Venezuela denies oil asset freeze

[brianeyci]

Sorry CJvR, that's the risk corporations take working in foreign countries.

Sure it is. A nation can do whatever it wants within it's own borders. The amusing thing is the Venzuelan whining when Exxon turn the table on them.

Exxon didn't turn the table on Venezuela. It can't seize back the oil assets with paratroopers, thank god. It can't do anything but play ball or lose. The other oil companies understood this so they went along.

What Exxon did was like me destroying your car then you coming back and destroying my computer. Exxon will not see a cent of reparations -- only that Venezuelan foreign accounts will be frozen and the respective governments will take the money. It is revenge. Pointless.

If you concede that Venezuela can do what it wants, then all we're talking about is what comes out of Chavez's mouth. No, the style of what comes out of Chavez's mouth. I don't particularly care about style over substance, and it's not amusing to watch someone defend big oil either when they make trillions.

[CJvR]

You mean the Egyptians could not have done it themselves

Sure they could have, they did once before as your own link showed remember?. But they didn't.
Venezuela could have gone prospecting for themselves, but they didn't.

How about when a state breaks down and the newly independent regions take the infrastructure built by the metropoles?

Venezuela broke down? No not yet, but Chavez seems to be working on it... The evil diary conglomerates are next!!!

[K. A. Pital]

But they didn't.

So? There's a lot of things countries don't do. For example, the huge railway network of Russia and the CIS was built, even before the XX century, by the Russian Empire. Not by any of the respective states which control parts of that network today. Moreover, the kind of government there, especially in Central Asia, would most likely NOT build such a great project.

However, it's today, and Kazakhstan for example operates a good chunk of that enormous railway net. Oooh, thieves! Why don't they go build their own railway, right?

Venezuela broke down?

I'm talking about a legal precedent, you moron.

The core is why do you call the government of Venezuela "thieves"? Are governments of newly independent states thieves? Are nationalization and taxation, which are usually unilaterally imposed by government decision on both domestic and foreign companies, "stealing", i.e. a criminal act?

Answer that, pussy, or shut the fuck up. Of course Exxon was so nice that it didn't use hundreds of thousands of Venezuelan poor as forced labour to complete their oil projects, unlike the Suez fellows; that's the XXI century after all - but praytell, why is nationalization called a crime?

[CJvR]

...and it's not amusing to watch someone defend big oil either when they make trillions.

There is something wrong with making trillions? Just how much is it OK to make then?

[K. A. Pital]

There is something wrong with making trillions?

Dealing with a corrupt foreign government to buy out the natural resources of said country? Well I guess there's something very fucking wrong with that in my book, but please, feel free to comment. If you call nationalization - a legally recognized procedure - stealing, then the former I would call looting.

And it's not like the foreign companies are making obscene profits by extracting a natural resource which belongs to the foreign nation, aren't they?

[Mr. Coffee]

See, Stas, the way I see it is as if you owned a house and put it up for rent. I come along and sign a rental agreement with you and move it the house. But the house has a shitty looking kitchen, so I call you up and ask if I can remodel it. You say "go for it" and I commence to building a kitchen. A few months later you decide to break the rental agree me, I'm out on the street, and you've got a house with a brand new kitchen that I built and paid for. Now, if you were to offer me fair market value for the labor and material that went into the kitchen, it wouldn't be a problem. But for some reason you decide not to do that and that leaves me with no choice but to put a lien against the property and take you to court to recoup my expenses.

The thing I want to know is this...

How much did Exxon have invested in the facilities they built?

Was the Venezulan offer fair market value for the expenses Exxon incured in building the facility?

If the second figure doesn't meet or exceade the first figure, then Exxon has a good reason to be pissed off. They're getting cheated out of their time, money, and equipement by Chavez. Maybe in your reality it's perfectly acceptable to break contracts and screw people out of their time, money, and labor. Don't know, don't really care either. In my reality, doing shit like that has consequences, and maybe it's time Chavez that.

[Guardsman Bass]

There is something wrong with making trillions?

Dealing with a corrupt foreign government to buy out the natural resources of said country? Well I guess there's something very fucking wrong with that in my book, but please, feel free to comment. If you call nationalization - a legally recognized procedure - stealing, then the former I would call looting.

And it's not like the foreign companies are making obscene profits by extracting a natural resource which belongs to the foreign nation, aren't they?

Said countries also generally get a large percentage of the profit back in the form of royalties and taxes, so I'd hardly call it looting - and in Exxon's case, where they were allowed in to invest and develop their infrastructure, it wasn't looting. Nationalization in this case, on the other hand, was looting by the Venezuelan government, because they essentially took the Exxon property and paid them a shitty compensation for it with no say on Exxon's part, giving it to PSVDA. It essentially shits on anything resembling property rights.

[acesand8s]

PDVSA paid Total and Statoil less than half the estimated market value of their stake in the Sincor venture.

So what were the terms of the deal?

The two firms were paid collectively $1.1B, of which $130MM was to be refunded to PDVSA, so the actual payment was ~$970MM. Statoil's stake in the project was decreased from 15% to 9.7%. Total's stake fell from a controlling 47% to 30.3%. Together, that's a 22% sale of Sincor for $970MM. Scaling that up, we get a value for the project of $4.4B. In February '07, UBS valued the project at $10.8B. Thus, after deducting the refund to PDVSA, Statoil and Total received 41% of the fair value for their stakes. (I don't know the exact division of payments between the two companies, so one may have been more screwed by PDVSA than the other.)

I don't think a specific deal was offered to Exxon, but I doubt it would be substantially different from what the French and Norwegians got.

[acesand8s]

Ghetto edit:

Found the exact terms of the deal.

Statoil (after the refund to PVDSA) received $234.7MM for 5.3% of ownership in Sincor. The UBS valuation would put its stake at $572.4MM. Statoil received about 41% of fair value.

Total (after the refund to PVDSA) received $735.3MM for 16.7% of ownership in Sincor. The UBS valuation would put its stake at $1,803.6MM. Total received slightly less than 41% of fair value. Total chose to receive its payments in oil rather than in cash, so the exact amount it will get in cash is nebulous. For unknown reasons, Total also gets its payment over a longer time horizon (PVDSA has until the end of 2010 to pay); Statoil will be paid by the end of 2008.

So, Total got a bit more screwed than Statoil.

[brianeyci]

...and it's not amusing to watch someone defend big oil either when they make trillions.

There is something wrong with making trillions? Just how much is it OK to make then?

Sure there is, when the majority of Venezuelans live in abject poverty. Even Americans have eminent domain. Everybody taking big oil's side should look at eminent domain.

It essentially shits on anything resembling property rights.

See, here is the problem. You're dealing with what is a communist government or communist leaning government, and property rights are enshrined in capitalism. It might shit on property rights, but so what? What does that matter to communists?

In the end the money will be better spent by Venezuela than bonuses for oil executives so I couldn't give a flying fuck.

[Sea Skimmer]

Sure there is, when the majority of Venezuelans live in abject poverty. Even Americans have eminent domain. Everybody taking big oil's side should look at eminent domain.

US Eminent domain cases are typically decided in court cases that take years to decide, so thank you for showing that yes Exxon is perfectly justified in suing over assets worth billions of dollars.

[Beowulf]

Eminent domain still usually pays the entity that owned the property being taken, usually something called fair market value (though it admittedly frequently isn't).

[brianeyci]

US Eminent domain cases are typically decided in court cases that take years to decide, so thank you for showing that yes Exxon is perfectly justified in suing over assets worth billions of dollars.

Except that you can be a legal terrorist but at the same time obey the law. So there is no double standard in what Chavez is saying.

The analogy isn't perfect because a single man can't pose a legal threat to the government, but the crux of the idea -- the government can seize assets for the greater good -- is there. The people in this thread aren't just denying the right of Exxon to sue; they say Chavez shouldn't have nationalized at all and call it "stealing."

[Guardsman Bass]

US Eminent domain cases are typically decided in court cases that take years to decide, so thank you for showing that yes Exxon is perfectly justified in suing over assets worth billions of dollars.

Except that you can be a legal terrorist but at the same time obey the law. So there is no double standard in what Chavez is saying.

The analogy isn't perfect because a single man can't pose a legal threat to the government, but the crux of the idea -- the government can seize assets for the greater good -- is there. The people in this thread aren't just denying the right of Exxon to sue; they say Chavez shouldn't have nationalized at all and call it "stealing."

Not at all - I'm calling it stealing because they didn't give Exxon fair market value. I'm not disputing the concept of Eminent Domain (although I'm dubious as to whether it should be used in a situation where the Venezuelan government is essentially giving Exxon's investment to a theoretically for-profit oil corporation, PSVDA).

[brianeyci]

Thing is you, CVjR and others opened their mouths before acesand8 said the fair market value of 40%. The fair market value seems to include something on top of the 750 million, ten billion. The news article itself mentions a deal, one that the other oil companies could live with. If the two firms were payed 1.1 billion that's already more than the 750 million stake alluded to in the article if Exxon had sucked it up and took the same deal.

You guys got distracted by Chavez's "imperial dogs" style you didn't notice the facts. One, that Chavez has never shut off the oil despite all the rhetoric. The rhetoric is for domestic and maybe Latin American consumption -- he knows if he ever does shut off the oil the US will have his head on the wall. He didn't storm oil platforms with soldiers. Two, there was a deal. You just assumed it was a big ripoff.

[brianeyci]

Honestly the whole thing smelled like shit even before acesand8s figures, where it says Exxon froze 12 billion in assets for a puny 750 million stake. An oil country shits 750 million out of its ass and I didn't believe the new deal could have been that big a ripoff. Looks like it wasn't.

[acesand8s]

Exxon's stake in Venezuela had a book value of $750MM, but its estimated market value was $2B with analysts expecting a $1.5B write-off, which Exxon has yet to make. (ConocoPhillips, btw, has already taken a $4.5B write-off.) However, Exxon isn't asking for $12B. Rather, it wants a large amount of assets frozen though so that if it wins an arbitration case there will be sufficient assets to pay it. Considering the fact that the arbitration is expected to last years and that the frozen assets can be used for limited business purposes, Exxon isn't going to ask for exactly what it wants.

As it is, Venezuela only represents something like 1-2% of Exxon's oil production. The reason why Exxon is taking such a hardline against Venezuela so that any other country looking to nationalize Exxon's projects know they'll have a fight on their hands. If all their other production were in the US, I would imagine they'd have settled for the 40% Statoil and Total got; $1-2B isn't worth Exxon Mobile's time (their market cap is something like 2x the GDP of Venezuela). Still, only receiving 40% of fmv is a big fucking rip off.

[brianeyci]

All you're telling me is that Exxon is engaging in legal terrorism.

Book value is because year after year, assets depreciate. Generally accepted accounting practises don't use market value for anything and I don't see why we should (or else what Chavez was willing to pay is the market value.) Looks like Chavez was willing to pay for the infrastructure costs, and on top of that he was right about the legal terrorism to get other countries afraid of nationalization. Even if you use the two billion market value, it's more than half and like pennies to an Exxon. You're using the ten billion figure still, when the article says 750 million.

It truly is David versus Goliath.

[K. A. Pital]

The two firms were paid collectively $1.1B, of which $130MM was to be refunded to PDVSA, so the actual payment was ~$970MM.

So wait, they accepted the deal, right? If it was so unfair as UBS estimates, why did they do that? And 41% of value doesn't sound anything like the atrocious disparity between the offer to Exxon and the amount of assets to freeze, or? I mean, you have 750 million but sue for 12 billion? Allright, so it seems that they didn't just "take" the infrastructure but offered the money, and Exxon sued over a marginal disparity.

And people tell me that Chavez - a person who repeatedly vowed before his own government and people to start a legal nationalization process! - is "stealing"? Ha-ha-ha. Yeah, good times.

[Vympel]

See, Stas, the way I see it is as if you owned a house and put it up for rent. I come along and sign a rental agreement with you and move it the house. But the house has a shitty looking kitchen, so I call you up and ask if I can remodel it. You say "go for it" and I commence to building a kitchen. A few months later you decide to break the rental agree me, I'm out on the street, and you've got a house with a brand new kitchen that I built and paid for.

Well, that analogy is sub-optimal on the basis that any tenant who remodels the fixtures in the landlord's house at his own cost is obviously a nincompoop (its the landlord's responsibility, not the tenants, if the kitchen is an unsatisfactory piece of shit)

[K. A. Pital]

Said countries also generally get a large percentage of the profit back in the form of royalties and taxes, so I'd hardly call it looting

Let me see, what kind of percentages they were getting before Chavez started his offensive against foreign oil companies? Weren't royalties something like from 1 to 15%? "Large" percentage in my book qualifies as at least something around 50.

[Mr. Coffee]

See, Stas, the way I see it is as if you owned a house and put it up for rent. I come along and sign a rental agreement with you and move it the house. But the house has a shitty looking kitchen, so I call you up and ask if I can remodel it. You say "go for it" and I commence to building a kitchen. A few months later you decide to break the rental agree me, I'm out on the street, and you've got a house with a brand new kitchen that I built and paid for.

Well, that analogy is sub-optimal on the basis that any tenant who remodels the fixtures in the landlord's house at his own cost is obviously a nincompoop (its the landlord's responsibility, not the tenants, if the kitchen is an unsatisfactory piece of shit)

The landlord's only responsible for making sure everything is in working order, not for complete remodeling usually. Most of the time when something like this happens the landlord will work out a deal with the renter by way of cutting the rent for a few months or whatnot of repay them the cost of labor/materials. So the analogy works well enough.

My point though was that Venezula was basically taking the labor and materials (and also the projected profits from the labot and materials) for a faction of their value.

Something that Brian and Stas aren't getting though, is that while Exxon doesn't stand to loose much money over this in the short term, if they just stand back and let it happen without a word, other countries could follow suit. Couple of hundred million here, a few billion there, and then Exxon starts to loose enough money to seriously hurt their profitablity as a company. Bad for buiness in the long run.

[Guardsman Bass]

Said countries also generally get a large percentage of the profit back in the form of royalties and taxes, so I'd hardly call it looting

Let me see, what kind of percentages they were getting before Chavez started his offensive against foreign oil companies? Weren't royalties something like from 1 to 15%? "Large" percentage in my book qualifies as at least something around 50.

The lower royalties were during a period in which the market value of the oil was incredibly low - i.e. the period back in the late 1990s when oil dropped to $10/barrel. Since then, they've gone up to at least 33%, along with a 50% income tax on the Orinoco projects (although I'm not attacking Venezuela's right to set tax rates).

It's enough for Chavez to fund all of his neat patronage projects.

[Guardsman Bass]

Something that Brian and Stas aren't getting though, is that while Exxon doesn't stand to loose much money over this in the short term, if they just stand back and let it happen without a word, other countries could follow suit. Couple of hundred million here, a few billion there, and then Exxon starts to loose enough money to seriously hurt their profitablity as a company. Bad for buiness in the long run.

They probably don't want a repeat of what happened in the 1960s and 1970s, when all of the Arab countries essentially got up and bought out/nationalized the fields in their territories.

[Vympel]

The landlord's only responsible for making sure everything is in working order, not for complete remodeling usually. Most of the time when something like this happens the landlord will work out a deal with the renter by way of cutting the rent for a few months or whatnot of repay them the cost of labor/materials. So the analogy works well enough.

Well, that's the case here I should've said. Strictly speaking that's the advice I would give to a client. I'm just being a nitpicky bastard.