Investor's Business Daily, May 1st, 2007
Energy: Venezuela's Hugo Chavez put on a big show for May Day, expropriating the last big foreign oil company project assets. But neither oil supplies nor the oil firms will go under. Venezuela may be a different story.
Oh, it was a big show all right for the communist dictator, almost like a military conquest. Chavez sent soldiers charging in to "re-take" four large foreign-oil installations, planting the Venezuelan flag. And this being May Day, red-shirted mobs chimed in with Chavista slogans, making the whole scene movie-perfect. Only the pitchforks were missing.
In reality, it was just a $30 billion rip-off of U.S. and foreign assets that likely will fall apart in Venezuela's unskilled hands. The upside is that it will spur oil companies and consumers to find new sources of energy -- a natural process for markets in the face of scarce supply. In the end, Venezuela may be rendered irrelevant.
Even appearances were all wrong. The expropriation of the ConocoPhillips, Exxon Mobil, BP, Statoil, Total and Chevron assets doesn't mean the companies have signed off on it. The actual deadline for a sign-over is June 26. Compensation, moreover, remains a question mark.
But one thing is likely: No new investments of any size will head for Venezuela anytime soon. Some firms will hang on if they can make a tiny profit. But squeezed by Chavez's 50% taxes and 33% royalties, and saddled with the output cuts Venezuela has signed onto via OPEC, those prospects are dim.
The oil companies will just go elsewhere. Already, they are shifting their investment emphasis from Venezuela to friendlier places -- which is to say, just about anywhere else in the world.
Exxon is putting much of its $20 billion in new long-term project money into the North Sea and Africa, where opportunities are real. ConocoPhillips has a 2007 capital budget of $13.5 billion, and most of which is earmarked for Canada and the Gulf of Mexico.
Nor are U.S. consumers standing still. There are signs they're starting to goad their representatives into reducing dependence on the capricious Chavez.
On the same day Chavez was confiscating U.S. assets in the Orinoco, sunlight broke off the coasts of Virginia and Alaska and in the eastern Gulf of Mexico. There, the Interior Department initiated the first expansion of U.S. offshore oil and gas drilling in decades. If brought online fast enough, development of these areas will go a long way toward replacing what's lost from Venezuela.
Compared with the 550,000 barrels of daily Orinoco output that Chavez has thrown into doubt, 48 million new acres with the potential to produce 10 billion barrels over five years may become available. This overdue effort to expand American production will go a long way toward nullifying Chavez's pillage of energy's real producers.
