Venezuela, Russia Seek More From Oil Companies as Prices Soar

Consumers expect producing nations to “give oil away,” Venezuelan President Hugo Chavez said on Oct. 10. He made the comment in Caracas during his weekly television and radio program, “Alo, Presidente,” as benchmark futures rallied toward a record $55.67 a barrel.

Now the Chavez government is charging higher royalties that may cost foreign partners in the nation’s biggest oil joint ventures $700 million a year. A change last year in Russia’s tax policies will boost oil revenue for the government of President Vladimir Putin by $2.6 billion annually.

“The oil price goes up and countries all think, `Are we making enough on it?”’ said Gordon Barrows of Barrows Co. in New York, a firm that catalogs global oil and gas production contracts. “It’s stirring all around the world,” Barrows said in a Dec. 20 phone interview.

The terms countries are dictating may discourage investment needed to keep pace with world energy demand, which grew 3.3 percent last year, the fastest since 1976, according to the International Energy Agency in Paris.

The Russian tax increase “will change the way in which people make decisions on the margin,” Lord John Browne, chief executive officer of BP Plc, said in a Jan. 20 interview in London. Russia passed Saudi Arabia last year as the world’s biggest oil producer.

Russian Oil

BP, Europe’s biggest oil company, spent $7.7 billion last year to combine its Russian assets with those of OAO Tyumen to form TNK-BP. Robert Dudley, TNK-BP’s chief executive officer, said his company is finding profitable investments. More expensive Russian projects such as Arctic drilling are being discouraged, Dudley said in Davos, Switzerland, on Jan. 29.

Russian output may peak in 2008 as tax policies and other actions by the Putin government starve the country’s oil industry of foreign investment needed to keep output growing, according to forecasts from PFC Energy Inc. in Washington.

It is getting more difficult for oil companies to find attractive opportunities, said Rick Mueller, an analyst with Energy Security Analysis Inc. in Wakefield, Massachusetts. “There aren’t many areas with substantial reserves that are open to exploration,” Mueller said in a Feb. 2 phone interview.

Kazakhstan, Trinidad

A law enacted in Kazakhstan in November may help President Nursultan Nazarbayev’s government get a bigger share of production from Kashagan, the second-largest oilfield in the world. Patrick Manning, the prime minister of Trinidad and Tobago, the biggest supplier of liquefied natural gas to the U.S., said in October that he would review the country’s production-sharing contracts.

The U.S. is “robbing” Venezuela by paying too little for its oil, Chavez said in a Jan. 28 speech in Caracas.

In addition to raising royalties on the oil production ventures, Chavez’s government has more recently threatened to sell its U.S. refineries or renegotiate their supply contracts and started a review of 33 oil production contracts state-owned Petroleos de Venezuela SA has with foreign companies.

Energy Minister Rafael Ramirez didn’t consult the foreign oil companies that are partners with Petroleos de Venezuela in the oil ventures, according to Stephen Moore, an analyst with Moody’s Investors Service in New York. He cited the country’s 1943 oil law to justify it, Moore said in an Oct. 19 interview.

Above the Law

“No contracts are above the law,” Ramirez said at an Oct. 11 press conference in Caracas announcing the change. Ramirez was tapped this year by Chavez to head Petroleos de Venezuela in addition to the energy ministry.

Ramirez revoked a tax concession that was written into the agreements that created joint ventures in the 1990s to tap the country’s reserves of extra-heavy oil. His move raised the royalty rate on the ventures to 16.67 percent from 1 percent.

France’s Total SA, Norway’s Statoil ASA and London-based BP are partners in the heavy oil ventures along with Exxon Mobil, ChevronTexaco Corp. and ConocoPhillips, the three biggest U.S. oil companies. The tar-like extra-heavy oil they pump is processed where it is produced to make a synthetic crude oil that is easier to transport and refine.

ConocoPhillips may be the most vulnerable in Venezuela among large U.S. oil companies to changes in government policies on oil funds, according to data from Paul Sankey, an analyst at Deutsche Bank Securities Inc. in New York.

National Oil Companies

ConocoPhillips gets more than 7 percent of its oil and gas from Venezuela, the most among the large international oil companies. ChevronTexaco pumps more oil in the country, though the output there is a smaller part of total production.

What influence oil companies have in negotiating with the governments of oil producing countries comes from their ability to provide capital and technology to help boost output.

When higher oil prices leave national oil companies flush with cash, they may be more confident in their ability to go it alone, according to Catherine Arnfield, an analyst at Credit Suisse First Boston in London.

“Higher oil prices have made access to resources a major challenge” for publicly traded oil companies, Arnfield said in a Dec. 21 report.