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BlogStocks: Venezuela starts collecting new windfall profits tax on oil companies

Posted Apr 18th 2008 2:47PM by Joseph Lazzaro
Filed under: Venezuela, Commodities, Oil

Venezuela has started collecting its new foreign oil companies windfall profits tax, as part of President Hugo Chavez' plan to gain a larger share of oil company profits, The Associated Press reported. ( http://www.chron.com/disp/story.mpl/business/5707651.html )

The tax is based on the monthly average price of benchmark Brent crude oil. The tax kicks in when the price of benchmark Brent crude sits above $70 per barrel, The Wall Street Journal(subscription required) reported. If oil prices remain above that threshold for one month, the state will take 50% of the difference between this average and the final sale price of every barrel. When Brent crude exceeds the $100-a-barrel average, the rate will rises to 60%.

'21st-century socialism'

President Chavez, a Socialist, has said the tax is necessary to fund key social programs as part of his effort to implement an economic and social system he calls "21st-century socialism." Critics say the tax will slow investment and development in the oil sector, and also discourage other foreign direct investment in Venezuela.

The tax is expected to generate more than $9 billion a year in revenue for the Venezuelan Government, The AP reported.

Companies affected include state-oil firm Petróleos de Venezuela, or PDVSA, and its foreign partners, such as France's Total SA (NYSE: TOT), Norway's StatoilHydro ASA (NYSE: STO), Britain's BP Plc (NYSE: BP), and Chevron Corp. (NYSE: CVX), The Journal reported. (Subscription required.)

Oil Analysis: It remains to be seen whether Chavez' latest move to access more oil company profits will slow investment in Venezuela's oil sector. ExxonMobil (NYSE: XOM) has pulled out of Venezuela, and others may do so, as well. Still, some might stick it out, arguing that Chavez' taxes are the price that must be paid to access Venezuela's rich, proven reserves of the world's most important commodity.

The move may also embolden other nations (perhaps even the United States) to request a larger percentage of oil industry profits, in a sort of 'new era of the windfall profits tax.' The higher tax argument was hard to make a decade ago when oil was treading $20-$25 per barrel, as companies argued that margins were slim, and the tax would have left little for exploration and technology improvements. But with oil trading around $115 per barrel, and with $100 looking more and more each week like a distant memory, an argument can be made that a larger portion of the trillions of dollars in oil industry revenue should be returned to the public via a separate corporate tax.

Tags: BP, Chavez, Chevron, CVX, ExxonMobil, foreign direct investment, gasoline prices, Hugo Chavez, inthenews, oil, oil prices, oil sector, taxes, Total SA, Venezuela, windfall profits tax, XOM

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Reader Comments (Page 1 of 1)

14-18-2008 @ 3:35PM

Kent said...
Unknownst to me earlier, Venezuela retains the largest known reserves of oil in the world at approximately 365 billion brls, far exceeding S. Arabia's 265 Billion brls. In contrast, the U.S. has proven reserves still untapped at around 29-32 billion brls. U.S. consumes about 8 billion brls annually, or about 25% of the world's consumption.



24-18-2008 @ 3:48PM

Marty said...
Good idea for America. Then we can "windfall tax" Hollywood Actor / Actresses, movie producers, professional athletes etc. Chavez will ruing Venezuela

34-18-2008 @ 5:00PM

moonie said...
The US has much more oil in reserve that mentioned it has more than that out in the ocean 40 miles out Alaska has more oil in reserve than Saudi Arabia TRUE FACTanother fact the US HAS MORE THAN 40 BILLION BARRELS ALONE IN N DAKOTA AND SOUTH DAKOTA DO THE RESEARCH


44-18-2008 @ 5:25PM

John said...
When he was elected Venezuela was already ruined. So how is he going to ruin it?

Their economy has expanded significantly since 2003 - while he has held office.

When he took office there were a shockingly low number of doctors. The number of practicing physicians has gone up significantly. How dare that rat fink improve medical care for Venezuelans. That's criminal.

His investment in public schools is significant. How horrible. How dare that commie open schools for kids. That rotten sob.

He has ruthlessly built baseball fields for kids, and the pinko slimbag has even sunk to the low of actually stocking those baseball fields with baseball equipment. Who does he think he is, the American Legion?

This country's idiotic obsession with Hugo Chavez is over the edge. It's insane.


54-19-2008 @ 8:04AM

Robert Alexander said...
Barack Obama has proposed a windfall profits tax on the excess profits of big oil to be used to develop new energy industries here in the USA to create millions of jobs. It is past time for us to do this. Elect Barack to get the job done. Oilman, Bush has consistently opposed doing it. No more. Yes, WE can! Elect intelligent change.
Bring on Barack Obama.

http://www.bloggingstocks.com/2008/04/18/venezuela-starts-collecting-new-windfall-profits-tax-on-oil-comp/