FACTBOX – Governments boost share of oil, gas income

Emboldened by high oil prices, South American countries are leading the way, but are not alone, among those seeking more cash and control from multinationals that drill in their oil and gas fields.

Consumers fear this resurgence of “resource nationalism” will slow investment, tighten supplies and keep oil prices at record highs.

But some analysts say with oil hovering near $70 a barrel, producer nations are well within their rights to recoup profits from foreign investment.

Many contracts were struck in the 1990s when oil was near $15 and producers were competing for foreign capital to develop their reserves. Oil lingering above $65 was unthinkable then and deals did not anticipate higher prices and returns.

Producers are making their move as output from older provinces, such as the North Sea, is falling and investors face the challenge of gaining access to big sources of new reserves.

Following are examples of governments increasing their share of oil and gas income through higher taxes, contract changes and other means.

ALGERIA

The Algerian cabinet has approved a bill that changes landmark legislation liberalising the OPEC member’s state-dominated energy sector in a way that favours state conglomerate Sonatrach, an official statement said on Wednesday.

The statement in government newspapers said the proposed change, which would have to be passed by parliament and approved by President Abdelaziz Bouteflika to become law, would give Sonatrach “a systematic and sizeable participation in the operations of exploration and production.”

That would be a marked change to the reformist law passed in 2005, which reduced the level of participation Sonatrach could claim in production sharing-agreements with foreign firms. [nL05790037]

RUSSIA

The Kremlin is seeking ever tighter control over its strategic oil and gas reserves where foreign investors already have only limited involvement.

Moscow has floated the idea of Russia taking a bigger stake in production sharing contracts in huge projects with Royal Dutch Shell , Exxon Mobil and Total .

It also plans to rework a new resources law to label more reserves strategic and off limits to foreigners. The Natural Resources Ministry wants fields with over 70 million tonnes of oil or 50 billion cubic metres of gas to fit that category.

State-run Rosneft and Gazprom are seeking ownership of all Russia’s major oil and gas fields and want foreign firms to get their permission before gaining access.

Russia’s move to assert control over YUKOS and Sibneft has harmed production growth by spooking investors in the world’s second biggest exporter.

Oil production growth has slowed to 2.7 percent in 2005 from nine percent in 2004 and a record 11 percent in 2003.

VENEZUELA

Venezuelan President Hugo Chavez has rattled oil markets with anti-capitalist talk, higher royalties and oilfield takeovers in the world’s fifth largest crude exporter.

Production has declined markedly from three million barrels per day (bpd) in 2002 to a daily rate of just 2.6 million.

Chavez’ latest plan is to take controlling stakes and raise taxes in four multibillion-dollar crude joint ventures with foreign oil companies.

The four Orinoco Belt projects pump some 620,000 bpd, are worth an estimated $33 billion and include huge investment by oil majors such as U.S. companies Chevron , Exxon Mobil and ConocoPhillips as well as France’s Total.

Venezuela’s drive to secure more state control appears to have gained speed from recent negotiations that converted 32 oilfield operating agreements worth about $10 billion to joint ventures that give PDVSA majority stakes.

Caracas in April took over two fields operated by Italy’s Eni and France’s Total after they failed to reach an agreement to create joint ventures with PDVSA.

Only Exxon, the world’s largest publicly traded oil company, resisted the order by selling its stake in a small oilfield.

BOLIVIA

President Evo Morales on May 1 sent troops into the country’s gas fields and nationalised the energy sector, home to only 0.5 percent of the world’s proven gas reserves.

The move stipulates that companies will have to leave Bolivia unless they sign contracts within six months that recognise state control.

Brazil’s state oil company Petrobras , the biggest investor in Bolivian oil and gas, has talked tough over the takeover, which hands control of gas fields to state oil company YPFB and raises taxes.

France’s Total is another major gas producer, while smaller operators in the country include Britain’s BG Group , U.S. Exxon Mobil and Argentina’s Pluspetrol.

ECUADOR

Ecuador’s Congress approved a law in April that forces companies to turn over a bigger share of windfall oil profits to South America’s fifth largest oil producer.

Quito on May 15 took over oilfields operated by U.S. company Occidental , the country’s largest investor, after a long-running contract dispute but Ecuador ruled out full-blown nationalisation.

Occidental, in turn, filed an arbitration claim against Ecuador.

PERU

Left-of-centre former President Alan Garcia beats rival Ollanta Humala, a nationalist, to the presidency.

Peru’s business environment is likely to change and its energy policies reviewed, analysts say.

The vast majority of Peruvians want the government to review the hydrocarbon law, according to local polls, with many of the opinion the current rules are too generous to foreign investors.

Garcia is likely to renegotiate the Camisea gas contract with Argentine-led consortium TgP to charge higher royalties and stop leakages.

BRITAIN

Britain, facing what some economists estimated would be a 10 billion-pound ($18.88 billion) shortfall in public finances in 2006, in December moved to boost its share of oil and gas income.

Finance minister Gordon Brown announced a decision to raise taxes on North Sea oil and gas profits, doubling a 10-percent supplementary charge that raises the UK’s effective tax rate on oil and gas output to 50 from 40 percent.

The move would “strike the right balance between producers and consumers,” Brown said.

The oil industry condemned the tax increase, saying it would hit investment in the North Sea, speeding up the decline in output and the UK’s shift to being an importer of oil and gas.

LIBYA

Libya’s oil and gas industry has benefited from improved ties with the West since the government announced in December 2003 that it would stop pursuing nuclear, chemical and biological weapons.

But big oil firms are at the mercy of Libya’s tough bargaining as they scramble for access to some of the last premium oilfields on offer, analysts have said.

Reports have suggested some of the winners in last year’s Exploration and Production Sharing Agreement rounds may have accepted terms allowing them only 10 percent of output, with the rest going to Libya.

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