Investing in Energy: A Primer on the Economics of the Energy Industry

Geopolitics of Crude

Among the 12 OPEC members, some countries have proven themselves to be better places to operate than other countries. In 2007, a wave of nationalization in Ecuador and Venezuela resulted in independent oil companies departing from both countries. Interestingly, state oil companies are continuing to show an interest in Venezuela. We believe that reserves are the end game. If a country has certified reserves, it is in the game.

However, the whole notion of contract sanctity comes in to play here. Both Ecuador and Venezuela have regulatory regimes that have resulted in higher royalties being paid to the state. In January 2007, Venezuela implemented its Empresas Mixtas policy which states that PDVSA must have at least a 60 percent ...