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Oil-Rich Countries Demand Bigger Share Bolivia Leads Charge Against Companies

Posted on: Tuesday, 5 July 2005, 12:01 CDT

For centuries, this country made it easy for prospectors to mine, from the Spaniards who plundered gold to the tin barons of the 19th century to the multinational energy companies that flocked here in the 1990s to develop the second-largest natural gas deposits in Latin America. But like many energy-producing countries these days, Bolivia has pulled up the welcome mat. With an angry population demanding more of a share of the wealth, and some groups even calling for outright expropriation, the government recently raised royalties and taxes to among the highest levels in Latin America. It would appear to be an exceptional episode of revolutionary zeal translated into energy policy. But Bolivia is just the latest in a series of oil- and gas-rich countries in Latin America and elsewhere that are squeezing energy companies like never before. With prices of crude oil and natural gas at record highs, and ideology increasingly propelling government policy makers, countries are demanding a larger slice of the pie. In some cases, they are unilaterally canceling long-term contracts that gave energy companies highly favorable terms. "They think that since there is more revenue coming in, they can take a much harder line in negotiations," said Lawrence Goldstein, president of the Petroleum Industry Research Foundation, an industry-financed group in New York. "In some cases, they don't even need to negotiate." Many of the world's giant energy producers, among them Saudi Arabia, Kuwait, Iran and Mexico, play no role in the trend since their state-owned companies either fully control or dominate production. But Russia, Venezuela, Kazakhstan, Nigeria and Algeria, together accounting for 20 percent of the global supply but dependent on foreign and private domestic companies, are another story. They are among the countries that are tightening the terms sending a message that has reverberated in the industry at a time when supplies are as tight as a drum. Some industry representatives call the terms a chokehold that will slow investments, just as the world needs more oil to lower prices. "Both the tighter terms and the fluidity of contract terms will cause companies to second-guess further investment," said Michelle Billig of PIRA Energy Group, a New York consulting firm. "The willingness of countries to change the terms halfway through the project complicates any type of investment decision because you don't know what terms you're going to have at the end of the project." To governments, though, the squeeze is justified because of the huge amount of money that oil companies are generating. A barrel of oil traded above $60 last week before settling Monday at $57.94. Natural gas, which has doubled in price in the United States in five years, is in high demand everywhere. "They've never had earnings of this order," said Victor Poleo, a left-leaning oil economist in Venezuela. "So this awakens an insatiable appetite in governments for that income." The increasing prices have been a windfall for oil companies, which are registering record profits. Exxon Mobil saw profit jump 44 percent to $7.86 billion in the first quarter this year, while Royal Dutch/Shell's profit climbed 28 percent. The combined net income of the four biggest oil companies Exxon Mobil, British Petroleum, Shell and ConocoPhillips increased 39 percent from a year earlier, the companies reported in April. Indeed, Exxon Mobil's revenue for the first quarter $82.05 billion is nearly as much as the $107 billion gross domestic product in Venezuela, which supplies much of its crude to the United States. The big profits are not lost on people like Abel Mamani, the leader of Fejuve, an influential antiglobalization group in Bolivia that has led the charge against oil companies. Angry protests against the country's energy policies have already led two presidents to resign in 20 months. The latest resignation came last month after the Congress sharply raised taxes on foreign energy companies, but not enough to placate some groups. The protests continued and there was talk of nationalization. "This is a necessity," Mamani said. "We are tired of these companies taking advantage of our resources." Energy analysts say such a hard line could backfire in struggling countries like Bolivia and Ecuador, where energy reserves are large but the industry still needs to be developed. Repsol YPF, a Spanish energy giant whose Bolivia holdings account for a small amount of worldwide production, has publicly said that it was considering legal action against Bolivia for changing contracts. "The problem in Bolivia is companies are just now making investment," said Ed Miller, the president of Gas TransBoliviano, a pipeline group owned in part by Shell, Petrobras and British Gas. "So this is going to have disastrous effects in the long term." In a sense, companies are captives of their own success. Big oil may have invested billions in challenging sites, like Venezuela's Orinoco Belt or the Caspian Sea in Central Asia, but now they are reaping the benefits.

They are not likely to abandon those projects now. Nor do they have many options for new investments, since many of the top energy- producing countries restrict foreign investment. "There are very few countries with attractive reserves that are open to foreign investment," said Billig of PIRA Energy. "Those which are open recognize their bargaining power."

Source: International Herald Tribune

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