This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

What Hugo Chavez's Death Means For Venezuela's Oil Market

Future uncertain

The delays currently afflicting the planned $233-billion development of oil fields, pipelines and refineries in the country's Orinoco Belt, which according to a US Geological Survey study may hold more crude reserves than Saudi Arabia, are a prime example of this mismanagement.

Until now, PDVSA has given no indication as to whether it will invite more foreign investment or increase its own investment in new production; however, the late president held such sway over the company's direction that his death could dramatically alter not only the future of the company, but also of the entire sector.

Questionable investment environment

Despite the country's obvious potential, investors have been cautious to back companies operating in the region. This reticence is largely due to Chavez's past moves to make PDVSA the majority stakeholder in all Venezuelan projects by nationalizing oil and gas assets owned by international oil companies. Moves like that prompted ExxonMobil (NYSE:XOM) and a number of other companies to abandon work in the country; in turn, that reduced Venezuela's access to oil and gas technology and expertise.

In what many analysts feel was the “fatal blow,” in 2007 Chavez essentially renationalized the industry, kicking out a number of foreign oil companies that refused to renegotiate their contracts, namely ExxonMobil and ConocoPhilips (NYSE:COP), which until that point had invested billions of dollars into Venezuela's oil sector, according to CNNMoney.

The new rulings require foreign investors to essentially sign over 60 percent of their operations to PDVSA. However, under these terms, the foreign entity, which holds the remaining 40 percent, is still required to fund 100 percent of the investment - hardly an enticing prospect. Additionally, whatever profit is made by the foreign entity is subject to a 50-percent tax rate and a 33-percent royalty, and any disputes concerning ownership are only allowed to be heard in Venezuelan courts.

2 of 5

Check Out Our Best Services for Investors

Action Alerts PLUS

Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
Try it NOW
Try it NOW
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,672.60 -141.38 -0.79%
S&P 500 2,051.82 -11.33 -0.55%
NASDAQ 4,757.8790 +7.4820 0.16%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs