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Resource Nationalism: A Strategic View Patrick Esteruelas Analyst, Latin America esteruelas@eurasiagroup.net 6 November 2007
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Resource Nationalism: Beyond the Headlines Resource nationalism encompasses efforts by governments to reassert control over the production and management of domestic natural resources, usually in order to capture a larger share of the value of the resource. Governments are employing resource nationalism both as an economic weapon against foreign companies and as a political weapon to control domestic companies. Government leverage limited by need for capital, technology, development; company leverage limited by alternative investment options, commodity price.
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Different Shapes, Different Sizes Mild nationalism: Hikes in taxes and royalties for foreign oil companies, as governments attempt to increase their slice of oil profits. Examples: Bolivia, Canada Aggressive nationalism: Demands for a controlling share over existing and future projects, often involving fair market value compensation. Examples: Algeria, Russia Extreme nationalism: State takeover of foreign assets, with no cash compensation. Examples: Ecuador, Venezuela
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NOCs: The New Oil Champions 80% of the world’s oil and gas is found in countries whose production is controlled by NOCs and their partners. The new seven sisters (Saudi Aramco, Gazprom, CNPC, NIOC, PDVSA, Petrobras and Petronas) together control over 30% of global production. Significant advantages over IOCs: No shareholder accountability Greater risk tolerance Ability to leverage state-to-state relationships Ability to offer substantial bonuses that can’t easily be matched by IOCs
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NOCs: The New Oil Champions Source: MISI
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How Should IOCs Respond? Adapt to new market reality Recalculate risk Exploit competitive advantages Focus on cutting-edge projects in non-conventional reservoirs
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Latin American Resource Nationalism Venezuela, Bolivia and Ecuador are champions of a much greater role for the state in upstream oil and gas activities. Not surprisingly, upstream oil and gas represent a sizable proportion of these countries’ exports and fiscal revenues: Venezuela: 90% of exports, 50% of fiscal revenues Bolivia: 50% of exports, 40% of fiscal revenues Ecuador: 40% of exports, 25% of fiscal revenues Governments have also come under heavy popular pressure to take a tougher line with foreign oil companies
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Latin American Resource Nationalism Voters support government intervention across much of the region Are you in favor of: Source: IPSOS, Eurasia Group
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Latin American Resource Nationalism Energy nationalism has taken different forms in all three countries, depending on the leverage held by their respective NOCs, size of their reserves and additional acreage opportunities. While the renegotiation of contracts is not wholly without merits, the way in which contracts have been changed has reinforced uncertainties over contract and property rights. The more extreme forms of resource nationalism may be self-defeating, resulting in stagnant/falling production and reinforcing a dependence on high oil prices.
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Eurasia Group is a research and consulting firm that focuses on political risk and macro- political and industry analysis. Eurasia Group provides clients with regular research publications and tailored consulting on political trends and their impact on the business and foreign investment climate in Central and Eastern Europe, Russia and the former Soviet Union, Latin America, the Middle East, Africa, and Asia. Eurasia Group offers direct consultation with in-house country analysts as well as programming services that enable clients to engage in direct dialogue with relevant country analysts and government officials from the region. This presentation is intended solely for internal use by the recipient and is based on the opinions of Eurasia Group analysts and various in-country specialists. This report is not intended to serve as investment advice, and it makes no representations concerning the credit worthiness of any company. This report does not constitute an offer, or an invitation to offer, or a recommendation to enter into any transaction. Eurasia Group is a private research and consulting firm that maintains no affiliations with government or political parties. © 2006, Eurasia Group, 475 Fifth Avenue, 14 th floor, New York, New York 10017 www.eurasiagroup.net
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