The oil companies of the world are being invited by Hugo Chavez of Venezuela to participate in some projects in that country. A few short years ago he nationalized the oil fields and ousted oil companies or marginalized them however he is finding that without capital and expertise his oil production is falling. The price of oil has dropped below the cost of production and the infrastructure is in disrepair. Without the windfall profits of the past few years Chavez cannot finance the ambitious social programs and anti-American propaganda machine he has implemented in past few years. He has maintained his popularity throughout Latin America and other parts of the world through these programs and is reluctant to give any of them, and his resultant popularity up.
A surprising number of major oil companies have paid $2,000,000. each to get information on proposed projects. I would have thought that they would be reluctant to go back there after getting burned only two short years ago. This is an obvious reflection of how few major oil pools there are in the world if they have to consider going back to a jurisdiction where they are putting their capital at such risk.
The bulk of Venezuelan oil is heavy oil which is much more costly to refine. It will take years of work and billions of dollars to repair and upgrade the infrastructure and only weeks to have it taken away again through a nationalization program. If the large oil companies of the world go back to Venezuela in a large way they deserve what they get.
As an investor who has lost big time by having money invested in oil companies I find it very distasteful to have one or more of the companies I’m invested in go back there. I would surely have to rethink my investment in any company that did so.
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