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Occidental Petroleum (OXY)
Occidental Petroleum's Lawyers May not Save Ecuadorian Interests
Nationalization is the bogeyman of international business, especially large businesses that require enormous investment to set up and run. This specter probably keeps CEO's in the oil and gas business awake at night more than those in other industries. Occidental Petroleum, the U.S.'s fourth largest oil and gas company, yesterday had to face the risk of nationalization after Ecuador announced it would not renew its contract with the company, and the country said it may auction off operation rights or turn to joint-ventures with the state oil companies of Brazil or (gulp) Venezuela. Why are energy prices edging lower from last week's highs after another sign that US businesses could be getting the cold shoulder in Latin American? Has Occidental hedged its bets in this volatile market?
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It appears that the legal grounds for taking over Occidental's operations cam from the company's sale of 40% of one of its largest operations to Canada's Encana Corp. (ECA: Charts, News, Offers). The government appears to be acting as if this sale constitutes a change of ownership, which reasonably necessitates a change of contract terms. Occidental seems to agree with this saying that "Ecuador has the right to seize the assets immediately," according to MarketWatch. But this admission does not mean the company has given up on a major source of its worldwide revenues.
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The company's legal teams are stepping up to build a case that may allow the company to keep control of this 100,000 barrel-a-day production operation. Ecuador claims that Quito was not kept in the loop, and this may lead to a hefty settlement and no hard feelings. But there other possibilities that point to a tougher road ahead for US companies looking to work in Latin America.
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With all of its lawyers working around the clock, Occidental may not be out of the woods yet. Even a settlement would prove costly to the company's bottom line. Worse still, Ecuador's Energy Minister Ivan Rodriguez said that the country does not wish to nationalize Occidental's holdings . . . but was considering a joint-venture with other state oil companies like Petrobras (of Brazil) or Venezuela's state oil company. These two statements, seem to contradict one another because such joint-ventures would constitute a form of nationalization.
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If it is more than just media hype that countries in Latin America are taking a bolder stance against U.S. interests and against market liberalization and privatization, then the real loser in this situation may be Encana. Occidental may, in fact, have been prudent in selling off a large amount of its interest in Ecuador as soon as possible.
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Profile |
The Company's principal activities are to explore for, develop, produce and market crude oil and natural gas. The operations are carried out through two segments: Oil and Gas and Chemical. The Oil and Gas segment develops, explores for, produces and markets crude oil and natural gas. The Chemical segment manufactures and markets basic chemicals, vinyls and performance chemicals. Basic chemicals include chlorine, caustic soda, potassium chemicals and their derivatives. The Company operates in the United States, Qatar, Yemen, Colombia, Oman, Pakistan, Canada, Russia, Ecuador, the United Arab Emirates and other countries.
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