News and opinions on the situation in Venezuela
 
4/3/05

Exxon Mobil to welch on royalties to the Bolivarian Republic of Venezuela


TOP STORY AT THIS HOUR!

www.vheadline.com/readnews.asp?id=26272

Axis of Logic editor Les Blough writes: Texas-based seattlepi.nwsource.com/business/apbiz_story.asp?category
=1310&slug=Venezuela%20Exxon%20Mobil%20Tax%20Hike
Exxon Mobil is complaining about the Chavez administration’s 16.6% royalties imposed following decades of paying only 0% to 1% on oil stripped from Venezuelan oil reserves under previous US-backed Venezuelan administrations. Exxon Mobil’s complaints come during the week when their shares rose 30 cents (0.5%), to $62.98 on Thursday on the New York Stock Exchange. This places Exxon’s shares near the high end of their 52-week range of $39.91 to $64.04.

In 2004, news.bbc.co.uk/2/hi/business/4223573.stm BBC reported that Exxon Mobil’s profits rose to $25.33 billion from $21.51 billion in 2003, on revenues up 17% to $298 billion. These profits benefited its shareholders with increased value of 39 cents/share to $51.66 at the end of 2004. The BBC also reported:

“The 2004 profits exceeded market expectations with its performance, which also broke records for the fourth quarter of 2004. It made an $8.4 billion quarterly profit — its highest ever – on revenues of $83.3 billion.”

Less than 2 years ago (May, 2003) Exxon Mobil recorded the largest corporate quarterly profits in history as $7.04 billion (4.4 billion). At that time, in www.guardian.co.uk/oil/story/0,11319,947859,00.html War propels Exxon profits to record $7bn, Terry Macalister reported for The Guardian (UK) that the record-breaking profits were a direct result of the war on Iraq and increased prices of crude oil. They reported that the Stop-Esso Campaign protested Exxon Mobil’s war-profiteering and environmental irresponsibility. A spokeswoman for Stop-Esso stated:

“All you are seeing is the oil industry getting its first benefits from the war in Iraq. Our action has now spread to nine countries and in terms of brand damage we are winning.”

According to the Guardian report, “Exxon has been pilloried by environmentalists for taking a sceptical stance on global warming and has been blamed by them for encouraging US president George Bush not to sign the Kyoto treaty.”

www.smh.com.au/articles/2004/10/07/1097089494
733.html?from=storylhs&oneclick=true
In another report, Macalister wrote:

The world’s biggest oil company, ExxonMobil, has been increasing its greenhouse gas emissions after supporting President George Bush’s refusal to sign the Kyoto treaty … The Texan oil firm, which is facing a consumer boycott in Europe over its stance on climate change, is now producing more than twice the carbon dioxide pollution of a country such as Norway.”

seattlepi.nwsource.com/business/apbiz_story.asp?category=
1310&slug=Venezuela%20Exxon%20Mobil%20Tax%20Hike
Now Exxon Mobil reports,

“The ministry of energy has agreed to meet with us to discuss our concerns on the royalty rate change,” said the company in a statement … We reiterate that we wish to achieve an amicable solution to the issue. We hope to begin the discussions very soon.”

But Venezuelan Oil Minister Rafael Ramirez has indicated that there is no possibility of rolling back the increase in royalties. While he agreed to meet with Mobil Exxon to hear their complaints, Ramirez responded to Mobil Exxon’s begging for relief last week:

“We don’t have anything to negotiate.”

Meanwhile, Exxon Mobil attempts to justify the 0% to 1% royalties they had been paying as compensation for their investment during the initial phases of their Cerro Negro heavy crude upgrading project and three other projects operating in Venezuela’s eastern Orinoco tar belt. This sounds identical to the tired, worn-out argument pharmaceutical companies have used for years to justify exorbitant prices that have kept medicines out of reach for so many who desperately need them.  We ask, are these Exxon Mobil investments not reflected in the massive corporate profits recorded for Exxon Mobil since 2001?

On August 23, 2001, www.exxonmobil.com/Corporate/Newsroom/Newsreleases/Corp_xom_nr_230801.asp Exxon Mobil Corporation announced their “first shipment of upgraded crude oil produced at the newly-constructed, $790 million Cerro Negro Upgrader Complex in eastern Venezuela left port earlier this month for the Chalmette Refinery in Louisiana on the United States’ Gulf coast.” This is not to say that this was their only investment in Cerro Negro. I make no claim to be a capital investment analyst, but a $790 million investment sounds miniscule compared with their reported overall $7 billion profit in 2003. Are we to believe that payment of 16.6|% royalties are going to break their bank? Let’s look at their financial report for the last 12 months: 

moneycentral.msn.com/investor/research/newsnap.asp?Symbol=US%3aXOM Exxon Mobil’s shares increase in value from 2004-2005


Exxon Mobil Corporation: Highlights Financial data in US$

Financial Highlights (All data for latest 12 months)

Sales 263.99 Bil Income 25.33 Bil Net Profit Margin 9.60% Return on Equity 24.90% Debt/Equity Ratio 0.05

Revenue/Share 41.34 Earnings/Share 3.89 Book Value/Share 15.94 Dividend Rate 1.08 Payout Ratio 27.00%

Revenue – Quarterly Results (in Millions)

FY (12/04) FY (12/03) FY (12/02) 1st Qtr 59,644.0 54,357.0 37,927.0 2nd Qtr 62,706.0 50,271.0 44,427.0 3rd Qtr 67,809.0 52,860.0 47,495.0 4th Qtr 73,830.0 55,711.0 49,060.0 Total 263,989.0 213,199.0 178,909.0

I have made the observations in this article, admittedly, as a lay person with no experience or training as an economist. So I consulted with Axis of Logic columnist on the economy, Michael Feltham. In the 1970s, Mr. Feltham was Chief Finance Officer of Dunnshaw-Patten, Ltd., a London trading house working primarily with transactions in the Middle East and West Africa.  In this role, he became involved with with crude oil and product trading. When working for Dunnshaw-Patten, he was a frequent guest (although not a gambler) of the Olympic Casino Club in in London. The Olympic Casino Club was started by Aristotle Onassis, Stavros Niarchos, Captain Lemos, John Latsis, and the Konalidis Family. All of these men wer multibillionaires and made their money in the oil tanker business transporting crude and product. 

Mr. Feltham agreed with my analysis of the relationship Exxon Mobil has with the people of Venezuela. He also had this to say:

“It is sheer nonsense, that Exxon Mobil wants to stiff the Venezuelan people with the capital cost! Like any other corporate organisation making capital investments, they calculate an Amortization Table, over the expected life of the plant, which is probably 25 years. Additionally, when analysing any investment, corporations employ a technique called DCF (Discounted Cash Flow), to arrive at both ‘What If? Scenarios’ and Cost-Benefit Analyses.

“Further, most OPEC states (of which Venezuela is one), all hiked their margins on royalties, many years ago; if you remember, this is what created the global recession of the early 70s. Saudi Arabia re-negotiated their royalty payments with ARAMCO (the joint venture corporation which includes a number of the largest oil companies and is responsible to PETROMIN (Saudi Petroleum Agency) for oil exploration recovery and sales.

“Oil companies not only have a history of robbing countries like Venezuela, they have also robbed citizens of the United States as can be seen in this report by www.pogo.org/p/environment/ea-001028-oil.html The Project On Government Oversight (POGO):

‘The Department of Interior collects $1.1 billion annually in payments known as royalties from companies that drill oil from federal- and Indian-owned lands. For more than a decade, government whistleblowers tried to draw attention in their agencies to the disparity between the market price of oil and the values that oil companies used to make their royalty payments, also known as ‘posted prices’. The Project On Government Oversight (POGO) began a series of investigations into oil royalties starting in 1993, revealing that taxpayers had been shortchanged hundreds of millions of dollars under posted pricing methodologies. After increased public exposure of the problem, the Department of Interior developed regulations that, starting in June, 2000, collect $72 million more annually.’

“The US government’s www.eia.doe.gov/pub/oil_gas/petroleum/analysis
_publications/oil_market_basics/Price_taxes.htm
Energy Information Administration shows what the majors pay to the ever-greedy Uncle Sam! – like 1/7th of the total value! And Chavez is being greedy?? One of the ways major oil companies tiff states, is that they only pay royalties on what is called the “Post Price”. This is the OPEC agreed price for a particular type of crude: e.g. Saudi Light, Brent North Sea Light, Nigerian Bonny Light etc. Then, the dastardly oil companies sell the crude on the spot market (i.e. instant sales through Galveston, Rotterdam Europort etc). Additionally, as price rises emerge, the oil companies enjoy fixed 6X6X5 contracts: these are standard and run for six monthly periods, over five years, with each side having the opportunity to retract if agreement on price variance cannot be agreed, each six months. Clear? This is again how the majors stiff the consumer: when the market rises, then gas, instantly, rises. But heh! Hold on one damn moment! If the six months period has only just begun, then the corporations are still only paying the lower price!

“My advice to Snr. Chavez would be to send Exxon Mobil packing, sequestrate their facilities, agree to pay them cents on the dollar (as did most of the OPEC states in the 70s!) and lease the facility to the Chinese at the higher royalty. They would snatch his arm off! Plus, they’ve bundles of $$$ to pay, sitting in US Treasury bills etc.”

At Axis of Logic, we ask Exxon Mobil: ”When is enough profit … enough?” Do those who run Exxon Mobil think the Venezuelan people should be grateful to them for stripping their oil reserves for decades at 0% to 1%? Do they think the people of Venezuela should should give them their natural resources out of admiration and gratitude for your self-serving development? If Exxon Mobil has not yet recouped their investment, how did they realise $7 Billion profit last year?

Our Message to the Opposition in Venezuela 

We in the United States are all too familiar how many US citizens have been trained to accept the capitalist “trickle down” doctrine while struggling more than ever to pay their mortgages and health care bills. The majority of the Venezuelan people haven’t “learned” that doctrine and we hope they never will. Do not expect Exxon Mobil to protect the interests of the Venezuelan people – corporations never do. Protecting the interests of the Venezuelan people is the job of their government. It appears that the leadership in the Chavez administration fufilling those obligations well as they tell Exxon Mobil to either pony up or find another country for exploitation. Give up your baseless antipathy for President Chavez as he leads your country into the 21st Century. If you are a true Venezuelan, you will stand by your nation’s leadership and your fellow citizens, regardless of the color of their skin or their socio-economic status.

Our Message to Exxon Mobil 

We say it’s time for Exxon Mobil to stop poor-mouthing and live up to their obligations like grownups.  Don’t expect the Pentagon to bail you out with sweetheart deals like they have in Iraq. The US military is already spent its juice. Grow some integrity, character and learn something about business ethics. Stop whining and welching and pay the people of Venezuela fair market value for their oil. Otherwise, lose that market to countries like China, India in a real free market economy.

To President Chavez and Oil Minister Rafael Ramirez we say:

“Thank you for ending corporate welfare in Venezuela! Congratulations on the stand you have taken for the poor and all people of Venezuela. Let them have what is rightfully theirs. Continue to revitalize the Venezuelan economy by using oil revenues for education, health care, housing and building infrastructure. It is the people’s land. The oil reserves belong to the people.”

www.axisoflogic.com/artman/publish/article_16057.shtml This article was originally published at AxisofLogic.com

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