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Venezuela’s Slide Continues

At this point, you have to wonder who in their right mind will ever do business in Venezuela again as long as Chavez is in power. The risk that Chavez will steal your property is simply too great. During his administration, Chavez has seized phone companies, electric utilities, private real estate (just this week he ordered seizure of a private shopping mall), oil field investments, mines, steel plants, food processing plants, farms, (shades of Mugabe) and cement plants – to name a few.

Now this week he has stolen the assets of oil field services companies:

Venezuela Seen Paying Price for Chavez Expropriation of Oil Contractors

In the wake of the seizure of foreign and domestic oil service companies and assets by armed troops following the orders of Venezuelan President Hugo Chavez, experts began to count the cost to Venezuela — which holds the Western Hemisphere’s largest oil reserves — in lost oil production, lost jobs, lost foreign investment and lost foreign expertise.

This one is ironic, because he was “forced” to seize these assets based on his miscalculations on his previous thefts. Let me explain. In 2007, when oil prices were rising, the heavy oil investments of ExxonMobil and ConocoPhillips (Full disclosure: My former employer) finally began to pay off. It is very expensive to extract and process the heavy oil from the Orinoco Belt in Venezuela. It requires a lot of capital investment and significant expertise, but it also doesn’t pay off until oil prices rise. But when oil prices did rise and Chavez saw the goose start to lay golden eggs, he decided to seize the goose for himself. The problem is that Chavez doesn’t know how to care for a goose, so what has happened in the wake of these seizures should come as no surprise.

It was bad enough that oil production has fallen sharply under the Chavez regime. The reasons for that are simple enough, and have been covered here before. In a nutshell, the issue is this: It takes a lot of capital to maintain the heavy oil business, and Chavez was siphoning off profits to pay for his social programs. Now some (extreme-leftist) people might think that’s just great, but the only reason any money was there to siphon off was due to the high investments to begin with. By not reinvesting back into the business, Chavez set the stage for the plunging oil production we see now – but now the goose is on life-support so there will no longer be money for those social programs.

Much higher oil prices for a while dampened the blow of falling production, but once oil prices started to fall, plunging revenues became a real problem. You would think he would have saved some money for a rainy day, but he is just like that irresponsible person who spends their entire paycheck every week, no matter how much money they make. Although I guess you don’t have to save for a rainy day if you are willing to just rob a bank when the rainy day comes.

But first, he had the bright idea to invite Western oil companies back in to invest again. Surely they can let bygones be bygones? Apparently not, because there doesn’t seem to be a rush to come back in. After all, does anyone doubt that Chavez will steal the investments as soon as prices/production turn back up?

This all leaves Chavez in a bind. He hasn’t made the investments that he needs to make, and nobody else is doing it for him. Production and prices are falling, and he has social programs to pay for. Debt started to pile up with oil services companies, and Chavez demanded lower prices from them. Given that he simply has no money for investment, he does what he always does. Threaten and then steal when he doesn’t get what he wants:

Venezuela’s Oil Production Squeezed by Chavez’s Heavy Hand

Chavez’s government and seized the assets of 60 foreign and domestic oil service companies after conflict erupted over nearly $14 billion in debt owed by the country’s state-owned energy company, Petroleos de Venezuela (PDVSA).

Irate over a growing backlog of invoices, many of the companies threatened to halt operations – something PDVSA and Chavez can ill-afford. The company accounts for about half of Venezuela’s revenue, and is largely responsible for funding and administering the social programs that Chavez has employed to court popular support.

PDVSA brought in more than $120 billion in revenue in 2008, but this year, it will likely make just $50 billion. With its back against the wall, PDVSA is demanding that service companies accept a 40% cut in their bills. Last Friday, the government began expropriating equipment and projects from foreign oil service firms that refused to renegotiate their debt. At least 12 drilling rigs, more than 30 oil terminals, and about 300 boats were seized, the according to The Financial Times.

But the brash gesture will also bring negative consequences that could significantly jeopardize the nation’s oil production, which is already in decline.

“PDVSA has to invest in the business,” James L. Williams, heads of oil consultancy WTRG Economics told BusinessWeek. “You have to feed a cow if you expect it to give milk.”

Hey, this is about geese and golden eggs, not cows and milk. But, point taken. The fact is that Chavez continues Venezuela’s slide toward becoming Zimbabwe. One wonders if he truly lacks the ability to plan, or was just too stupid to see the consequences of this road he has chosen to go down. The only thing that can save him at this point will be for oil prices to go up. Ironically, that’s the same thing I would like to see happen, but if we are lucky Chavez will be ousted before prices get much higher. Then again, if production continues to fall it won’t matter how high prices go; they won’t be able to offset the drops in production.

Chavez is now rattling sabers with Coca-Cola, so don’t be surprised if they go down next. Seriously, I don’t know why we don’t just seize Citgo as a response, auction off the refineries, and then pay damages to those whose assets have been expropriated. Chavez has said he doesn’t want to operate in the U.S., so we should extend a helping hand. It is the least we could do.

May 16, 2009 Posted by | Citgo, ConocoPhillips, ExxonMobil, Hugo Chavez, PDVSA, Venezuela | 76 Comments

I’m in the Wrong Business

Update: As Maury pointed out in the comments, Chavez has reconsidered:

Venezuelan-owned Citgo Petroleum, which had earlier indicated it might end a home heating oil assistance program for low-income Americans, yesterday said it had decided to continue the program.

Joseph P. Kennedy II, chairman of Citizens Energy, said yesterday that the renewal of the program was evidence of Venezuelan President Hugo Chávez’s “genuine concern for the most vulnerable, regardless of where they may live.”

Does that mean that he was no longer concerned for those people when he cancelled the program? With comments like that, Joe Kennedy’s $400,000 salary won’t be in jeopardy.

——————————

You may have seen the recent announcement that Hugo Chavez is cutting off the free heating oil for low income residents in the Northeast:


Citgo Stops U.S. Oil Gifts in Sign Chávez Feels Pain

Citgo Petroleum Corp., the U.S. refiner owned by the Venezuelan government, will suspend charitable contributions of home heating oil to poor U.S. households — a sign that falling oil prices may hamstring Venezuelan President Hugo Chávez, whose administration has used an oil windfall to win voters’ loyalty at home and allies abroad.

In a surprise announcement, former U.S. Rep. Joseph P. Kennedy II said Venezuela would stop deliveries to his Boston-based nonprofit, Citizens’ Energy, which last winter received $100 million of fuel that was distributed throughout the Northeast. Mr. Kennedy said Citgo cited falling oil prices and the world economic crisis for forcing the company “to re-evaluate all of its social programs.” Neither Citgo nor the Venezuelan government had any comment.

That alone is an interesting story. Chavez has siphoned money away from the oil industry in order to pay for social programs, which has resulted in underinvestment that will eventually come back to haunt him. (See this story that I wrote last year highlighting the issues). To this point, high oil prices have been a blessing for him, but falling production and low oil prices are combining to put the squeeze on Chavez.

But that isn’t the point of this essay. In a discussion on this at The Oil Drum, someone linked to a bit of additional information:


Chavez, Joe Kennedy and Oil Math

It’s hard to avoid the commercials starring former Congressman Joseph Kennedy II explaining how friendly Venezuela and Hugo Chavez are to the American people. After all Chavez and Kennedy are bringing relief to the poor people of America who suffer under the evil tyranny of high fuel costs. However, reality has a tendency to get in the way of press events for Citgo and Citizens Energy Corporation such as the scenes of Joe Kennedy driving up to house in a Citgo truck to deliver 40% cheaper heating oil from his “not-for-profit energy company.” The last thing anyone involved in this program wants is for someone to look behind the curtain.

First, Citizens Energy Corporation is not the organization that is directly involved with the program. Rather, one has to first look to a holding company, which is a for-profit and wholly owned subsidiary of Citizens Energy’s called Citizens Enterprises Corporation: first, eighty-six percent of Mr. Kennedy’s over $400,000 annual salary comes from this organization.

It’s always been a pet peeve of mine when ‘charities’ pay outrageous salaries to their employees. If I send a charity a check, I really don’t want it paying for a vacation home in France. $400,000? Are you kidding me? Poor Joe may have to take a pay cut and join so many others who have been impacted by the economic turmoil.

I have always heard that if you want to get rich, you should start your own religion. But it looks starting your own charity can also offer up a path to riches. Now, if I can just come up with a catchy name…

January 7, 2009 Posted by | Citgo, Hugo Chavez, Joseph Kennedy, Venezuela | 42 Comments

Attempting the Impossible

I ran across the following today:

Our view on gasoline prices: With crude at $100 a barrel, Big Oil needs no tax breaks

It’s difficult — make that impossible — to justify taxpayer subsidies for an industry whose top five companies made $123 billion in profits last year. Oil at $100 a barrel ought to be plenty of incentive to drill without extra encouragement from taxpayers.

OK, sounds like a challenge. I will accept. First off, does it matter how much capital is being invested to make those returns? What if the required investments are 10 times that $123 billion? What if another industry – like say Hollywood studios – makes much higher profit margins, yet qualifies for exactly the same tax deduction? Does that make a difference? No? Is it just because $123 billion is a big number? How big should it be? What should the allowed return be to justify the cost and risk of building a floating city in the ocean? And what is the justification for denying the tax deduction to the largest companies of a single industry?

Is it really fair to exempt Citgo, after Hugo Chavez has already seized investments of U.S. companies? Believe it or not, these same companies whose investments Chavez has seized (COP and XOM) are being singled out for more punitive measures by a pandering Congress, while a Venezuelan oil company operating in the U.S. would continue to receive the tax deduction.

Further, with oil at $100 a barrel, understand that all costs associated with drilling have rapidly increased. Should that matter? Or does is still just boil down to $123 billion is so gosh-darned big? Well, get your mind wrapped around the capital expenditures. They also dwarf those of other industries. Should it matter that these projects take many years to bring to fruition, and yet politicians attempt to change the rules every year? If you are an oil company CEO, is it more likely or less likely that you will make marginal investments in the U.S. – given the uncertainty that the law will remain constant?

I have to agree with the OMB:

“The administration must strongly oppose” the legislation, the Office of Management and Budget said Tuesday, “because the bill would use the tax code to target tax increases on a specific industry in a way that will lead to higher energy costs to U.S. consumers and businesses.”

But here’s the political spin:

Rep. Rahm Emmanuel (D-Ill.) said “Americans are being asked to pay twice” — once at the gasoline pump and then through tax subsidies to the oil companies.

Are they really being asked to pay twice? Don’t oil companies pay far, far more in tax revenues than this little tax break? Sounds to me like oil companies are being asked to pay twice. And I guess that you also forgot that if your argument is true, Americans are paying three times. The government take from gasoline sales is huge – so you apparently forgot that payment. But I am sure politicians aren’t eager to highlight that point.

And if it is really this simple:

Supporters of the measure noted that rescinded tax breaks would amount to less than 2 percent of the profits of the five biggest oil companies. Even if the companies were to pass along that entire cost to gasoline consumers, it would amount to about a penny a gallon.

– then I have an idea. Raise gas taxes by a penny a gallon. My guess is that this would have much less opposition. But this isn’t really about the money. This is just politicians playing games and pandering for the public.

April 2, 2008 Posted by | Citgo, energy policy, Hugo Chavez, oil companies, politics, Venezuela | 443 Comments

Exxon Freezes Venezuelan Assets

This came as a surprise to me:

Exxon wins freeze on $12 billion of Venezuelan assets

NEW YORK (Reuters) – Exxon Mobil Corp has won court orders freezing up to $12 billion in Venezuelan assets around the world as it fights for compensation for operations lost to President Hugo Chavez’s nationalization drive.

The largest U.S. company sought the asset freeze to guarantee repayment should it win arbitration over the Cerro Negro heavy oil project.

The move is the boldest challenge yet by an international oil major against any of the governments around the world that have moved to increase their holds on natural resources as energy and commodity prices have soared.

“To me it sounds like a very aggressive tactic,” said Stephen Zamora, professor of international law at the University of Houston Law Center.

“I can’t really say that I’m aware this has been used in other investment disputes. They may be trying to get the government to settle.”

Does not bode well for Chavez and company. I am beginning to think I may get some of my money back that Chavez has stolen (as I am a shareholder of one of the companies whose assets were seized):

The news comes as a tough blow to Chavez, who suffered a stinging defeat in a December referendum that would have let him run indefinitely for reelection and enshrine socialism as the OPEC nation’s economic system.

PDVSA is already facing growing debt and increasing operational problems that analysts attribute to underinvestment caused by the company’s massive contributions to Chavez’s social programs.

Amy Meyers Jaffe, energy policy researcher at Rice’s Baker Institute, said the case could have far-reaching implications.

“These are precedents that are going to be important for what people can and cannot do in the oil industry,” she said.

I have been suggesting that we should go after Venezuela’s Citgo refineries in the U.S. as compensation for the stolen assets. Looks like that may not be out of the realm of possibility. Of course given the news that Citgo is cutting maintenance to save money, such a move would be better sooner rather than later.

Update: Additional coverage from CNN – Exxon to freeze $12B in Venezuelan assets

“On Jan. 24, the High Court of England and Wales was satisfied that there is a real risk that PdVSA will dissipate its assets and accordingly entered a Worldwide Freezing Order ex parte,” Exxon said in the filing to the New York court. The order prohibits PdVSA from “disposing of its assets worldwide up to a value of $12 billion whether directly or indirectly held.”

Venezuela will pay two European oil companies that were partners in other Orinoco heavy oil projects less than half the estimated market value of their stakes, according to a copy of the compensation agreement reviewed by Dow Jones Newswires.

That agreement offers an inkling of what ExxonMobil and ConocoPhillips could be expecting as they carry on compensation talks with PdVSA.

February 8, 2008 Posted by | Citgo, ExxonMobil, Hugo Chavez, Venezuela | 118 Comments

Chavez Had Me Fooled

It seems I have been wrong about Hugo Chavez. I had thought the man didn’t have a clue about the oil business. While companies like ConocoPhillips were pulling in $15.5 billion profits*, they were investing $15.3 billion back into the business. Chavez, on the other hand, was siphoning off the profits of the national oil company of Venezuela, PDVSA, and spreading them among the public in support of his socialist platform. (Shame on those who complain about food shortages). Some, like me, probably thought “A few years of this, and he won’t have any oil profits to spread among the public.” How little I understood of his master plan.

You see, at first glance it does seem like his strategy is backfiring, as PDVSA is reportedly “facing growing operational problems” because of its failure to focus on its core business. It seemed like Chavez was running the business into the ground, as if Oil Watchdog had suddenly started to run the show. But that was before I read a story yesterday that revealed the man’s brilliant strategy:

Citgo cuts hundreds of Louisiana contractors-sources

HOUSTON, Jan 17 (Reuters) – Citgo Petroleum Corp cut more than 500 contract maintenance workers in late December at its Louisiana refinery as part of a program to increase returns to corporate parent Venezuelan state oil company PDVSA, according to sources familiar with the company’s refinery operations.

PDVSA is a key revenue generator financing Venezuelan President Hugo Chavez’s social development programs, but has drawn criticism for ignoring operational problems that have reduced oil and refined product output in Venezuela.

“Citgo wants to send 100 percent of what it makes to Venezuela,” said a source. “They’re only spending what’s needed to meet legal and regulatory obligations.”

It’s sheer genius. The profits from the oil company operations can be used to pay for social programs, and then the savings from job cuts in the refinery can be used to fund the oil company operations. Oh sure, there are naysayers, even internally:

Without the contractors, preventative maintenance at the refinery may fall off, the sources said.

“I don’t see how effective a maintenance program can be if you’re just chasing urgent jobs,” said a source.

PDVSA sources have told Reuters of similar problems at the company’s Venezuela-based refineries, lamenting the fact the company is carrying out “corrective maintenance” rather than “preventative maintenance.”

I say to these people “Don’t be so pessimistic!” After all, it is “preventative maintenance.” It’s like wearing your seat belt or motorcycle helmet: No accident, no problem. Besides, things don’t go wrong at refineries.

No, I was wrong about Chavez. He is clearly a misunderstood genius in the spirit of Vincent van Gogh. Stand back and let the man create a masterpiece.

Note: I do own ConocoPhillips stock, and I still don’t care for Hugo Chavez. It’s going to take more than a few maintenance cuts to impress me. After all, does he really need all of those operators and engineers scurrying about?

January 18, 2008 Posted by | Citgo, ConocoPhillips, Hugo Chavez, oil refineries, PDVSA, Venezuela | 74 Comments

Expropriating Venezuela’s Refineries

You heard it here first. Two months ago, I wrote Let’s Confiscate Venezuela’s U.S. Refineries. Looks like I may not have been too far off the mark, as others have started thinking along the same lines:

Citgo assets may be at risk in arbitration: Experts say ConocoPhillips, Exxon Mobil could seek Venezuela’s refineries in U.S.

Maybe those “experts” have been reading my blog. 🙂

Here are some excerpts:

ConocoPhillips and Exxon Mobil Corp. could hold a powerful card to make Venezuelan President Hugo Chavez bet his country’s sizable American assets in the high-stakes nationalization of the Venezuelan oil industry, experts say.

The Citgo subsidiary of Venezuela’s national oil company has five refineries in the U.S. experts say could be targeted for seizure if a stalemate prompts one or both U.S. oil majors to seek recompense through international arbitration.

Now, before some of the communist/socialist lurkers get bent out of shape, I say again that my issue is not that we are entitled to Venezuela’s oil. My issue is that oil companies were invited in under certain terms, signed contracts, and after investing billions on the ground, had their assets expropriated. Since these companies can’t exactly pick up their property and take it with them, Chavez has them over a barrel and can make outrageous demands, which he has been doing (as I show below). If he wants to compensate the companies at fair market value for their investments, then I have no complaints. He can cut all the deals with Russia and China that he wants, and hope they can manage those heavy oil assets for him.

I can’t speak for the other companies involved, but these are certainly not terms I could have agreed to:

A lawyer familiar with the negotiations told the Chronicle that the companies — ConocoPhillips, Exxon Mobil, Chevron Corp., Britain’s BP, France’s Total and Norway’s state-controlled Statoil — were offered essentially the same deal. PDVSA gave them veto power over investment decisions but said they would not have the right to seek international arbitration over future disputes, the lawyer said.

Think about that. In the future, Chavez decides to up his take from the projects. Yet you have given up your right to seek international arbitration. Nah, I will pass on that option given the past actions of Chavez.

“The government of Venezuela owns significant assets in the United States through Citgo, as well as significant resources that move through the U.S. financial system,” said Jose Valera, a partner with King & Spalding in Houston. “These are assets that could conceivably be subject to an arbitration award.”

PDVSA took majority interest in four projects, valued at about $30 billion, which had been operated by Exxon Mobil, ConocoPhillips, Chevron and Total. BP and Statoil were already minority partners.

That’s the sticking point. The projects are valued at $30 billion, but Chavez wants to pay far less than that. He doesn’t want to pay market value. He is like a gambler who changes his bet after he sees which way the game is going. The oil companies took the risks, and now Chavez wants the rewards. Do you think he would have stepped forward with billions had the risks not paid off?

ConocoPhillips said last week that while it hopes compensation talks succeed, it has preserved all legal rights, including international arbitration. In the meantime, the company said it expects to write off $4.5 billion, or its entire interest in three Orinoco projects, in its second-quarter results.

Yes, it is in fact personal. Chavez has his hand in my pocket. If he steals my wallet, I reserve the right to take him to arbitration and get some compensation. One or more of his refineries would be nice compensation. I believe the COP projects are valued in the neighborhood of $10 billion. It is not clear whether the $4.5 billion write off mentioned above means that COP think they will get $5.5 billion, or whether they only value the projects at $4.5 billion (the $10 billion estimate came from outside analysts).

But the U.S. companies’ focus is turning toward compensation, Sira said. They want it based on the market value of their operations, while the Venezuelan government has said it would pay what the companies put into the assets rather than what they would sell for.

If Venezuela refused to honor such an award, a U.S. judge could issue an enforcement order to seize PDVSA U.S. assets, which could include refineries, cash in bank accounts or accounts receivable.

“The moment you hear someone sniffing around, looking into your bank accounts, you can pull that out,” Barajas said. “With a hard asset, that’s just game, set, match. You know where it is. It’s not going anywhere.”

Of Citgo’s refineries, three process fuels while two process asphalt. Earlier this year NuStar Energy, a spinoff of Valero Energy Corp., put in a bid to buy the asphalt plants, but no sale has been announced.

Maybe we can work out a deal here. Our oil companies will stay out of Venezuela, and Chavez can stay out of the lucrative U.S. market by giving up his refineries here. I would be happy with that option.

This is an essay that is sure to bring out the trolls, as some see Chavez as the champion of the little guy. They don’t think criticism of Chavez is warranted. I would point out, though, that without the massive investments that have been made by U.S. oil companies into his country, Chavez wouldn’t be able to carry out his social revolution. Ironic, isn’t it?

If you want to have a rational discussion on the subject, I am open to that. If you want to spew rabid froth, I can delete those non-productive comments as quickly as you can post them (although I have only ever had to do that twice).

July 2, 2007 Posted by | Citgo, ConocoPhillips, ExxonMobil, Hugo Chavez, oil companies, oil refineries, Venezuela | 63 Comments

Expropriating Venezuela’s Refineries

You heard it here first. Two months ago, I wrote Let’s Confiscate Venezuela’s U.S. Refineries. Looks like I may not have been too far off the mark, as others have started thinking along the same lines:

Citgo assets may be at risk in arbitration: Experts say ConocoPhillips, Exxon Mobil could seek Venezuela’s refineries in U.S.

Maybe those “experts” have been reading my blog. 🙂

Here are some excerpts:

ConocoPhillips and Exxon Mobil Corp. could hold a powerful card to make Venezuelan President Hugo Chavez bet his country’s sizable American assets in the high-stakes nationalization of the Venezuelan oil industry, experts say.

The Citgo subsidiary of Venezuela’s national oil company has five refineries in the U.S. experts say could be targeted for seizure if a stalemate prompts one or both U.S. oil majors to seek recompense through international arbitration.

Now, before some of the communist/socialist lurkers get bent out of shape, I say again that my issue is not that we are entitled to Venezuela’s oil. My issue is that oil companies were invited in under certain terms, signed contracts, and after investing billions on the ground, had their assets expropriated. Since these companies can’t exactly pick up their property and take it with them, Chavez has them over a barrel and can make outrageous demands, which he has been doing (as I show below). If he wants to compensate the companies at fair market value for their investments, then I have no complaints. He can cut all the deals with Russia and China that he wants, and hope they can manage those heavy oil assets for him.

I can’t speak for the other companies involved, but these are certainly not terms I could have agreed to:

A lawyer familiar with the negotiations told the Chronicle that the companies — ConocoPhillips, Exxon Mobil, Chevron Corp., Britain’s BP, France’s Total and Norway’s state-controlled Statoil — were offered essentially the same deal. PDVSA gave them veto power over investment decisions but said they would not have the right to seek international arbitration over future disputes, the lawyer said.

Think about that. In the future, Chavez decides to up his take from the projects. Yet you have given up your right to seek international arbitration. Nah, I will pass on that option given the past actions of Chavez.

“The government of Venezuela owns significant assets in the United States through Citgo, as well as significant resources that move through the U.S. financial system,” said Jose Valera, a partner with King & Spalding in Houston. “These are assets that could conceivably be subject to an arbitration award.”

PDVSA took majority interest in four projects, valued at about $30 billion, which had been operated by Exxon Mobil, ConocoPhillips, Chevron and Total. BP and Statoil were already minority partners.

That’s the sticking point. The projects are valued at $30 billion, but Chavez wants to pay far less than that. He doesn’t want to pay market value. He is like a gambler who changes his bet after he sees which way the game is going. The oil companies took the risks, and now Chavez wants the rewards. Do you think he would have stepped forward with billions had the risks not paid off?

ConocoPhillips said last week that while it hopes compensation talks succeed, it has preserved all legal rights, including international arbitration. In the meantime, the company said it expects to write off $4.5 billion, or its entire interest in three Orinoco projects, in its second-quarter results.

Yes, it is in fact personal. Chavez has his hand in my pocket. If he steals my wallet, I reserve the right to take him to arbitration and get some compensation. One or more of his refineries would be nice compensation. I believe the COP projects are valued in the neighborhood of $10 billion. It is not clear whether the $4.5 billion write off mentioned above means that COP think they will get $5.5 billion, or whether they only value the projects at $4.5 billion (the $10 billion estimate came from outside analysts).

But the U.S. companies’ focus is turning toward compensation, Sira said. They want it based on the market value of their operations, while the Venezuelan government has said it would pay what the companies put into the assets rather than what they would sell for.

If Venezuela refused to honor such an award, a U.S. judge could issue an enforcement order to seize PDVSA U.S. assets, which could include refineries, cash in bank accounts or accounts receivable.

“The moment you hear someone sniffing around, looking into your bank accounts, you can pull that out,” Barajas said. “With a hard asset, that’s just game, set, match. You know where it is. It’s not going anywhere.”

Of Citgo’s refineries, three process fuels while two process asphalt. Earlier this year NuStar Energy, a spinoff of Valero Energy Corp., put in a bid to buy the asphalt plants, but no sale has been announced.

Maybe we can work out a deal here. Our oil companies will stay out of Venezuela, and Chavez can stay out of the lucrative U.S. market by giving up his refineries here. I would be happy with that option.

This is an essay that is sure to bring out the trolls, as some see Chavez as the champion of the little guy. They don’t think criticism of Chavez is warranted. I would point out, though, that without the massive investments that have been made by U.S. oil companies into his country, Chavez wouldn’t be able to carry out his social revolution. Ironic, isn’t it?

If you want to have a rational discussion on the subject, I am open to that. If you want to spew rabid froth, I can delete those non-productive comments as quickly as you can post them (although I have only ever had to do that twice).

July 2, 2007 Posted by | Citgo, ConocoPhillips, ExxonMobil, Hugo Chavez, oil companies, oil refineries, Venezuela | 120 Comments

Let’s Confiscate Venezuela’s U.S. Refineries

I recall reading this story a while back:

Chavez Considers Sale of U.S. Refineries

The implications just sank in today. Chavez, having confiscated the property of U.S. companies and torn up contracts, has property here in the U.S. Why don’t we just confiscate Venezuela’s Citgo refineries as compensation, or make them sell the refineries for half price? Isn’t turnabout fair play? From the article above:

“Not one Venezuelan works at these refineries,” Chavez said in Buenos Aires yesterday, according to Venezuela’s Communication and Information Ministry. “They don’t give us one cent of profit. They don’t pay taxes in Venezuela. This is economic imperialism.”

Citgo Petroleum Corp., the U.S. fuel-making unit of Petroleos de Venezuela, owns four U.S. oil refineries and two asphalt plants, with a combined daily crude processing capacity of 756,000 barrels. The company also operates a 265,000 barrel-a- day refinery in Houston that’s a joint venture with Lyondell Chemical Co. and has more than 13,500 U.S. retail fuel outlets.

Well, I think I have a solution. The U.S. will just take those refineries off your hands, in the same way that you have confiscated investments that were made by U.S. companies in your country.

On that topic, Jim Mulva was recently interviewed by Financial Times:

Conoco holds out on Venezuela terms

Jim Mulva, chief executive of ConocoPhillips, the third largest US oil company, is holding out against the terms under which Venezuela is expropriating the company’s oil assets and the commercial terms under which they will be managed.

Mr Mulva said the sticking points related to the fact that Conoco invested in the country’s energy projects but is now being left with less than it originally paid for.

As I have pointed out before, it’s not the nationalization I have a problem with. It’s the theft of the infrastructure that the companies built. It is that the nationalization followed companies (and not just U.S. companies) being invited in to invest billions in the development of Venezuela’s heavy oil fields. Venezuela could not afford to do it themselves, as this is very expensive. After the investments starting paying off, Chavez tore up the contracts, demanded a majority position, and doesn’t want to compensate the companies. As I wrote over at The Oil Drum:

It won’t take too long before everything is nationalized, and he has no more coffers to plunder and then must count on the revenue from the industries he has already plundered. Then, to his chagrin he finds that they aren’t producing like they used to, because he hasn’t invested in the infrastructure. But some people have this fairy-tale vision where he is just looking after the poor. That wouldn’t even be possible if not for the investments the oil companies have already made. And with his threat today to nationalize the banks, I think companies are going to be very cautious about investing money in Venezuela.

But, since he has assets in the U.S., maybe that’s a bargaining chip. And it is one I haven’t heard anyone mention in this context.

Disclaimer: I am not a disinterested party here. I own shares in one of the companies whose assets have been seized. (Then again, so do most people with a pension fund, 401K, etc.) So maybe we demand Citgo as compensation. If this goes to arbitration, that would be a position I might take. Or, to prevent it from going to arbitration, maybe Chavez might we willing to trade some U.S. refineries for assets on the ground in Venezuela.

May 7, 2007 Posted by | Citgo, ConocoPhillips, Hugo Chavez, oil companies, oil refineries, Venezuela | 65 Comments

Let’s Confiscate Venezuela’s U.S. Refineries

I recall reading this story a while back:

Chavez Considers Sale of U.S. Refineries

The implications just sank in today. Chavez, having confiscated the property of U.S. companies and torn up contracts, has property here in the U.S. Why don’t we just confiscate Venezuela’s Citgo refineries as compensation, or make them sell the refineries for half price? Isn’t turnabout fair play? From the article above:

“Not one Venezuelan works at these refineries,” Chavez said in Buenos Aires yesterday, according to Venezuela’s Communication and Information Ministry. “They don’t give us one cent of profit. They don’t pay taxes in Venezuela. This is economic imperialism.”

Citgo Petroleum Corp., the U.S. fuel-making unit of Petroleos de Venezuela, owns four U.S. oil refineries and two asphalt plants, with a combined daily crude processing capacity of 756,000 barrels. The company also operates a 265,000 barrel-a- day refinery in Houston that’s a joint venture with Lyondell Chemical Co. and has more than 13,500 U.S. retail fuel outlets.

Well, I think I have a solution. The U.S. will just take those refineries off your hands, in the same way that you have confiscated investments that were made by U.S. companies in your country.

On that topic, Jim Mulva was recently interviewed by Financial Times:

Conoco holds out on Venezuela terms

Jim Mulva, chief executive of ConocoPhillips, the third largest US oil company, is holding out against the terms under which Venezuela is expropriating the company’s oil assets and the commercial terms under which they will be managed.

Mr Mulva said the sticking points related to the fact that Conoco invested in the country’s energy projects but is now being left with less than it originally paid for.

As I have pointed out before, it’s not the nationalization I have a problem with. It’s the theft of the infrastructure that the companies built. It is that the nationalization followed companies (and not just U.S. companies) being invited in to invest billions in the development of Venezuela’s heavy oil fields. Venezuela could not afford to do it themselves, as this is very expensive. After the investments starting paying off, Chavez tore up the contracts, demanded a majority position, and doesn’t want to compensate the companies. As I wrote over at The Oil Drum:

It won’t take too long before everything is nationalized, and he has no more coffers to plunder and then must count on the revenue from the industries he has already plundered. Then, to his chagrin he finds that they aren’t producing like they used to, because he hasn’t invested in the infrastructure. But some people have this fairy-tale vision where he is just looking after the poor. That wouldn’t even be possible if not for the investments the oil companies have already made. And with his threat today to nationalize the banks, I think companies are going to be very cautious about investing money in Venezuela.

But, since he has assets in the U.S., maybe that’s a bargaining chip. And it is one I haven’t heard anyone mention in this context.

Disclaimer: I am not a disinterested party here. I own shares in one of the companies whose assets have been seized. (Then again, so do most people with a pension fund, 401K, etc.) So maybe we demand Citgo as compensation. If this goes to arbitration, that would be a position I might take. Or, to prevent it from going to arbitration, maybe Chavez might we willing to trade some U.S. refineries for assets on the ground in Venezuela.

May 7, 2007 Posted by | Citgo, ConocoPhillips, Hugo Chavez, oil companies, oil refineries, Venezuela | Comments Off on Let’s Confiscate Venezuela’s U.S. Refineries

Let’s Confiscate Venezuela’s U.S. Refineries

I recall reading this story a while back:

Chavez Considers Sale of U.S. Refineries

The implications just sank in today. Chavez, having confiscated the property of U.S. companies and torn up contracts, has property here in the U.S. Why don’t we just confiscate Venezuela’s Citgo refineries as compensation, or make them sell the refineries for half price? Isn’t turnabout fair play? From the article above:

“Not one Venezuelan works at these refineries,” Chavez said in Buenos Aires yesterday, according to Venezuela’s Communication and Information Ministry. “They don’t give us one cent of profit. They don’t pay taxes in Venezuela. This is economic imperialism.”

Citgo Petroleum Corp., the U.S. fuel-making unit of Petroleos de Venezuela, owns four U.S. oil refineries and two asphalt plants, with a combined daily crude processing capacity of 756,000 barrels. The company also operates a 265,000 barrel-a- day refinery in Houston that’s a joint venture with Lyondell Chemical Co. and has more than 13,500 U.S. retail fuel outlets.

Well, I think I have a solution. The U.S. will just take those refineries off your hands, in the same way that you have confiscated investments that were made by U.S. companies in your country.

On that topic, Jim Mulva was recently interviewed by Financial Times:

Conoco holds out on Venezuela terms

Jim Mulva, chief executive of ConocoPhillips, the third largest US oil company, is holding out against the terms under which Venezuela is expropriating the company’s oil assets and the commercial terms under which they will be managed.

Mr Mulva said the sticking points related to the fact that Conoco invested in the country’s energy projects but is now being left with less than it originally paid for.

As I have pointed out before, it’s not the nationalization I have a problem with. It’s the theft of the infrastructure that the companies built. It is that the nationalization followed companies (and not just U.S. companies) being invited in to invest billions in the development of Venezuela’s heavy oil fields. Venezuela could not afford to do it themselves, as this is very expensive. After the investments starting paying off, Chavez tore up the contracts, demanded a majority position, and doesn’t want to compensate the companies. As I wrote over at The Oil Drum:

It won’t take too long before everything is nationalized, and he has no more coffers to plunder and then must count on the revenue from the industries he has already plundered. Then, to his chagrin he finds that they aren’t producing like they used to, because he hasn’t invested in the infrastructure. But some people have this fairy-tale vision where he is just looking after the poor. That wouldn’t even be possible if not for the investments the oil companies have already made. And with his threat today to nationalize the banks, I think companies are going to be very cautious about investing money in Venezuela.

But, since he has assets in the U.S., maybe that’s a bargaining chip. And it is one I haven’t heard anyone mention in this context.

Disclaimer: I am not a disinterested party here. I own shares in one of the companies whose assets have been seized. (Then again, so do most people with a pension fund, 401K, etc.) So maybe we demand Citgo as compensation. If this goes to arbitration, that would be a position I might take. Or, to prevent it from going to arbitration, maybe Chavez might we willing to trade some U.S. refineries for assets on the ground in Venezuela.

May 7, 2007 Posted by | Citgo, ConocoPhillips, Hugo Chavez, oil companies, oil refineries, Venezuela | Comments Off on Let’s Confiscate Venezuela’s U.S. Refineries