In Oil Producers’ Brave New World, a Key Word Is ‘Partnerships’

In Venezuela, President Hugo Chavez is threatening to snatch control of several major projects from American and European firms. In Russia, the government recently strong-armed Royal Dutch Shell into relinquishing control of a large field called Sakhalin II. In developed countries, home to the six so-called “supermajor” oil producers, politicians have debated imposing windfall profits taxes.

Across the oil-producing world, governments are responding to higher petroleum prices by imposing new taxes on oil companies and forcing the renegotiation of contracts giving foreign firms access to critical reserves.


According to speakers at the 2007 Wharton Economic Summit, such developments augur a new age for the oil business. The time is over when major oil companies can dictate the terms of development deals to host countries. About four-fifths of the world’s reserves are already controlled by state-owned firms, and political strongmen like Chavez and Russia’s Vladimir Putin seem intent on tightening their hold on their countries’ oil wealth. Russia has the world’s largest oil reserves, after Saudi Arabia.

“The ability of major oil companies to exert their muscle has diminished,” said David Fleischer, a principal with Chickasaw Capital Management in Memphis, Tenn. “They still bring a lot of technology and expertise, but that’s less important in today’s world. Countries like Venezuela don’t care as much as they should about maximizing their revenues. They care about control of their resources.”

Petroleum World