Venezuela May Not Meet 2010 Oil Output Target, JPMorgan Says
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July 26 (Bloomberg) -- Venezuela may fail to meet its target of raising daily crude oil output to 5 million barrels by the end of this decade because of reduced government spending and concern about policies that discourage foreign investment, JPMorgan Chase & Co. said.
Production growth from state-run Petroleos de Venezuela, South America's largest oil company, has been restrained as profits are channeled into the government's welfare programs instead of maintaining and expanding oil fields, according to the July 26 report.
``Skepticism abounds about Venezuela's ability to meet its goal of boosting production to 5 million barrels a day,'' the analysts said. ``Windfall oil revenue has been spent on social programs aimed at eradicating poverty rather than the oil sector, which has negative implications for future production growth.''
Supplies from producers including Venezuela are needed to meet rising global demand for oil which is expected to increase by 1.9 percent to 83.88 million barrels a day this year, the International Energy Agency said earlier this month. Venezuela sells two-thirds of its oil exports to the U.S., which counts the South American country as its fourth-largest oil supplier.
Speculation that demand from the U.S. and China, the world's largest and second largest oil users, will outpace supply helped push oil on the New York Mercantile Exchange to a record $62.10 a barrel on July 7.
Oil prices have quadrupled since Venezuela's President Hugo Chavez took office in early 1999, enabling his government to boost spending on food subsidies, education and health care in the world's fifth-largest oil exporter, the report said.
Chavez's spending has helped the former army lieutenant colonel consolidate support among the nation's 14.5 million poor ahead of congressional elections in December and presidential elections next year, according to Datanalisis, a Caracas-based polling company.
The share of the country's total output from Petroleos de Venezuela SA has fallen since 2003 when a two-month strike paralyzed the production and exports.
Taxes and Royalties
To raise more income to fund welfare programs, Chavez is increasing the amount international oil companies such as Exxon Mobil Corp. and Chevron Corp. must pay in taxes and royalties.
Royal Dutch Shell Plc, Europe's second-largest oil company, said on July 21 it has paid all its taxes to Venezuela, disputing government claims that it owes 281 billion bolivars ($130 million).
Shell is the first international company alleged by the tax agency to have underpaid its income taxes. Twenty-one other companies, including Chevron Corp. and France's Total SA, are in the process of being audited. Venezuelan Energy and Oil Minister Rafael Ramirez said last month that the companies could owe more than $3 billion in back taxes.
``A fall in oil prices could delay the implementation of investment plans laid out by foreign companies if the government continues its policy of forced renegotiation of contracts and increases its take with higher income taxes and royalty rates,'' said the report by JPMorgan analysts Katherine Spector, Soozhana Choi, Luis Oganes and Jennifer Rowland.
To contact the reporter on this story:
Sri Jegarajah in Singapore at sjegarajah@bloomberg.net.
Last Updated: July 26, 2005 03:42 EDT
July 26 (Bloomberg) -- Venezuela may fail to meet its target of raising daily crude oil output to 5 million barrels by the end of this decade because of reduced government spending and concern about policies that discourage foreign investment, JPMorgan Chase & Co. said.
Production growth from state-run Petroleos de Venezuela, South America's largest oil company, has been restrained as profits are channeled into the government's welfare programs instead of maintaining and expanding oil fields, according to the July 26 report.
``Skepticism abounds about Venezuela's ability to meet its goal of boosting production to 5 million barrels a day,'' the analysts said. ``Windfall oil revenue has been spent on social programs aimed at eradicating poverty rather than the oil sector, which has negative implications for future production growth.''
Supplies from producers including Venezuela are needed to meet rising global demand for oil which is expected to increase by 1.9 percent to 83.88 million barrels a day this year, the International Energy Agency said earlier this month. Venezuela sells two-thirds of its oil exports to the U.S., which counts the South American country as its fourth-largest oil supplier.
Speculation that demand from the U.S. and China, the world's largest and second largest oil users, will outpace supply helped push oil on the New York Mercantile Exchange to a record $62.10 a barrel on July 7.
Oil prices have quadrupled since Venezuela's President Hugo Chavez took office in early 1999, enabling his government to boost spending on food subsidies, education and health care in the world's fifth-largest oil exporter, the report said.
Chavez's spending has helped the former army lieutenant colonel consolidate support among the nation's 14.5 million poor ahead of congressional elections in December and presidential elections next year, according to Datanalisis, a Caracas-based polling company.
The share of the country's total output from Petroleos de Venezuela SA has fallen since 2003 when a two-month strike paralyzed the production and exports.
Taxes and Royalties
To raise more income to fund welfare programs, Chavez is increasing the amount international oil companies such as Exxon Mobil Corp. and Chevron Corp. must pay in taxes and royalties.
Royal Dutch Shell Plc, Europe's second-largest oil company, said on July 21 it has paid all its taxes to Venezuela, disputing government claims that it owes 281 billion bolivars ($130 million).
Shell is the first international company alleged by the tax agency to have underpaid its income taxes. Twenty-one other companies, including Chevron Corp. and France's Total SA, are in the process of being audited. Venezuelan Energy and Oil Minister Rafael Ramirez said last month that the companies could owe more than $3 billion in back taxes.
``A fall in oil prices could delay the implementation of investment plans laid out by foreign companies if the government continues its policy of forced renegotiation of contracts and increases its take with higher income taxes and royalty rates,'' said the report by JPMorgan analysts Katherine Spector, Soozhana Choi, Luis Oganes and Jennifer Rowland.
To contact the reporter on this story:
Sri Jegarajah in Singapore at sjegarajah@bloomberg.net.
Last Updated: July 26, 2005 03:42 EDT
posted by Marcel at 2:42 AM
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