Hard times mean new opportunities for Big Oil
March 31, 2009
Plunging crude prices have begun to play out in favor of Western oil companies by giving them leverage with oil-rich countries that only months ago had no reason to compromise, according to the Associated Press. Countries like Venezuela, Libya and Russia have kept a tight grip on their vast oil reserves in recent years as crude prices soared above $100 per barrel, translating into big revenues. Much of that money, rather than going back into the oil industry, was spent on unrelated political and social programs. At $50 per barrel, these countries are far more constrained and can''t adequately fund some oil and gas projects. Experts say Western oil corporations, who stockpiled cash when profits were flush, can shift operations to any corner of the globe and have the capital that allows them to strike deals with state-controlled producers on very favorable terms. The new opportunities for the major Western oil companies come even as the United States attempts to shift away from fossil fuels. Still, the International Energy Agency and other forecasters have said fossil fuels will be the primary source of global energy for decades to come. National oil companies control roughly three-quarters of the world''s proven reserves. Some fields are not economical to develop with oil at current prices. In other cases, crumbling infrastructure makes the work more difficult and expensive, if not impossible, for state-run companies. The reaction to oil prices, which recently hit five-year lows, is varied by country. Saudi Arabia said it would not cut funding at its state-run Aramco. But oil production is dropping in other countries, slashing revenues that fund national budgets. Contractors are shutting down rigs in Venezuela because the government has stopped paying them. The world''s big oil corporations already do some business in countries with nationalized industries, but the terms are often slanted heavily in the country''s favor. In particular, they''ll be looking for deals that offer lower royalty and tax rates and a greater share of production. The potential for Western oil producers to sign new exploration and production deals with resource-rich nations comes as oil majors are finding it increasingly difficult to find new reserves -- in part from limited access -- and boost production.