When ExxonMobil and ConocoPhillips walked out of Venezuela last year instead of accepting radical changes to their previously agreed upon contracts, I think they could see the handwriting on the wall. As long as Chavez has influence down there, oil companies are not going to be allowed to consistently make money. If oil prices are up, he is going to demand a bigger cut. But if oil prices are down, he isn’t likely to reduce tax rates. So I think XOM and COP viewed the situation as high risk, low reward, and decided to exit instead of continue to play games with Chavez.
It should come as no big surprise to the companies who decided to stay – Chevron, BP, Statoil, and Total – that the deals they agreed to would be voided if it looked like they were going to start making money:
Venezuela to impose new tax on oil company earnings
CARACAS, March 24 (Xinhua) — Venezuela will impose a new tax on oil companies for their “unexpected earnings” from the soaring global oil prices, President Hugo Chavez said Monday.
“They’re earning money that they haven’t accounted for,” Chavez said in a speech televised Monday, adding that those large additional earnings are not “a product of any extraordinary effort.”
The government has prepared a bill outlining the tax, he said, but the tax rate has not yet been determined.
The tax will represent the fourth rise in oil taxes in as many years as part of Chavez’s drive to increase revenue from the oil industry and tighten state control over oil fields.
Over the past two years, the Venezuelan government has raised taxes for oil exploration, extraction, processing and selling to foreign companies.
This is the business climate in Venezuela: Take risks, and if there is a reward Chavez will take it. This is already hurting investment there, and I think Venezuela – after seeing an initial windfall – will see much lower revenues in the future as investment there dries up. He is employing an incredibly short-sighted strategy.
Take risks, and if there is a reward Chavez will take it. This is already hurting investment there, and I think Venezuela – after seeing an initial windfall – will see much lower revenues in the future as investment there dries up. He is employing an incredibly short-sighted strategy.
And here in the USA, we’re talking about pretty much the same idea!
“They’re earning money that they haven’t accounted for,” Chavez said in a speech televised Monday, adding that those large additional earnings are not “a product of any extraordinary effort.”
Whereas Chavez is entitled to the revenue instead because of his “extraordinary effort…”
On a more serious note, the idea that revenue must somehow be proportional to “effort” (rather than value of product) is downright ludicrous. If you believe effort is what matters, consider your reaction the next time your car mechanic tells you about all the effort he put into an unsuccessful repair and hands you a bill for $1200.
In America, the rule is, “Socialize the risk, privatize the gain.” In Chavez-land, the rule is, “Privatize the risk, socialize the gain.”
It is the world’s rotten luck that this moron Chavez takes over just as the world needs more oil. There is gobs and gobs of heavy crude in Venezuela. By some accounts, Venezuela could dwarf Saudi Arabia.
Still, there are some fascinating reports coming out of Shell on the viability of shale oil. 5 mbd?
Who says the USA cannot achieve energu independence? Between shale, the Gulf Strike, biofuels and PHEVs, I think we could export energy, if we had to.
I give the story a:
“-1 Flamebait”