As profits surge, oil giants find hurdles abroad

To many Americans, oil companies like Exxon Mobil or Chevron appear all powerful, pocketing record profits as energy costs soar.

To many Americans, oil companies like Exxon Mobil or Chevron appear all powerful, pocketing record profits as energy costs soar. But in many countries around the world, high oil prices are also making life considerably harder for big oil companies.

Sharply higher energy prices have shifted the power to oil-producing countries, as some governments seek a larger share of the riches. As a result, even as Western oil companies expand their reach through acquisitions and multibillion-dollar projects, a resurgence of nationalist policies is weakening their influence.

“We’ve seen a return to a 1970’s style of resource nationalism riding along the crest of high prices,” said Daniel Yergin, the chairman of Cambridge Energy Research Associates, a consulting firm. “During times of low prices, governments are keen to open up. But when prices are high, they have the high cards.”

This trend could lead to fewer investments by Western oil companies, lower production, and with more limited supplies, even higher prices at the pump. So far, the power shift has taken on various shades and tones. In Bolivia and Russia, governments have taken outright control of oil and gas fields; in Venezuela and Britain, they have increased taxes; and in Nigeria and Kazakhstan, they have given highly preferential treatment to state companies.

Last week, Bolivia said it would seek 82 per cent of the sales from the biggest fields, up from less than 18 per cent.

In Venezuela, the government recently asserted its hold on 32 small oil fields developed by foreign companies and increased taxes to 83 per cent from 56.6 per cent.

The Congress in Ecuador recently approved a law that introduces a 50 per cent royalty fee on existing fields.

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Even the British government changed the tax regime in the North Sea at the beginning of the year, increasing its taxes by 10 percentage points, to a total of 50 per cent.

And if the talk in Congress over windfall profit taxes is any indication, the same might be said — at least to a limited degree — in the US.

For all their riches, global oil companies have been on a long path of decline, progressively losing out to national oil interests around the world.

These days, with higher costs, lower returns and increased competition, the screws are tightening even more, leaving executives anxious about the future of their industry.

“Oil companies,” Yergin said, “are feeling cramped.”

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The top seven oil companies — Exxon, BP, Royal Dutch Shell, Total, Chevron, ConocoPhillips and Eni — control less than 5 per cent of the globe’s reserves. Most are having trouble finding enough oil to replace what they pump out each day. —JAD MOUAWAD