Oil producing countries want more from Big Oil.
Venezuela is just one among many oil producing countries increasing their demands on Big Oil companies that are carrying out oil development. As the world's demand for oil increases, countries like Russia and Venezuela are enacting new terms in order to send more of Big Oil's profits their way. While Venezuela's restrictions are more onerous than Russia's, changes are still in the works among many countries that produce oil. The Wall Street Journal points out:
To bolster output and keep investors happy, Western companies must find ways to address this growing political and economic clout while at the same time strike profitable terms and ensure steady supplies. As margins get squeezed, oil-rich nations in search of better terms run the risk of pushing too far. "Governments can overprice themselves," says Richard Gordon, an energy consultant in Overland Park, Kan., "and when they do, companies have to make some tough decisions."
The global dependence on oil gives oil producing companies the economic and political clout to make some demands of Big Oil, and this is beginning to have an impact on Big Oil profitability. The news from Venezuela especially has made Big Oil share values a little choppy, especially in terms of ConocoPhillips (COP), which had the most invested in the country. However, Exxon (XOM) has also dropped in the last few days because of concerns over oil producing countries. The fact that both of the preceding companies are pulling out of Venezuela (and writing off losses) is helping, and the stock is moving back up. However, this just illustrates one of the problems that could continue to plague Big Oil in other parts of the world in the future.
One way some Big Oil companies are hedging against future oil problems (and gaining in terms of image) is by including alternative energy in their investments. This could be a good way to help bolster alternative energy research, as well as receive the benefits offered by investing in Big Oil right now, while it's still fairly profitable. I like BP (BP) for this reason. The company invests in alternative and renewable energy and has a long-term plan to continue doing so, meaning that BP is likely to be successful at surviving the changes brought by the new trend toward alternative energy investing, and discontent with relying on oil from foreign (and sometimes hostile) regimes.
Disclosure: I am investing in BP.
Photo:C.J.M, Creative Commons, Flickr