Latin America Becoming Riskier for US Oil and Gas Companies

Location: New York
Author: Ben Tsocanos
Date: Wednesday, June 28, 2006
 

Oil prices that are hovering near record highs are transforming the political landscape in many parts of the world, including Latin America, where pricey crude has helped spur several governments to push for larger shares of oil revenue and more control over their countries' hydrocarbon assets, according to a report published yesterday by Standard & Poor's Ratings Services titled "Latin American Risk Heats Up For U.S. Oil And Gas Companies."

Venezuela's increase in production taxes and unilateral changes in contracts, Ecuador's seizure of operating facilities leased to Occidental Petroleum Corp., and Bolivia's outright nationalization of its hydrocarbon industry are examples of recent heightened government activism that affect U.S. exploration and production (E&P) companies.

"These political trends are generally unfavorable for the credit quality of those companies that operate in the region, but the risks involved vary greatly from country to country and company to company," said Standard & Poor's credit analyst Ben Tsocanos.

With oil prices showing little sign of moderating in the intermediate term, we expect the trend of Latin American governments asserting greater control over energy resources to continue. Negotiating power is not likely to swing back toward foreign investors until the value of oil and gas reserves declines with the next price cycle.