NPR logo

Governments Demanding Bigger Share of Their Oil

  • Download
  • <iframe src="" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript
Governments Demanding Bigger Share of Their Oil

Governments Demanding Bigger Share of Their Oil

  • Download
  • <iframe src="" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript


This is ALL THINGS CONSIDERED from NPR News. I'm Melissa Block.

The price of a barrel of oil was down sharply today, but it's still pricey, just over $91 a barrel. The trend over the last few months has been up and up and up. And countries with abundant oil reserves are sitting on a lot of wealth. Exactly how much those countries can earn depends on how much control they exert. So a number of countries from Mexico to Malaysia have nationalized oil production, shutting out private companies. Now the high cost of crude has oil-rich countries again demanding a bigger share of oil profits.

NPR's Tom Gjelten reports.

TOM GJELTEN: Countries with oil deposits, but not the expertise to get the oil out of the ground, often invite private oil companies to come and develop the fields. In return, the companies pay the governments a royalty fee on every barrel they produce and sell. The deals have often worked to the advantage of the oil companies. And when the profits are high, government leaders are tempted to change the rules.

President HUGO CHAVEZ (Venezuela): (Foreign language spoken).

GJELTEN: Last spring, President Hugo Chavez of Venezuela, in his words, buried, what had been known as the oil opening in his country — a favorable tax and royalty package introduced a decade earlier to induce foreign oil companies to develop the Orinoco River basin. Chavez demanded that the companies give up majority control of those operations or face expropriation. On May Day, Chavez visited the Orinoco fields and told thousands of assembled oil workers that the deposits there would now be entirely Venezuelan.

Pres. CHAVEZ: (Foreign language spoken).

GJELTEN: Venezuela is free, Chavez said. Our oil is ours.

This is the new petro power movement. The presidents of Bolivia and Ecuador are following the Chavez example. The government of Nigeria said last month it will rewrite the contracts under which oil companies operate in the country. Even Canada is asserting its petro power. Last month, the province of Alberta raised the royalties oil companies pay there.

In a news conference, Premier Ed Stelmach said he'd ordered a review of the royalties as soon as he took office.

Premier ED STELMACH (Alberta, Canada): I did that because I heard very clearly from Albertans. In a time of rapidly increasing oil prices, they weren't sure they were getting the fair value of the development of the resources they own.

GJELTEN: As in Venezuela, the government in Alberta had contracted oil companies to develop the oil fields with the companies paying a small royalty fee on the oil they extracted — as low as one percent of pre-profit revenues. But that was when oil was selling for about $20 a barrel. With the companies now getting five times that price, governments figure they deserve a bigger share.

Robin West is chairman of PFC Energy, a consulting firm in Washington.

Mr. ROBIN WEST (Chairman, PFC Energy): There's a lot of money in the oil business. These politicians are desperate to find money. They want to deliver something quickly to their people. And they think that, you know, the best place, the biggest bank they can find are the major oil companies.

GJELTEN: In Venezuela, the Chavez government raised the oil royalty fees last year. This year, Chavez told the foreign oil companies the rules were changing again. Still, he stopped short of nationalizing the companies' operations, as governments elsewhere had done.

Bernardo Alvarez is Venezuela's ambassador to the United States.

Mr. BERNARDO ALVAREZ (Venezuela's Ambassador to the United States): We told companies that we wanted them to stay, but in different conditions.

GJELTEN: The catch? They'd have to sell a big part of their assets in the country for whatever the government offered and settle for a minority share. Of the six big oil companies operating in the Orinoco region, two companies — Exxon Mobil and ConocoPhillips — refused to accept the government's terms and had their properties expropriated. The Venezuelan government has promised to pay compensation, but the companies aren't happy with what they've been offered and the case is headed for international arbitration.

The government's own oil company — Petroleos de Venezuela — will now take the lead in developing the Orinoco oil fields. The question is whether it's up to the task. The oil in the Orinoco fields is the thickness of tar. Getting it out of the ground is a challenging and expensive operation, requiring long-term planning and investment.

Dr. LUIS GIUSTI (Former Chairman, Petroleos de Venezuela): You cannot do that on your own.

GJELTEN: Luis Giusti was chairman of the Venezuelan state oil company until Hugo Chavez threw him out. It was his idea to ask the foreign oil companies to help develop the Orinoco oil fields.

Dr. GIUSTI: You can manage the process, but you need support in capital, operational expertise, technology, investment. So we essentially went for a scheme that would allow us to partner with the international companies. We would always retain the best part of the portfolio. But at the same time, we would bring the companies to assume the risk of exploration, the technology required for developing the heavy oils, penetration into the markets and financing.

GJELTEN: Officials in the Chavez government scoff at the notion that their state oil company isn't ready for big oil responsibility.

Bernardo Alvarez, the ambassador in Washington and a former vice minister of energy, says Petroleos de Venezuela can even supply the country's Latin neighbors.

Mr. ALVAREZ: Venezuela will have the resources to provide South America for many years to come. And this is why we are even proposing countries in Latin America to sign a treaty. And then, we will guarantee the supply of energy to all those countries by treaty.

GJELTEN: Since Hugo Chavez took office, however, oil production in Venezuela has declined by about 25 percent, according to independent analysts, because much of the industry is now staffed by relatively inexperienced engineers and technicians.

Robin West of PFC Energy says this is the risk governments take when they put the squeeze on foreign oil companies. The governments may get a bigger share of the oil profits, but their oil production could decline if the private companies stop investing in the countries.

Mr. WEST: There are ways to do it. Certain governments are very skillful at extracting the maximum rent for themselves while continuing production. What you don't want to do is kill the golden goose.

GJELTEN: In fact, the risk works both ways. Chavez and other politicians know the big oil companies will think long and hard before they abandon a potentially promising project. Four of the six companies involved in Venezuela chose to stay in the country as minority partners.

Robin West points out that oil companies these days deal with risk every day, whether it's doing business with someone like Hugo Chavez or looking for oil under 8,000 feet of water off the coast of Africa.

Mr. WEST: They have to. They have to. They don't have a choice. I mean, companies like Chevron, and Exxon, BP and Shell — these are gigantic companies and they're producing several million barrels a day. Little projects don't do them any good. They're just a distraction, even if it's a good rate of return. What they need are huge projects. Well, the big barrels are in these difficult places, either technically difficult or politically difficult. And so they have to go there. The era of easy oil is over. There are no easy barrels for these companies.

GJELTEN: Governments with new petro power, oil companies with new production costs. And meanwhile, the demand for oil just keeps growing. Sounds like a sure formula for still higher oil prices.

Tom Gjelten, NPR News, Washington.

BLOCK: There's an interactive map of winners and losers in the black gold rush at

This is NPR, National Public Radio.

Copyright © 2007 NPR. All rights reserved. Visit our website terms of use and permissions pages at for further information.

NPR transcripts are created on a rush deadline by Verb8tm, Inc., an NPR contractor, and produced using a proprietary transcription process developed with NPR. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.