Where Does This Stop?

Ecuador Revokes Occidental Pact Over Sale of Local Drilling Rights That’s the headline from today’s Wall Street Journal, regarding yet another hostile takeover of precious energy reserves by a restive Latin American government. The move by the small, coastal nation, Latin America’s fifth-biggest oil producer, came after a long-running legal dispute over whether the California-based firm had broken local laws in selling some of its local oil-drilling rights to a Canadian firm, Encana Corp., without government approval. Whatever the specific excuse, the trend is clear: precious energy reserves are moving from private hands to whoever happens to be in power at the country in question.

Ecuadorean Energy Minister Ivan Rodriguez said Occidental’s contract had been revoked and the company would have to hand over its local operations to state-owned oil company Petroecuador. Meanwhile, Western Bankers including Morgan Stanley are preparing the initial public offering of Rosneft, the Russian state oil company that ranks just beyond Exxon Mobil, reserve-wise.

Potential investors in what is expected to be a very highly anticipated deal might want to consider the fate of companies in Venezuela, Bolivia and, now, Ecuador, before they plunk down their hard-earned US dollars for oil and gas reserves located in—literally—Outer Siberia, among other places.

Occidental has denied wrongdoing, and said in a statement that the company remained “committed to an amicable settlement of this dispute.” The company, which relies on its Ecuador operations for 7% of its global production, said it was reviewing a 33-page document it received from the government and was considering its legal options. Not many legal options come to mind when a sovereign government decides they want their black gold back.

Jeff Matthews I Am Not Making This Up

© 2006 Jeff Matthews

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations.