For several reasons Latin American countries were persuaded to privatize national petroleum companies. In addition to obtaining badly needed investment capital and increasing state revenues, privatization is also a means of introducing free market economic reforms. Much of the Latin American petroleum sector had become characterized by bloated payrolls, outdated technology, under investment, and poor provision of services. Further, Latin American state petroleum companies are among the largest petroleum companies in the world (Table 1). As such, their privatization presents a singular opportunity for Latin American governments to raise enormous sums of revenue.
Developments surrounding the numerous 1980's debt crises also had much to do with recent Latin
American efforts to privatize their petroleum industries. In particular, these crises greatly
hindered the ability of Latin America's state petroleum companies to attract much needed outside
capital without providing investors with added incentives and reduced risks. Similarly, the debt
crises left many Latin American governments not only in need of raising revenues through
privatization to fund other spending priorities. Perhaps more important erratic tax regimes also
served to discourage foreign investment in Latin American exploration and production
operations.
By 1990, largely due to privatization and other economic liberalization measures, Latin American nations had restored international investor confidence sufficiently that net capital flows into the region increased nearly 250 percent from 1989, growing from $8.9 billion in 1989 to $21.5 billion in 1990 {see Endnote 32}. Between 1989 and 1994, U.S. foreign direct investment in Latin America nearly doubled {see Endnote 33} . Privatization of state-owned industry appears to have played a major role in reversing Latin American capital flight. Approximately 130 Latin American and non-Latin American companies currently have petroleum ventures in Latin America.
That is not to say that political risk has disappeared from Latin America, or that the possibility of future privatization reversals are an unlikelihood. Even though the Peruvian government has achieved some noteworthy success in suppressing its Marxist guerrila insurgency, Shining Path has yet to disappear. The recent uprising in Chiapas, Mexico and Colombia's long-standing war with its insuragency movement underscore some of Latin America's enduring political problems.
The U.S. major oil companies have increased their exploration and development expenditures in Latin America, nearly doubling their expenditure level between 1987 and 1994. With some exception, most Latin American exploration and development activity involving U.S. companies historically has been, and still is, conducted by the majors {see Endnote 34}. Although amounting to only 6 percent of their total foreign exploration and development spending in 1994, Latin American exploration and development spending by the U.S. majors has grown at twice the rate of their exploration and development expenditures in other foreign locales {see Endnote 35}.
However, interest in Latin America has not been limited to U.S. companies. Latin America's indigenous petroleum companies, foreign multinational oil companies, and some U.S. independents have shown greater interest in developing the continent's petroleum resources. One evidence of the increased level of exploration and development activity in Latin America is the petroleum drilling rig count. The number of drilling rigs operated in Latin America are continuing to increase, as they have yearly since December 1992, reaching 271 in December 1995 {see Endnote 36}. The following sections highlight some of the more important recent foreign company activity due to Latin American petroleum privatization, on a country-by-country basis, beginning with Argentina, which has undergone the most substantial recent petroleum privatization of any Latin American country.
However, despite its size, the privatization of YPF represents one of the most significant and successful of all Latin American state-oil company privatizations. In 1990, Argentine crude oil production stood at 483,000 barrels-per-day, a level less than that produced a decade earlier. However, by 1995, Argentine production reached more than 700,000 barrels per day, and 1 million barrels of crude are expected to be produced daily in the year 2000 {see Endnote 37}. During 1994, when drilling activity was largely deteriorating in all other regions, the opposite was true in Argentina, which experienced a 66-percent increase in its crude oil and natural gas rig count between 1993 and 1994 {see Endnote 38}.
An influx of private investment largely accounts for the turnaround in Argentine petroleum. For instance, U.S. direct investment in Argentina's petroleum industry has climbed from $452 million in 1989 to $773 million in 1994 {see Endnote 39}.
Foreign companies were involved in Argentina's petroleum industry for several years prior to privatization. In 1994, the Argentine subsidiaries of the U.S. companies Amoco and Occidental accounted for 7 percent and 3 percent, respectively, of Argentina's crude oil production {see Endnote 40}. Exxon and Royal Dutch/Shell (Shell Oil Company's Netherlands/UK parent) also have owned major Argentine refineries for several years.
Privatization is responsible for more recent foreign ventures. In 1993, YPF announced that it would modernize its flagship La Plata refinery with technical assistance from Chevron. In 1992, the U.S. company Enron led a joint venture that won the concession to own and operate one of the two Argentine national gas transmission systems divested by Argentina when the state gas company, Gas del Estado, was privatized {see Endnote 41 and Endnote 42}. Drilling companies from the United States entered Argentina with Pride Petroleum Services' 1996 purchase of Argentina's largest drilling and workover rig company, Quitral-Co. S.A.I.C., for approximately $140 million {see Endnote 43}. In 1996, the former Spanish state oil company, Repsol, purchased a 38-percent controlling interest in Argentina's fifth-largest energy company and fourth-largest crude oil producer, Astra {see Endnote 44 and Endnote 45}.
In addition to encouraging foreign direct investment, privatization also may be responsible for a more outward-looking Argentine oil industry. YPF entered the ranks of major multinational oil companies with its acquisition of Maxus Petroleum in 1994. Maxus, a U.S. independent crude oil exploration and production company, has operations in Asia and the United States, in addition to Bolivia, Colombia, Ecuador, and Venezuela. Other recent actions by YPF also indicate an attempt to broaden its operations overseas:
However, despite some initial efforts, reform in Mexican petroleum has faltered. Foreign participation in the exploitation of Mexico's petroleum resources has long been a particularly sensitive matter in Mexican politics.
Although, substantial early development of the Mexican petroleum industry was accomplished by British and U.S. petroleum companies {see Endnote 53}, nationalization of all foreign petroleum assets on March 18, 1938 abruptly ended foreign activity in Mexican Petroleum {see Endnote 54}. Foreign participation in oil and gas exploration, production, and refining is still proscribed by the Mexican constitution, which allows only Pemex to engage in these activities. So far, the only substantive reform measures include a restructuring of Pemex's operations (along with substantial reductions in employment), an attempt to sell several chemical units and other non-core operations, and an increased reliance on foreign drilling contractors. Pemex also has undertaken joint ventures abroad. Pemex's downstream operations have focused on reconfiguring and modernizing its refineries to both increase product output and address environmental concerns. Despite refinery upgrades, Pemex's refinery capacity is less than current product consumption, leading to increased product imports and further refinery construction. Pemex also replaced some of its domestic shortfall by gaining a 50-percent share in Shell Oil's Deer Park, Texas, refinery {see Endnote 55}.
The most notable result of Venezuela's opening its petroleum industry is its awarding of the first exploration license to foreigners since its nationalization twenty years ago. The initial license was awarded to a consortium of Veba (Germany), Mobil, and Nippon Oil (Japan), which outbid 11 others, including the second-place consortium of Exxon and Royal Dutch/Shell, for a western onshore oil field {see Endnote 61}. Other significant projects opened to foreign companies include the $5.6-billion Cristobal Colon LNG export project of a consortium including Exxon and Lagoven, a PDVSA affiliate. This venture is the first foreign ownership of Venezuelan hydrocarbon reserves since the 1975 oil law that nationalized the petroleum industry and created PDVSA was passed {see Endnote 62}. However, the venture was suspended, awaiting higher natural gas prices. Another project is a joint venture between Conoco (United States) and Maraven (a PDVSA affiliate) to produce heavy oil, which will then be upgraded and refined into products at Conoco's U.S. refineries {see Endnote 63}.
Other foreign companies are either discussing joint ventures, or have formed joint ventures and are awaiting congressional approval to proceed, including:
Although Venezuela's privatization efforts have lagged those of other Latin American countries, PDVSA has long been an internationally oriented petroleum company. For instance, PDVSA's U.S. subsidiary, Citgo, is the largest retail marketer of gasoline in the United States {see Endnote 65}. In terms of U.S. refining capacity, PDVSA ranks third among foreign-owned companies behind Royal Dutch/Shell and British Petroleum {see Endnote 66}. PDVSA also owns substantial refining operations in Europe and the Caribbean.
Little foreign activity has ever occurred in Brazilian upstream petroleum. The only foreign commercial discovery occurred during the 1970's and was made by the Shell Oil affiliate Pecten. The discovery was an offshore natural gas field. Petrobras' substantial reserves and refining capacity are a tempting target for potential buyers, but, until further efforts at privatization are made, few opportunities exist for foreign companies in Brazil.
The most significant project currently underway in Brazil by a non-Latin American company is Tenneco Gas's construction of the Brazilian part of the Bolivia-Brazil pipeline and some other natural gas projects {see Endnote 69} . PDVSA and Petrobras also are negotiating a refinery joint venture {see Endnote 70} .
The most significant energy privatization contemplated is the sale of the state's 50-percent share of the Carrejon coal mine. However, reports of privatization of some or all of the state oil company Ecopetrol, the 40th-largest producer of petroleum and 57th-largest refiner in the world, have been denied by the country's energy minister {see Endnote 74}.
Recent privatization efforts created numerous new foreign investment opportunities in Colombia. British Petroleum discovered 2 billion barrels of proved reserves in the Cusiana and Cupiagua oil fields, which will be developed by a joint venture with Triton Energy (United States), Total (France), and Ecopetrol. This joint venture also will spend $2 billion upgrading Colombia's pipelines to transport the additional production. Another joint venture, which includes Ecopetrol, British Petroleum, Total, Triton Energy, and others, will build an oil export pipeline from the Cusiana Field. British Petroleum also purchased Maxus' 53-percent share of a block adjacent to the Cusiana Field, augmenting the 10-percent share it already held.
Recent foreign company activity in Colombia's petroleum industry include the following:
During 1995, five production-sharing contracts were signed following the seventh round of contract solicitations. Among the companies awarded contracts were the U.S. companies Oryx and Triton and the Kuwaiti Sante Fe Minerals and Energy {see Endnote 76}. Amoco and Mobil have a joint venture to operate a 25-year concession in a production block in the Amazon Basin. Oryx has taken over the operation of an oilfield joint venture with Ecopetrol, which currently produces 8,000 barrels per day. Oryx also leads a consortium that won a 25-year production-sharing concession for an oil field block.
Several foreign investments recently have been made in Peru. In June 1996, Pluspetrol, an Argentine petroleum company was awarded exploration and development rights for Peru's northern oilfields {see Endnote 78}. ARCO received an exploration and production contract for a northern tract in December 1995 {see Endnote 79}. A consortium led by the French petroleum company Elf Aquitaine was awarded an exploration and production contract for an eastern tract in September 1995 {see Endnote 80}. Chevron received approval in June 1995 to begin exploration and development in the large Camisea natural gas field in Peru's southeastern region, while the Coastal Peru Ltd, the Peruvian affiliate of a U.S. company, signed an exploration and development contract with Petroperu for a tract in central Peru. Also in 1995, Occidental won a 20-year development contract for a production tract in a commercially viable field. In August 1994 Mobil's Peruvian subsidiary was authorized to begin exploration of a tract in the southern Peru. Mobil is also a partner in a 30-year exploration and development joint venture in northwest Peru. Mobil and Royal Dutch/Shell have agreed to develop the giant Camisea natural gas field in southeastern Peru through a joint venture. Mobil and Shell Oil are negotiating a contract with Petroperu for exploration and development rights to two blocks that surround two of the major Camisea fields {see Endnote 81}. Downstream, Petroperu sold 60 percent of the equity in its largest refinery (102,000 barrels per day) to a consortium led by Repsol, which included Mobil and YPF, outbidding PDVSA's Maraven affiliate {see Endnote 82}. Mobil also bought several gasoline stations from Petroperu.
However, plans to privatize the state oil company Yacimientos Petrolifieros Fiscales Bolivianos (YPFB) have been frustrated by opposition from Bolivia's confederation of workers {see Endnote 84}. The intent is to divide YPFB into two upstream companies, two downstream companies, and one natural gas transmission company before capitalizing the resulting companies {see Endnote 85}. The financial and production requirements to qualify to bid for one of the companies resulting from the division of YPFB ostensibly exclude the private Bolivian petroleum companies, causing them to join the labor unions in opposing the privatization process {see Endnote 86}. Chevron is negotiating to fund a seismic program on its share of an exploration block {see Endnote 87}. Enron and YPFB have a $400-million joint venture to construct the 350-mile Bolivian portion of the Bolivia-Brazil natural gas pipeline {see Endnote 88}. Exxon completed seismic studies {see Endnote 89}. Mobil has an interest in a production block and is negotiating concessions for two adjoining tracts {see Endnote 90}. Texaco and Mobil are members of a consortium with an exploration and development concession {see Endnote 91}.
A few privatization-related projects exist in other Latin American countries. In El Salvador, Coastal plans to build and operate a $100-million power plant {see Endnote 93}, which is the first privately-owned plant in El Salvador. A Coastal affiliate will supply fuel to operate the plant. Also, Texaco has a 40-percent share in a production block in Paraguay.