Friction in Oil

Basking in the Caribbean sun, Venezuela is by far the richest nation in Latin America. Cosmopolitan Caracas sprouts skyscrapers like banana plants, boasts some of the worst traffic snarls and best restaurants this side of Paris, lures fun-seeking tourists from the cruise ships and profit-seeking investors from the world over. The fuel of Venezuela's economy is the country's fabled pool of oil, greater than that of any other nation except the U.S. and Russia. The black gold that foreign companies pump from beneath the muddy floor of Lake Maracaibo enriches the Venezuelan government by $1.3 billion yearly, or about $1 per bbl. And whenever the treasury wants more, it simply squeezes the 25 foreign oil companies a little tighter--which is what it is doing right now.

Claims & Controls. The companies have always survived such pressures comfortably. Though the government already skims 67% off the oil income, the biggest producer, Jersey Standard's Creole subsidiary, in 1964 netted a phenomenal $228 million, and the second biggest, Royal/Dutch Shell's subsidiary, earned $105 million. The current demands, however, seem a bit stiff even for Creole and Shell. Early this month the government hit them with back-tax claims totaling $113 million for the years 1958 through 1960 on the questionable ground that they had then sold oil too cheaply--and thus had somehow done Venezuela out of its fair return. More important, the government declared that, even though all the foreign companies get scarcely $1.55 per bbl. for their heavy residual fuel oil, they henceforth will be taxed on the basis of a $1.80 price.

Last week the companies began negotiating the issue with the government in Caracas, and two Venezuelan Cabinet ministers opened talks with Interior Secretary Stewart Udall and Under Secretary of State Thomas Mann. The Venezuelans want more than a simple increase in royalties to bankroll their grand industrial-development plans. Among other things, they seek a stronger voice in the companies' policies and the power to fix the world price of residual fuel oil, of which Venezuela is the prime supplier. By pressuring the subsidiaries of such U.S. giants as Jersey Standard, Gulf, Socony Mobil, Texaco and Atlantic Refining, they also hope to persuade the U.S. Government to increase the import quotas for Venezuelan crude oil, which brings a higher price than fuel oil.

More for Less. The oil companies are trapped between Venezuela's desire to raise prices and the U.S. Government's determination to keep them down. Oilmen argue that if prices go up, the major customers for Venezuelan fuel oil--mainly power utilities and other industries of the U.S. East Coast--will shift to coal or atomic energy. But, says Manuel Perez Guerrero, Venezuela's skeptical Minister of Mines: "That's something that the companies will have to prove." Anyway, the Venezuelans seem willing to sell less oil for more money. In the Organization of Petroleum Exporting Countries (OPEC), they have been leading a campaign to assign production quotas in order to cut the worldwide glut of oil and thus strengthen prices.

While the foreign oilmen in Venezuela can retaliate by reducing their capital investments at Maracaibo, the Venezuelans appear to have the stronger hand. They know that the companies cannot quickly drum up great supplies of fuel oil from other countries. And they hold in reserve the threat of hitting the companies with further back-tax bills, which could amount to as much as $500 million for 1961-65. Chances are that the oil companies will fight the case through the Venezuelan courts, and then come to a compromise calling for somewhat lower profits and higher prices.

This file is automatically generated by a robot program, so reader's discretion is required.