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By Robert Rapier on Mar 26, 2008 with no responses

Newsflash: Chavez to Increase Oil Taxes Again

When ExxonMobil and ConocoPhillips walked out of Venezuela last year instead of accepting radical changes to their previously agreed upon contracts, I think they could see the handwriting on the wall. As long as Chavez has influence down there, oil companies are not going to be allowed to consistently make money. If oil prices are up, he is going to demand a bigger cut. But if oil prices are down, he isn’t likely to reduce tax rates. So I think XOM and COP viewed the situation as high risk, low reward, and decided to exit instead of continue to play games with Chavez.

It should come as no big surprise to the companies who decided to stay – Chevron, BP, Statoil, and Total – that the deals they agreed to would be voided if it looked like they were going to start making money:

Venezuela to impose new tax on oil company earnings

CARACAS, March 24 (Xinhua) — Venezuela will impose a new tax on oil companies for their “unexpected earnings” from the soaring global oil prices, President Hugo Chavez said Monday.

“They’re earning money that they haven’t accounted for,” Chavez said in a speech televised Monday, adding that those large additional earnings are not “a product of any extraordinary effort.”

The government has prepared a bill outlining the tax, he said, but the tax rate has not yet been determined.

The tax will represent the fourth rise in oil taxes in as many years as part of Chavez’s drive to increase revenue from the oil industry and tighten state control over oil fields.

Over the past two years, the Venezuelan government has raised taxes for oil exploration, extraction, processing and selling to foreign companies.

This is the business climate in Venezuela: Take risks, and if there is a reward Chavez will take it. This is already hurting investment there, and I think Venezuela – after seeing an initial windfall – will see much lower revenues in the future as investment there dries up. He is employing an incredibly short-sighted strategy.