A Tug-of-War in the Oil Patch

Major oil companies, facing declining output from mature fields, have been finding it difficult to increase oil and natural-gas production for some time. That task could become even trickier as countries such as Nigeria, Venezuela, Bolivia, and Russia aim to take more control over their own production.

According to news reports, Evo Morales, the president of Bolivia, told foreign oil companies on Monday they have six months to either renegotiate their contracts or leave the country. He reportedly informed the companies of this, as he ordered them to remit all natural gas and oil sales to a state-owned company. Spain's Repsol (REP) is a major player in Bolivia.

Bolivia's move follows Venezuela's, where President Hugo Chavez threatened to nationalize the Orinoco River Basin, which holds an estimated 235 billion barrels of oil. Companies that do business there include BP, Chevron, ConocoPhillips, ExxonMobil, and Total.

Back Taxes

Chevron addressed the nationalization threat in its first-quarter earnings call. Venezuela, the world's fifth-largest oil exporter, has proposed a tax rate increase to 50% from 34% on all the extra-heavy crude oil projects in the Orinoco Belt. Chevron warned that it's too early to predict the eventual outcome of the proposal. According to Chevron, the Orinoco Belt contains the largest-known hydrocarbon deposit in the world.

Chavez, who has railed against U.S. capitalism, claims that Chevron and 21 other oil companies operating there owe the country billions in back taxes and royalties. "With respect to the criteria to be used for investments--whether it be in Venezuela, or Canada, or the U.K., United States, or anywhere--we take a look at all of the components, which very much include the fiscal terms, in making our assessment as to making an investment. And the same pertain to Venezuela as well," Chevron CFO Steve Crowe said in the company's earnings conference call.

According to the Energy Information Administration [EIA], there are four major projects in the Orinoco Belt. In conjunction with the national oil company Petroleos de Venezuela, or PdVSA, ConocoPhillips is a partner in two projects, Chevron in one, ExxonMobil in one, and Total and Statoil are partners in one.

Passing Laws

Crowe also told Dow Jones that Chevron, which produces about 120,000 barrels of oil a day in Venezuela, expects output there will be reduced when a new production agreement that gives PdVSA more control of the projects, is finalized. The company may also be forced to cut its oil reserves in the country, Crowe said in the report.

According to the EIA, Venezuela passed a new hydrocarbons law, which increased royalties paid by private companies to between 20% and 30% from between 1% and 17%, and guaranteed that the PdVSA own a majority interest in any new projects. The law also changed the structure of future foreign investment to joint ventures from strategic associations.

Peru's nationalist party leader Ollanta Humala has been reported as saying he intends to nationalize the country's oil and gas industry if he wins a runoff election. According to Statfor, a global intelligence firm, Ecuador is moving to emulate Venezuela's oil policies. In Nigeria, a militant group is seeking to reap more money from oil and gas projects in the West African country and has kidnapped oil workers and shut down operations in pursuit of that goal. There are 18 foreign oil companies operating there.

Still Positive

Meanwhile, Russia, which is the world's largest exporter of natural gas, decided last year to limit foreign investment in oil projects. BP, ConocoPhillips, ExxonMobil, and Shell have projects in that country.

Despite the turbulence abroad, S&P is still positive about the outlook for several major oil companies, which operate in dozens of countries. S&P oil industry analyst Tina Vital reiterated her buy ranking on BP's American depositary receipts last week because she expects its oil and gas production to grow 3% in 2006. S&P kept a strong buy ranking on Chevron after the company reported a 9.7% increase in hydrocarbon production. S&P expects hydrocarbon production growth in 2006 to average 11%.

As for ConocoPhillips, which Vital downgraded to buy from strong buy on Apr. 27, S&P predicts production will expand by more than 30% in 2006 with contributions from Burlington Resources, which the company acquired in March.

New Production

ExxonMobil, which is ranked strong buy, reported production growth of 5.1% in the first quarter, above Vital's estimate. ExxonMobil does business in almost 40 countries. International projects should boost output growth by 13% in 2006, according to S&P estimates.

Total, ranked strong buy by S&P, is likely to have production growth of about 4% a year through 2010 with help from large international projects, particularly in Africa. Significant new production from the Dalia project in Angola is slated to come online in the fourth quarter of 2006.

Hurricane Damage

Repsol, for which S&P has a hold ranking, had to reduce its 2004 proved reserves in January by 25% overall and by 52% in Bolivia and 41% in Argentina. S&P cut its production forecast for 2006 through 2009 for Repsol because of the importance of Argentina, Bolivia, and Brazil. S&P expects less than 1% output growth in 2006 for the company, but sees the Caribbean and North Africa adding to the mix by 2009.

S&P also has a hold ranking on Royal Dutch Shell. S&P expects production growth of about 3% in 2006 and 2007. The company was hit particularly hard by the damage from hurricanes Katrina and Rita.

For Statoil, which S&P ranks as hold, flat production looks likely in 2006. However new field developments should lead to 14% growth in 2007.

Copyright © 2004 The McGraw-Hill Cos. All Rights reserved.

Related Companies
 Company: BP plcmore info


 - BP Says It Is Considering IPO of US Pipeline Assets (Jul 18)
 - Total, BP Unit, YPF Boost Investment in Argentina's Vaca Muerta (Jul 18)
 - Big Oil Sees Salvation in Gas, But What If It's a Wrong Bet? (Jul 18)
 Company: Exxon Mobil Corporationmore info


 - Exxon Fined for Russia Sanctions Violations Under Tillerson (Jul 20)
 - Big Oil Sees Salvation in Gas, But What If It's a Wrong Bet? (Jul 18)
 - ExxonMobil Says Will Drop Discussions Over Indonesia's East Natuna (Jul 18)
 Company: Shellmore info


 - BP Says It Is Considering IPO of US Pipeline Assets (Jul 18)
 - Top Oil Market Summons Poseidon to US-Mideast Crude Fight (Jul 18)
 - Big Oil Sees Salvation in Gas, But What If It's a Wrong Bet? (Jul 18)
 Company: Statoilmore info


 - Greenpeace Activists Protest Near Oil Rig In Norway's Arctic Sea Area (Jul 21)
 - Canada's LNG Failure Is Its Own Fault, Seven Gen Founder Says (Jul 17)
 - Suriname Signs Offshore Oil Deals with Exxon, Hess and Statoil (Jul 14)
 Company: Total S.A.more info
 - Total, BP Unit, YPF Boost Investment in Argentina's Vaca Muerta (Jul 18)
 - Big Oil Sees Salvation in Gas, But What If It's a Wrong Bet? (Jul 18)
 - S.Korea's Hanwha Total Says Naphtha Cracker Shut After Lightning Strike (Jul 17)
 Company: ConocoPhillipsmore info


 - ConocoPhillips to Sell Barnett Assets for $305 Million (Jun 29)
 - ConocoPhillips To Lay Off 300 In Canada After Cenovus Deal (May 4)
 - ConocoPhillips Posts Surprise Loss On Higher-Than-Expected Costs (May 2)
 Company: Chevron Corporationmore info
 - Mexico Delays Next Oil Auction to Let Huge New Find Sink In (Jul 17)
 - White House Is Said to Be Unlikely to Restrict Venezuelan Crude (Jul 7)
 - Oil Producers' Cost-Cutting Swept Away by New Price Decline (Jun 30)
 Company: PDVSAmore info


 - Court Orders PDVSA to Allow Sale of Oil at Sovcomflot's Request (Jul 18)
 - Venezuela's PDVSA Guarantees Investor Security Amid Uncertainty (Jul 10)
 - White House Is Said to Be Unlikely to Restrict Venezuelan Crude (Jul 7)
 Company: Repsol more info
 - SBM Offshore, Repsol to Get $247 Million in Yme Insurance Settlement (Jul 17)
 - Repsol Sinopec Flows First Oil from North Sea Shaw Field (May 9)
 - Spain's Repsol Aims To Cut Debt By A Further 16% In 2017 (Feb 23)
 Company: Burlington Resourcesmore info
 - Repsol Finds Gas in Peru's Block 57 (Jan 14)
 - Burlington Signs E&P Contracts for Blocks 123, 124 (Oct 2)
 - ConocoPhillips Reports Q2 Net Income of $5.2 Billion (Jul 26)
Events  SUBSCRIBE TO OUR NEWSLETTER

Our Privacy Pledge
SUBSCRIBE


Most Popular Articles


From the Career Center
Jobs that may interest you
Mechanical Eng
Expertise: Operations Management
Location: Industry, TX
 
Intelligence & Risk Assessment Analyst
Expertise: Legal|Risk Management
Location: San Ramon, CA
 
Substation Compliance (PRC) Analyst Job
Expertise: Business Analyst|Regulatory Compliance
Location: Denver, CO
 
search for more jobs

Brent Crude Oil : $48.06/BBL 2.51%
Light Crude Oil : $45.77/BBL 2.17%
Natural Gas : $2.97/MMBtu 2.30%
Updated in last 24 hours