How much do oil companies save under Venezuela windfall tax cut? (reposted)

(Reposted, because when I posted this the other day, I was using some incorrect assumptions. It’s all much better now. Crummy old version of post can be seen here.)

So Venezuela’s legislature approved the cut in the “special contribution for exceptional international oil prices” or whatever they call it. Windfall tax, in effect. And people wonder, how much do the oil companies save?

I don’t know, since when you save money on one tax you often end up paying more on some other tax. But here’s what the chart looks like on the windfall prices tax, which isn’t a tax but a “special contribution” (meaning it goes right to the presidential slush fund, rather than being shared with state and local governments):

Venezuela windfall oil taxes as of 2007, 2011 and 2013. Click for full size

At $100 a barrel, under the 2011 rates, oil companies had to contribute $31 a barrel. Under the new rates, you contribute only $21. According to my math, anyway. At $110 a barrel, the difference grows to $10.50 per barrel, and stays there — from there on up, the difference is always $10.50.

Several of the big joint ventures in Venezuela are aiming for output of 200,000 barrels a day. The private partners generally own 40%, so they can count 80,000 barrels a day as their production. At that output, a difference of $10.50 a barrel works out to $306 million a year ($307.4 million in leap years).

But that isn’t exactly how much the oil companies save. Because that $306 million is pretax income, and all sorts of other taxes come in. And to figure that out, you really need to go beyond some dude writing for free on the internet.

No oil off Cuba? What a shocker

After 3 dry holes, one of the world’s only offshore oil drilling apparati that can legally work in Cuba is now asail for Africa. Repsol, Petronas and PDVSA all came up short. Petrobras abandoned its work on the island a couple years ago. Now one might ask, in hindsight, did this drilling program make sense?

Just how well does Venezuela get on with Chevron? Very.

A couple days ago, Raúl Gallegos published a decent little column about how Chevron is, if not betting on a Hugo Chávez reelection, at least setting itself up for a long, happy relationship with the Bolivarian Republic.

Chevron has no illusions about how Venezuela works. It first set up shop there in the 1920s, when strongmen showed heavier hands than Chavez. Scores of populist governments and two oil-industry nationalizations later Chevron is still pumping crude. And when PDVSA asked for a couple of billion to invest in Boscan, a jointly-run field Chevron first came across in the 1940s, the oil major obliged. The 13-year loan is costing PDVSA Libor plus 4.5 percent, far less than the 11 percent that its 2027 bonds pay.

I quibble with a bit of the column, but basically, he’s right. Chevron in Venezuela is now too big to nationalize.

I had thought Repsol fell into the same category. But maybe not. Check out this article from last night.

Venezuela President Hugo Chavez warned Repsol SA (REP) to “think carefully” about taking action against Argentina after it nationalized its YPF SA (YPFD) unit, indicating the Spanish company may face ramifications in Venezuela.

“They have a lot of investment here in Venezuela,” Chavez said on state television after holding a meeting with Argentine Planning Minister Julio De Vido in Caracas. “What happens there in Argentina affects what happens here.”

What jumps out here is that Chávez has never made any similar threats against Chevron over its $18 billion debt to ostensible ally Ecuador. If you haven’t followed that whole story, here’s an article, the plaintiff’s version and the company’s version, but long story short, Chevron was sued in the US for polluting Ecuador. It got the case moved to Ecuador, apparently thinking courts there would be friendlier. Courts there ruled against the company and ordered a huge amount of compensation. Chevron insists that the rulings were flawed by corruption, though I think it’s fair to ask, if they were worried about corruption, why did they get the case moved to Ecuador? The whole thing is a mess.

If Chávez were ideological, you’d think that the anti-Chevron campaigners would find open ears in Venezuela, and would even now be auctioning off the Boscan oilfield to pay the Ecuador debts. Instead, I don’t think Chávez has ever mentioned the case. And Chevron is piling in ever more billions of dollars.

Those of you who think politics has anything to do with ideas might be surprised by this. Please learn.

Argentina’s shale: More than gas (YPF Repsol more)

Every oil analyst is suddenly a bit more focused on Argentina than they were a week or two ago. I just want to correct a couple little mis-impressions about Argentina’s shales in these two generally quite good pieces.

One, expressed by the FT’s John Gapper, is that it’s all the Vaca Muerta shale. There are a bunch of shale areas. Indeed, below the Vaca Muerta you can find the Los Molles formation, which is much thicker. Argentina’s shales, combined, have the world’s third-biggest likely unproved reserves, according to US Geological Survey methodology, but Vaca Muerta alone is not even half of that.

Second, in Raul Gallegos’s piece on the same page says that the shale could offer “four centuries of the country’s consumption.” This reminds me that most people see the shales as primarily a source of natural gas. Yes, shales offer gas, but what’s exciting about Repsol’s discoveries in Argentina is that these rocks also yield oil. In the Argentine context, that makes these rocks more valuable, as gas prices are generally controlled at a low level, and exports are strictly controlled. I understand that pumping oil is more profitable, as the sales price is higher with respect to production costs.

YPF in Argentina: We’ve seen this movie

Yesterday Argentine President Cristina Fernandez de Kirchner sent a bill to the legislature to take majority control of YPF, Argentina’s biggest oil company. If you care about these things, you already know that, and if not, here’s a place to catch up. Noel Maurer and Boz have decent analysis. I wasn’t going to write about this but for once, I actually do have something to offer, as I lived through the same type of process in Venezuela, and I suspect that the Argentine nationalization will play out similarly, at least in broad strokes.

I’m no Argentina expert, and I bet I say things that piss people off for my ignorance, still, here’s a guess, likely to be wrong but what the heck: