David Luhnow and Peter Millard of the Wall Street Journal wrote an interesting article Chavez Plans to Take More Control Of Oil Away From Foreign Firms (subscription required) that further reinforces my points about South America and commodities.
Venezuelan President Hugo Chavez is planning a new assault on Big Oil, potentially taking a major step toward nationalization of Venezuela's oil industry that could hurt oil-company profits, reduce production and put further pressure on global oil prices.
Venezuela's Congress, made up entirely of Mr. Chavez's allies, is considering sharply raising taxes and royalties on foreign companies' operations in the Orinoco River basin, the country's richest oil deposit. Major oil companies like Exxon Mobil Corp. and ConocoPhillips of the U.S. and Total SA of France have invested billions of dollars there to turn the basin's characteristically tar-like oil into some 600,000 barrels a day of lighter, synthetic crude.
Mr. Chavez, a left-wing populist who favors greater state control of the economy, also wants to seize majority control of the four Orinoco projects and force private companies who run them to accept a minority stake, according to a top executive at state-run oil company Petróleos de Venezuela SA, known as PdVSA.
The U.S. will not view this latest development positively.
As I have stated in prior articles, investors need to pay attention to developments in South America because there are fundamental changes taking place where South America is shifting to the left. And investors need to pay attention to commodities. For a long time, commodities were ignored. They were cheap and plentiful. I do not believe that is the situation today.
I read a similar article in last weeks Business Week in which Ecuador wants to tax Occidental Petroleum heavily for its oil fields. There was something about lawsuits as well. So I guess its going around :)
AJ
AJ, yes it is. South America certainly is changing. Depending on the upcoming elections, Peru might be next. I hope not, though.
Hi Kevin,
I guess things are getting serious in South America .. This is what I had mentioned to you a couple of weeks ago, has finally boiled down to this..
http://biz.yahoo.com/rb/060515/energy_ecuador.html?.v=3
AJ.
Hi AJ,
Thank you for your comment.
Yes, developments in South America have not been encouraging. Moreover, other countries and owners of resources are watching the developments. This is affecting their own negotiating stance as they seek their "fair share" of the economic profits from resources. It is certainly interesting.
Kevin