Mixed signals from Venezuela

Alisa Roth Apr 25, 2006


KAI RYSSDAL: A good part of the crude used in this country comes from Venezuela. It is the world’s fifth largest producer, America’s fourth largest supplier. Analysts say it has reserves almost as big as Saudi Arabia’s — a big draw for foreign oil companies. But president Hugo Chavez has decided he wants a bigger piece of that action. Marketplace’s Alisa Roth has more.

ALISA ROTH: Venezuela’s latest plan is to renegotiate contracts with foreign oil companies, so the government would have a majority stake in any venture. It’s the latest in a series of moves by President Hugo Chavez that have annoyed foreign firms.

Some companies like Exxon, have only small investments in Venezuela and may pull out. That’s according to the Eurasia Group’s Patrick Esteruelas. But, he says, companies like Chevron and Conoco-Phillips depend on Venezuela for much more of their revenue.

PATRICK ESTERUELAS: Many of these companies will continue to look at Venezuela as an attractive destination . . . because oil prices remain very high today and because the price for Venezuela’s very heavy dirty crude also remains very high today.

Venezuela’s been sending mixed signals, though. Chavez announced recently that he’s hoping for $15 billion in new foreign investment to double the country’s oil output by 2012. That’s because the state oil company doesn’t have enough capacity on its own.

But Al Higburg at the Center for Strategic and International Studies says Venezuela may have a hard time finding new foreign investors, given the current political and business climate there.

AL HIGBURG: The sort of risk premium goes way up in Venezuela just because of the uncertainty of the investment environment and the sort of arbitrary activities of the Venezuelan government vis a vis investors. Responsible companies would be hesitant to invest in Venezuela.

At the same time, Chavez said today he wants to continue providing low-cost heating oil to needy families in the United States.

In New York, I’m Alisa Roth for Marketplace.

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