The Global Oil Industry and Resource Nationalism
Tony is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
As detailed in a previous article, the government of Argentina – led by its president, Cristina Fernandez – has nationalized its largest oil company, YPF (NYSE: YPF). In the process, it expropriated 51 percent of the shares held by the majority holder, Spain's Repsol. Before the nationalization, the Spanish company had been trying to sell its shares to a Chinese company which was rumored to be Sinopec.
So what does this mean to investors, particularly those in the energy sector? Is this the beginning of a natural resources nationalization trend which will spread across the globe, hurting investors?
The answer for now is no. For example, look at Russia – the poster child for resource nationalism. In the last decade, it broke up Yukos – once the country's biggest oil producer – and imprisoned the head of the company, Mikhail Khodorkovsky. It also “forced” Royal Dutch Shell into relinquishing control of the Sakhalin-2 Siberian oil and gas project.
But recently Russia has done a complete about-face. Ironically, on the same day that YPF was nationalized, Russia's state-controlled oil giant Rosneft announced finalization of a deal with ExxonMobil (NYSE: XOM). The deal gives Exxon access to one of the world's largest untapped hydrocarbon resources, those lying beneath Russia's Kara Sea in the Arctic north of the country.
The reason behind the deal? Rosneft needs Exxon's expertise in dealing with harsh conditions so it can tap those fields. Russia's soon-to-be-again-leader Vladimir Putin realizes that Russian oil companies will need the experience and expertise of international oil companies like Exxon in order to exploit its vast offshore energy resources. Accessing these offshore fields is the only hope for Russia to achieve its aim of keeping oil production at 10 million barrels a day over the next decade.
Russia is not alone in its change in attitude either. Argentina's fellow South American country, Colombia, has also become friendly to investment into its energy sector. One change is that international oil companies are no longer forced to partner with the national oil company, Ecopetrol S.A. ADR (NYSE: EC). Foreign investment into Colombia's energy sector this year is expected to reach $10 billion.
The turnaround, led by Ecopetrol, since the country's liberalization in the sector is remarkable with production rising to about 1 million barrels a day, nearly double the rate of five years ago. That rate of increase compares very favorably with its neighbor, Brazil, which is the country most investors think about when it comes to exciting oil prospects.
Speaking of Brazil...that is one country which is unfortunately backsliding toward state control of oil resources. President Dilma Rousseff has pushed hard to wield more government influence over its oil giant Petrobras SA ADR (NYSE: PBR). This has been a key factor in the stock's poor performance over recent months.
Of course, Petrobras has also had a history of failing to deliver on the ambitious targets it always sets for oil production. Despite lofty goals, Petrobras has only delivered an 150,000 barrel a day increase in Brazil's oil output over the past three years. So investor skepticism is understandable when the company talks about an investment plan involving hundreds of billions of dollars to exploit its rich offshore fields, bringing output up to 4.9 million barrels a day by 2020 from 2.1 million barrels a day in 2011.
So it's sort of a mixed bag globally at the moment as far as oil resources nationalism. What is the outlook for the future?
Most likely, the majority of nations will move in the direction of Russia and Columbia are going and not follow in the footsteps of Argentina and Brazil. Most governments want their hydrocarbon resources developed (so they can tax them and generate revenues). With the 'low-hanging fruit' already exploited, most of the large remaining oil fields today lie deep beneath the ocean surface or under layers of ice near the poles.
In order to access these resources, expertise and investment are needed. This expertise and investment can only come from one source – the large energy companies such as Exxon and Royal Dutch Shell among others. Eventually countries Brazil will find out that their national champions like Petrobras cannot do it alone.
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