Caracas Chronicles

Criticisms of Chávez’s amazing, morphing strategic association contracts just got a whole lot harder to sustain:

Oil producers fume at ‘third world’ profits grab
The US oil industry charged the government with behaving like a third world despot after the House of Representatives voted to punish companies if they refused to change contracts to give the government a bigger share of rising oil profits.

“We live in a nation of laws,” said John Felmy, chief economist at the American Petroleum Institute, which represents US oil producers. “This is not Caracas or Moscow.”

The House of Representatives voted late on Thursday to eliminate billions of dollars of royalty incentives for oil and gas producers operating in the resource-rich Gulf of Mexico. The measure, which lawmakers approved by a vote of 252 to 165 as part of a broader domestic spending bill, would also compel energy companies to renegotiate the contracts that govern their drilling operations in publicly owned waters off the Gulf coast.

The House has generally been more protective of oil industry interests than the Senate, making it likely the provision will become law.

In order to encourage oil and gas production in the deep waters of the Gulf of Mexico, the Clinton administration in the late 1990s signed roughly 1,000 contracts with producers that exempted them from paying the usual 12-16 per cent royalties to the federal government on sales of hydrocarbons extracted from the Gulf. With oil prices hovering at $70 per barrel and natural gas prices at roughly $6 per thousand cubic feet, the Government Accountability Office earlier this year estimated that these royalty exemptions could cost Washington $20bn (€16bn, £11bn) over the next 25 years.