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Ecuador takes over operations of Occidental Petroleum
May 17, 2006 8:18 AM   Subscribe

Ecuador takes over operations of Occidental Petroleum Ecuador began on Tuesday to take over operations of U.S. oil giant Occidental Petroleum Corp, the latest move in Latin America against foreign energy producers after nationalization in Bolivia and growing state intervention in Venezuela.
posted by mountainmambo (51 comments total)

 
Ecuador: next on the War on Terror hit list.
posted by slatternus at 8:28 AM on May 17, 2006


I'm happy to see Latin America taking control of it's resources back from these various foreign powers. Hopefully it will have a positive effect on the continent.

This article in the guardian about the Boliva's nationalisation was quite interesting: The outcry over Bolivia's renationalisation and the silence over Chad's betrays the hypocrisy of the critics.
posted by chunking express at 8:31 AM on May 17, 2006


Let' see ...venezuela , ecuador , chad. Uhmmm too many frontiers, let's learn from WWII. What could one honest scoundrel do ? Maybe divert money from a fund helping the poor people of ThereBeLionsLand. After all they now are rich with their oil...ehhhmmm better not emphasize that. Damn I need some more thinking time, honey lets pack for the rancho !
posted by elpapacito at 8:49 AM on May 17, 2006


Oh great, another excuse to ramp up the price of oil/petrol.
posted by bap98189 at 9:00 AM on May 17, 2006


I'm happy to see Latin America taking control of it's resources back from these various foreign powers. Hopefully it will have a positive effect on the continent.

The long-term effect of this sort of move is generally quite negative. The message that it sends is that foreign investment is not safe in your country.
posted by gd779 at 9:00 AM on May 17, 2006 [1 favorite]


Thanks for that link chunking express.
gd779 I think it rather depends where you are. If I was an Ecuadorean or Bolivian I'd probably be hoping to see my kids getting educated and some sort of health care in the neighbourhood similar to that in Venezuela.
posted by adamvasco at 9:17 AM on May 17, 2006


gd779 I think it rather depends where you are. If I was an Ecuadorean or Bolivian I'd probably be hoping to see my kids getting educated and some sort of health care in the neighbourhood similar to that in Venezuela.

But that's the problem-- unless there's some sort of administrative miracle, the boost in education in health care is likely to be a short-term thing, more than offset by long-term harm done by lack of foreign investment.
posted by COBRA! at 9:26 AM on May 17, 2006


If I was an Ecuadorean or Bolivian I'd probably be hoping to see my kids getting educated and some sort of health care in the neighbourhood similar to that in Venezuela.

Right, but there aren't too many examples of state-owned industry being a success for the populace at large. They usually devolve into pits of corruption.
posted by yerfatma at 9:26 AM on May 17, 2006


The long-term effect of this sort of move is generally quite negative. The message that it sends is that foreign investment is not safe in your country.

I suspect that's exactly the message they want to send. Read "foreign investment" as "rich, first world countries that take our natural resources and give us very little or nothing in return", and I think you get the picture. Otherwise known as "sticking it to the man".
posted by doctor_negative at 9:28 AM on May 17, 2006


bap98189 writes "Oh great, another excuse to ramp up the price of oil/petrol."

You don't understand markets : when there is scarcity, the price goes up. When scarcity goes down, the price remains the same. The future markets is a barometer of what the market expect : you to pay.
posted by elpapacito at 9:28 AM on May 17, 2006


The long-term effect of this sort of move is generally quite negative. The message that it sends is that foreign investment is not safe in your country.

Oil exporting countries are inevitably net lenders (Ecuador's CAD is $58 million right now, and has no where to go but up) - they have no need for foreign investment, they can generate all the capital they need through trade. (They're bad investment opportunities anyway, due to the Dutch Disease.

On preview
Right, but there aren't too many examples of state-owned industry being a success for the populace at large.

Well, there is Statoil, the national oil company of the worlds weathiest nation...

Can anyone think of an example of a populace at large benefiting from privately held oil?
posted by bonecrusher at 9:37 AM on May 17, 2006


The real problem is corruption, as yerfatma identified. Nearly everyone is, no one wants to look like it.

Nationalization is an understandable reaction to the economic imperialism many oil companies practice. On the other hand, once you've booted out the greedy foreign fatcat, you've probably handed the reins to a soon-to-be fatcat who's domestic.

Until we learn to master the 'me-firstism' that's a necessary genetic legacy in all of us and bend it to the common good, we're going to stay in this rut.
posted by SaintCynr at 9:38 AM on May 17, 2006


The long-term effect of this sort of move is generally quite negative.

Co-incidentally, the long-term effect of most of the IMF/WB initiatives that have been foisted on various South American countries has also been negative. Opening up their borders to free trade has not raised them out of poverty but has seen others profits heartily off their resources. Often, the profits go to companies in the particular country that effectively controls the IMF. Another co-incidence? It's not difficult to see why they might have a go on their own terms.
posted by biffa at 9:39 AM on May 17, 2006


It's always more complicated than it seems. It may appear to be a good thing for the local economy to nationalize an industry (Oil and Gas the example here), and for a short while government coffers will bloat with the extra revenue. A conscientious government will also funnel it into education and redevelopment programs.

But the flip side is the long term development and sustainability of the resource. This requires massive amounts of R&D dollars, eduction and management to allow it mature. More often than not, it requires foreign investment and training, local infrastructure maintenance, and political incentives to encourage growth. And then there are the economic spinoffs (local industry such as plastics manufacturing), which also attract foreign investment dollars and expertise. These are often scared off if the environment is perceived to be hostile.

So on and on it goes... Nationalization does not work over the long haul.
posted by pezdacanuck at 9:42 AM on May 17, 2006


Any analysis / plausible future scenario / educated guess / wacko comment on the possible implications of these nationalizations in the face of the rapidly growing energetic demand in China and India?
posted by magullo at 9:58 AM on May 17, 2006


This requires massive amounts of R&D dollars, eduction and management to allow it mature.

That's the part I forgot. Regardless of the economic situation of the country, it's inefficient to have to have a bunch* of independent operators reinventing the same wheels. You also lose the economies of scale that come with multinational corporations. Every single consumer pays those costs in higher prices. Whether the net effect is positive or negative for the citizens of Ecuador is TBD.

* This word took me 5 attempts before it didn't come out "nunch". I don't know why. Also, I am not a defender of big business, just an opponent of fuzzy economics.
posted by yerfatma at 10:02 AM on May 17, 2006


You can't trust the value of the yuan as far as you spit an anvil. Add to that the poor banking system in China and you get minimal chance of proper investment. India on the other hand will become a more dominant investment partner as time goes on.

Me thinks you will see Russia willing fund those needs more readily in the short term. Still spells trouble for poor little Ecuador
posted by pezdacanuck at 10:05 AM on May 17, 2006


Small countries need foreign oil companies for the technology and expertise as much as the investment. Producing barrels of oil at a competetive price is hard.
posted by hoverboards don't work on water at 10:26 AM on May 17, 2006


Every single consumer pays those costs in higher prices.

No, they don't. Oil is not a competetive market and production costs don't figure in the cost to the consumer. Even if Occidental is more efficient than whatever state company is set up, they'll still sell their oil for $70/barrel.

Occidental may have collected greater rents than the Ecuadoran govt will, but I can't imagine why the average Bolivian would care.
posted by bonecrusher at 10:28 AM on May 17, 2006


"The message that it sends is that foreign investment is not safe in your country."

The message it sends is that you aren't free to shit on the peasants and take their resources.
posted by 2sheets at 10:30 AM on May 17, 2006


Whether the net effect is positive or negative for the citizens of Ecuador is TBD.

Exactly. The trouble with the pure, free market economics approach to maximising profit is that it doesn't take into account who is actually getting their hands on the money. Even if the citizens of Ecuador get less money, which citizens will it be that are getting less? Could there be a bit more justice in terms of distribution even in the less economic/profitable situation?

On preview, what bonecrusher said.
posted by biffa at 10:32 AM on May 17, 2006


Small countries need foreign oil companies for the technology and expertise as much as the investment. Producing barrels of oil at a competetive price is hard.

That sounds a lot like the sentiment I've seen baldly stated as "Those poor brown people aren't competent to run the oil-extraction system on their own" which is complete bullshit. All they have to do is hire people with the expertise required (from whatever country). This feels so obvious it shouldn't need to be stated.

Oil workers (engineers on down) will work for the best pay they can get. All they have to do is set a reasonable price for what they will pay them, which should be a cinch considering the guaranteed future oil revenues.

Something I saw on The Oil Drum stated that such nationalization schemes are likely to result in a slower drawdown of the (quite finite) pool of available oil, which in general should contribute to a less harsh crash, so is overall to the good for the market as a whole. The sooner we make changes to using less oil, the less badly off we will be, in other words.
posted by beth at 10:41 AM on May 17, 2006


The trouble with the pure, free market economics approach to maximising profit is that it doesn't take into account who is actually getting their hands on the money.

Well, I agree with this is principle, but it's not apropos here - oil is not a free market, and, in economic terms, oil companies don't generate a profit. They're rentiers collecting scarcity rents. In a free market, instead of screwing around on metafilter, we'd all be out starting our own oil companies to take advantage of the "profits" just waiting to be made. Scarcity rents can be completely taxed away without interfering with the price-signalling functions of a free market.

Also, fuck 'em.


So on and on it goes... Nationalization does not work over the long haul.


Norway seems to be doing pretty well.
posted by bonecrusher at 10:42 AM on May 17, 2006


Occidental may have collected greater rents than the Ecuadoran govt will, but I can't imagine why the average Bolivian would care.

I think one of the most impressive things about metafilter is the way everyone else can compose intelligent and often witty posts, while I can't seem so manage a simple subordinate clause.
posted by bonecrusher at 10:48 AM on May 17, 2006


That sounds a lot like the sentiment I've seen baldly stated as "Those poor brown people aren't competent to run the oil-extraction system on their own" which is complete bullshit. All they have to do is hire people with the expertise required (from whatever country).

Save the Populism for Sunday, reverend. Those people they need to hire? You have to find them first. And then hire them away from the oil companies they work for. They aren't hanging around waiting for calls from South American states. It has nothing to do with the color of the skin. I don't think the United States could do a good job with a nationalized oil industry either.

Oil is not a competetive market and production costs don't figure in the cost to the consumer.

Explain how this is so. They seem to have a small market for oil futures. Why would people bid on a non-competitive item? I realize end consumers buy refined gasoline (in addition to other petroleum distilates), but the price of oil is a marginal cost input in that equation, isn't it?
posted by yerfatma at 10:51 AM on May 17, 2006


For what its worth Ecuador says other foreign energy companies have nothing to fear It insists the dispute is specific to Occidental, which it says violated the terms of its operating contract.
And yes Norway is doing OK but could be facing a rise in inflation.
posted by adamvasco at 10:55 AM on May 17, 2006


I think one of the most impressive things about metafilter is the way everyone else can compose intelligent and often witty posts, while I can't seem so manage a simple subordinate clause.

If you're starting a club, I would like to join.
posted by yerfatma at 10:57 AM on May 17, 2006


That sounds a lot like the sentiment I've seen baldly stated as "Those poor brown people aren't competent to run the oil-extraction system on their own" which is complete bullshit.

Ecuadorians are individuals. Some of them are oil workers, some aren't. If the government can hire locals, that's great, but the fact is that the vast majority of the world's geoscientists are not trained in Ecuador.

All they have to do is hire people with the expertise required (from whatever country).

Exactly. The easiest way to do this is to a hire a company that specializes in providing oilfield services such as Schlumberger. Bolivia's previous investor/operator of choice was Petrobras, which I believe is owned and run by "brown people".
posted by hoverboards don't work on water at 11:15 AM on May 17, 2006


Small countries need foreign oil companies for the technology and expertise as much as the investment. Producing barrels of oil at a competetive price is hard.

I suspect if Equador doesn't have the expertise to run its oil production, it can hire someone qualified to do so. Or hire people to train locals to do so. Shocking, I know. More so, those they hire need not be from the "Western" world. I don't think there is a global shortage of Chemical engineers. There is also no reason a privately held company will be better equiped to hire people then a nationally held company.
posted by chunking express at 11:20 AM on May 17, 2006


They seem to have a small market for oil futures. Why would people bid on a non-competitive item?

I don't understand your point here. Futures protect against price volitility. There's no contradiction between in-elastic supply and the existence of a futures market.

the price of oil is a marginal cost input in that equation, isn't it?

Sure, but the supply is inelastic - Ecuador can't increase market share by charging less than, say, the Saudis. They're both going to sell 100% of what they drill. Oil is a textbook case of scarcity rents.

Those people they need to hire? You have to find them first. And then hire them away from the oil companies they work for.

Aramco seems to do just fine, and at least you can have a beer in Ecuador.
posted by bonecrusher at 11:21 AM on May 17, 2006


For what its worth Ecuador says other foreign energy companies have nothing to fear

Riiiight. This is not credible. If Ecuador really wanted to send the message that other foreign companies have nothing to fear, it would be in arbitration with Occidental, rather than sending in the troops to seize the plants by force.
posted by gd779 at 11:21 AM on May 17, 2006


Time for more Dubya gunboat diplomacy.
Kick their ass and take the oil.
Fuck them brown people, I need cheap gas for my SUV!
[/lgf imitation]

A limited resource such as petroleum will no longer obey the "invisible hand" of free markets (like there is such a thing), especially considering the worldwide rising demand for the limited resource.

So stuff the "free market" arguments.

This resource belong to the people there and they must democratically decide how best to spend the resource.

Same for Bolivia and Venezuela.

Demonizing others and gunboat diplomacy is what has gotten the world into this situation anyway.
"I'm a uniter, not a divider." -yeah, right, uniting the whole fu*king world against the US.
posted by nofundy at 11:23 AM on May 17, 2006


The long-term effect of this sort of move is generally quite negative. The message that it sends is that foreign investment is not safe in your country.
posted by gd779 at 9:00 AM PST on May 17 [+fave] [!]


This is exactly right. No economy can function without foreign investment. If there is a risk of the government taking over your business, you won't invest in that country.

When foreign investors leave, domestic uncertainty rises, leading to poverty and corruption. Then the cycle continues.

You only need to look at China as proof of this. When they cut down on the corruption and allowed private businesses and foreign businesses to operate, their economy started booming.

Everybody reading this message is benefiting from free trade and foreign investment. You only need to look at your keyboard, computer and monitor for evidence of this.
posted by b_thinky at 11:35 AM on May 17, 2006


Those people they need to hire? You have to find them first. And then hire them away from the oil companies they work for.

This isn't complex. Just go to monster.com or the equivalent oil-industry-specific sites and put up your job notices. Managers, engineers, etc, all can be hired there. And all it takes to "hire them away" is money.

Are you positing that they'll all have philosophical objections to working for a nationalized oil industry that overwhelms their desire to line their pockets (and feed their families, etc)?? Because I really doubt that would happen. They're like people everywhere, they'll overlook their philosophical objections (if they bother to even have any) to make a buck.

Also I am betting there are oil-services companies that can be hired to manage oil assets, top to bottom. They don't care if it's a government that pays them or an oil company, they will do the job for the money and the oil will make it to market.
posted by beth at 11:44 AM on May 17, 2006


Are you positing that they'll all have philosophical objections to working for a nationalized oil industry that overwhelms their desire to line their pockets (and feed their families, etc)??

No. Could you save the histrionic inferrences for somewhere else? I'm positing that the world's supply of qualified employees for these roles you speak of is fairly small and thus hard to find/ expensive. It'd be interesting to see just how many resumes are sitting out there on Monster for this, if I had any idea what the hell to look for/ access to an employer account.

Ecuador can't increase market share by charging less than, say, the Saudis. They're both going to sell 100% of what they drill. Oil is a textbook case of scarcity rents.

I guess I didn't get (and probably still don't) what you meant by: "Oil is not a competetive market and production costs don't figure in the cost to the consumer" — (my perception of) your model suggests everyone is bringing all the oil they can sell to market everyday, but obviously they would bring more if demand were higher. Why can't Ecuador produce more oil than they currently are if they want to sell more at a lower price? What am I completely missing about the oil market?
posted by yerfatma at 12:06 PM on May 17, 2006


reminds me of Confessions of an Economic Hit Man.
posted by shoepal at 12:19 PM on May 17, 2006


I don't think there is any sort of shortage of Chemical Engineers in the world. Do you actually have figures to back this up?
posted by chunking express at 12:29 PM on May 17, 2006


The charge the same and world oil prices argument is irrelevant. OPEC is the cartel involved in regulation, but not all producers belong to OPEC and have trading and selling in other indices. Russia which is not part of OPEC has long been a thorn in the side of the market price.

And as for hiring the locals, that only works if the level of trades training is on part for the trade being trained for.
posted by pezdacanuck at 12:36 PM on May 17, 2006


Oh, and sorry for the double post, but I forgot to mention that futures do not a stable market make. Imagine that a reduced inventory you're selling in 2 months suddenly gets flooded with product and no demand the month before. Good luck in dumping that original future to compensate for the loss 2 months from now ..lol
posted by pezdacanuck at 12:39 PM on May 17, 2006


Talent Shortage Slows Oil Tech
posted by PenDevil at 12:40 PM on May 17, 2006


That makes it sound like their is a shortage in the US. Is this true globally? There is a shortage of scientists & engineers in the US irrespective of a particular field.
posted by chunking express at 12:55 PM on May 17, 2006


If the US can't attract engineers I don't think Ecuador is going to fare much better.
posted by PenDevil at 1:14 PM on May 17, 2006


There is no possible way that someone wouldn't want to work in the US after all. It's the greatest country in the world. :O

Anyway, this idea that Ecuador will be unable to manage its oil without foreign help reeks of old-school colonial contempt for the third world; resourcefulnesses is not a Western commodity. I am sure Ecuador will be fine. Worse case they can send locals off to be trained.
posted by chunking express at 1:41 PM on May 17, 2006


"Petroleum is the excrement of the devil."
posted by homunculus at 2:14 PM on May 17, 2006


Anyway, this idea that Ecuador will be unable to manage its oil without foreign help reeks of old-school colonial contempt for the third world

Is anyone actually saying that? Or are you actively ignoring the arguments against Nationalization in this thread because they are the product of inherently racist minds?
posted by yerfatma at 2:26 PM on May 17, 2006


Is anyone actually saying that?

Clearly I felt this was the case.

Or are you actively ignoring the arguments against Nationalization in this thread because they are the product of inherently racist minds?

That must be it.
posted by chunking express at 3:05 PM on May 17, 2006


Something I saw on The Oil Drum stated that such nationalization schemes are likely to result in a slower drawdown of the (quite finite) pool of available oil, which in general should contribute to a less harsh crash, so is overall to the good for the market as a whole.

Not familiar with The Oil Drum, but count me as skeptical in any event, as I don't see politicians as more thoughtful stewards of a national windfall than foreign investors would be.

Management of oil aside, there's the question of Rule of Law and its economic impact. As far as I can see, the government is reneging on a contract. Their prerogative, and maybe they can benefit the masses that way, but economies work best where things are predicatable. It's not just that Occidental's being shafted- the government is sending a message to every entrepreneur in sight that contracts are, shall we say- renegotiable - at any time, if the government so decides.

I'm not clever or energetic or imaginative enough to start up a business, but I can guarantee you that those who are will not be making a bee line to Ecuador any time soon.

Though I will be interested to be proven wrong....
posted by IndigoJones at 6:13 PM on May 17, 2006


That must be it.

I feel much better about your powers of critical thinking after that riposte.
posted by yerfatma at 6:30 PM on May 17, 2006


I'm positing that the world's supply of qualified employees for these roles you speak of is fairly small and thus hard to find/ expensive.

Yes, we are, and the shortage is a global one.

However, the industry is structured these days such that the oil companies subcontract almost all their non-core activities. The actual oil companies themselves are often involved only in a very hands-off fashion.

There are hundreds of service companies capable of running any part of the operation and they are all willing and able to work anywhere in the world for a price.

Really, if the Ecuadorian government wants they can turn the whole thing over to one of the big service companies (Schlumberger, as pointed out above, would be a good if expensive option) and get them to run it. It's no big deal.
posted by thatwhichfalls at 6:50 PM on May 17, 2006


I know someone who owns an oil prospecting, etc, company. I can't imagine they would turn down contracts from a national oil corporation any more than from a private one. A contract is a contract.

is it that the Equadorian government is reneging on the contract, or is it that Occidental has already violated the terms?
posted by jb at 7:30 PM on May 17, 2006


I'm curious about how the dollarization of Ecuador's economy in 2000 affects this.... That ties their economy pretty closely to the US's, no? Any macroeconomists out there who could comment?
posted by salvia at 11:41 PM on May 17, 2006


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