How to Aggravate the Petro-States

If you want to know why the Kazakhs and Russians are irritated with the major oil companies -- and why Big Oil is in trouble all over the world -- look at this quote from a former oil executive in Venezuela.

In the latest New York Times Magazine, Tina Rosenberg asks this fellow why his company didn't do much for the average Venezuelan while at work in the country. The man replies, "It shouldn't have. It was an oil company."

The perverse part of this breathtaking remark is that it wasn't from a western oil executive, but Ramon Espinasa, former chief economist for the country's state oil company, known by its acronym Pdvsa (pronounced ped-uh-VAY'-suh).

Why has Hugo Chavez gone after Pdvsa as remorselessly as Big Oil? Because Pdvsa was behaving as haughtily as the foreigners -- it had learned to be Exxon.

The jury is still out on Chavez's Oil Socialism. But Espinasa reminds me of why Chevron, for instance, is in hot water in Kazakhstan (which though not fully apparent now, will become so in the coming months).

One reason is that at key, needy moments over the years -- needy on the Kazakh side, that is -- the California company declined to accelerate the payment of huge bonuses it owed to the government, to help the Kazakhs obtain cheap loans, or to lend them money itself.

In other words, before Kazakhstan's bonanza struck, when it needed cash, the biggest game in town -- Chevron, Exxon and the Tengiz oilfield -- declined to help. Why? "We're not a bank," one Chevron man once told me. In other words, like Espinasa, Chevron and Exxon are oil companies, businesses, and not a welfare society.

This attitude is blind. It misunderstands the history and enormity of Big Oil in the countries where it works. Oil executives saunter into these poorer nations like heads of state, and the contracts they sign are often seen within the countries themselves as the equivalent of a treaty with a superpower -- as a means of protection and prosperity.

Oil executives and negotiators of course know this, and use it to their advantage to get the deal. Then they conveniently forget, even when a favor sought by the host country isn't welfare, but reasonable need that would be no big deal fulfilling.

And the attitude is currently tripping up both Chevron and Exxon. At $95 oil, they would sorely love to triple production at Kazakhstan's 300,000-barrel-a-day Tengiz oilfield, in which they have a collective 75% stake. But Russia is blocking expansion of the 1,000-mile pipeline that would take that larger production to market.

Russia's condition for going along with the companies? That they effectively finance the construction of another pipeline that would serve Russia's interest -- one that would link the Black and Mediterranean seas through Bulgaria and Greece.

So far the companies have refused. Why? Because they are oil companies, not arms of the Russian strategic policy group.

The companies eventually will have to bend. But meanwhile they are also irritating the Kazakhs. Expect demands for contract renegotiation soon after the Kazakhs are finished with the dispute at the sister Kashagan field.

Photo of Chavez by henribergius
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