela now has a government and oil ministry that doesn't put up with this sort of non-sense. Rather than strenghen the negotiating position of the foreign oil companies it will simply make the government that much more determined to gain majority ownership so it can exert full control over these operations. Only then will Venezulea be assured of getting the proper amount of profits from these joint ventures and be able to ensure that this type of deliberate sabotage is not allowed to occur again. Because of that whatever short term pain they have to endure right now will be well worth it.


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