Daily Archives: September 30, 2011
Richard Miniter, Contributor
When Venezuela’s strongman Hugo Chavez announced plans to move virtually all of his nation’s overseas gold stock—211 tons of gleaming bars stored in vaults in New York, London, Zurich and elsewhere—back to South America, investors were stunned. Why make one of the largest physical transfers of gold bullion since the end of World War II?
Here and now, I will solve this mystery—and the solution will spark new doubts about Venezuela’s bonds and about President Obama’s foreign policy. The solution hits two populist presidents with the same sad stone.
It is not that investors don’t believe the official story; there is no official story. The Central Bank of Venezuela announced the extraordinary move in a short memo, in Spanish, that is entirely silent on the regime’s reasons.
So speculators speculated wildly. Did Chavez need collateral to secure his loans from China? Did he plan to steal the treasure if he lost the 2012 presidential election? Was Venezuela about to devalue its currency? Does Venezuela believe that, like Ethiopia, some of its holdings are actually gold-plated steel? Was he following the lead of ideological forebears, the Spanish communists, who, in the 1930s, shipped their nation’s entire gold reserves to Moscow to keep them from Franco? Every sleuth had a different theory.
Veteran observers of Venezuela’s central bank were equally puzzled. Reached on the streets of Caracas, economist Richard Obuchi bluntly told me: “I can see no economic reason for this move.” Moving vast stores of gold away from world markets, especially at a time when gold is testing new highs, he added, just doesn’t make sense.
The mystery only deepens the more one thinks about the costs and risks. An insurer, if one can be found, could easily charge 4% of the market value of the stockpile, plus security and shipping charges. All told, that could be almost $100 million. And moving the gold will almost certainly lower Venezuela’s credit rating, which Moody’s Investors Service puts at B2—well into junk-bond status. Standard & Poor’s also rates the nation’s creditworthiness as junk. Making Venezuela’s government assets more opaque will only lower their value. So shipping bullion makes matters worse and means Venezuela will pay even more in borrowing costs.
Don’t forget the risks. A bold pirate could seize tons of gold in a single brazen raid. Or a storm could take it to the muddy bottom of the Atlantic.
So why is Chavez moving his gold? What’s the strongman’s real reason?
First, some facts. Venezuela was once a growing economy that exported food, welcomed and rewarded foreign investment, and maintained the rule of law. Twelve years into Chavez’s socialist experiment, the South American nation imports food. Indeed, food imports have risen 442% over 2003 levels. Nationalizing farms and food distribution firms has meant long lines at supermarkets with half empty shelves due to the constant shortages of basic goods, including corn, coffee and sugar. Since 1999, Chavez’s troops have seized some 2.5 million hectares of land; only 50,000 hectares remain in use. Under the gaze of government managers, these lands have not become more productive.
Foreign investors are harassed and work under the ever present threat of expropriation. Coca-Cola, PepsiCo, McDonald’s, Wendy’s, ExxonMobil, ConocoPhilips and more than a dozen other publicly-traded American companies have seen their assets seized. The total value seized tops $23.3 billion, according to Ecoanalítica, a Caracas-based research firm. Since 2007, the rate of nationalizations has climbed 924%, according to Coindustria, the equivalent of Venezuela’s chamber of commerce. The World Bank, in its 2011 Doing Business Report, finds that Afghanistan is a better place to do business than Venezuela.
Meanwhile, a Spanish judge has found that Chavez’s regime is linked to two terrorist groups, ETA in Spain and the FARC in Colombia. When Walid Makled, a drug lord with family roots in the Palestinian territories, was arrested in Colombia, he admitted to paying some $40 million to the Chavistas. He is also suspected of financing terror plots.
Finally, at the World Bank’s International Center for Settlement of Investment Disputes (ICSID), American and European companies have filed at least 18 claims against Venezuela for illegally seizing their properties. Those claims total more than $14 billion.
The value of Venezuela’s overseas gold reserves? Roughly $12.3 billion.
So let’s connect the dots and solve the mystery of the moving gold.
Chavez knows that ExxonMobil and ConocoPhilips will eventually prevail before the World Bank’s arbitration panel and win roughly $14 billion in compensation. If Chavez balks at paying his debts, court orders could be secured to seize Venezuela’s only real asset under American and European control—the gold in their vaults.
Even if Chavez could somehow hold the World Bank at bay, the growing evidence of human rights abuses and links to international terrorism boosts the likelihood of international sanctions. And the most effective sanction is holding Venezuela’s gold reserves until it reforms.
So Chavez is moving his gold to continue to cheat American shareholders out of their just compensation for their looted lands, plants, and oil fields as well as to continue to punish his own people with his miserable misrule.
Now consider the role of the Obama Administration. It has steadfastly refused to criticize the theft of billions of dollars worth of American property in Venezuela, let alone impose sanctions. Secretary of State Hillary Clinton warmly greeted Chavez at a recent summit in Brazil. When reporters ask about the beleaguered American shareholder, the “on-background” guidance is always the same: the World Bank arbitration panel would put everything right. Let the process work. And so on.
So, when Venezuela announced one of the largest physical movements of gold in world history, the Obama Administration didn’t worry. Just routine. Nothing to see here, folks. The World Bank will straighten it all out.
Last week, Chavez’s regime began to formally withdraw from ICSID, the 157-member international body that will likely rule against him. Venezuela became a signatory State of the ICSID Convention in August 1993. Now Chavez is leaving before he gets stuck paying the tab for his illegal seizures. The Obama Administration, which was counting on the ICSID to do its work, is left holding an empty bag.
What does the Obama Administration say now? Crickets.
ExxonMobil’s shareholders can join Chrysler’s bondholders on Obama’s enemies list. If that seems a tad harsh, consider this: When made to choose between millions of American shareholders and one South American dictator, the Obama Administration chose Chavez.
Why is the Obama Administration sitting in paralyzed silence while Chavez removes himself from international accountability? Is it perceived ideological comradeship, a loathing of investors, simple dereliction of duty or some other reason? Now that is a mystery.
- Venezuela, Guyana to talk in territorial dispute (seattletimes.nwsource.com)
- The Mottled Relationship: Iran and Latin America (mb50.wordpress.com)
- Chavez Wants Gold Holdings Transferred To Venezuela (npr.org)
- Chavez to nationalize gold production in Venezuela (cnn.com)
PlanetSolar‘s TÛRANOR is currently on its way to becoming the first solar-powered boat to circumnavigate the globe. Driven by a silent, pollution-free electrical engine that is powered exclusively by solar energy, the PlanetSolar team has two goals in mind. The first objective is to show that current technologies aimed at improving energy efficiency are reliable and effective. The second is to advance scientific research in the field of renewable energy.
The world’s largest solar-powered boat has already been to Miami, Cancun, Brisbane, Hong Kong and just made its way to Vietnam. Measuring around 101 feet long and 49 feet wide, the $26 million TÛRANOR can comfortably transport 50 passengers.
The Swiss-designed, German-built ship is powered by over 5,380 square feet of solar paneling. The panels power two electric motors, which can reach 15 miles per hour. The panels can also soak up enough stored energy to power the boat in cloudy weather for three days. The excess energy is stored in a giant lithium-ion battery.
And, in case you were wondering how PlanetSolar came up the ship’s name, TÛRANOR is derived from the “Lord of the Rings” saga by J.R.R. Tolkien and translates to: “the power of the sun” and “victory.”
- Pictures: World’s largest solar yacht, the Tûranor PlanetSolar (digitaltrends.com)
- PlanetSolar Turanor: The World’s Largest Solar-Powered Boat (techeblog.com)
- Sealander Amphibious Camping Trailer Doubles as Houseboat (techeblog.com)
- PlanetSolar: World’s Largest Solar Powered Electric Boat. Green Designs Will Save the World (worldnewsrecord.wordpress.com)
- Green Column: Around the World on Solar Power Alone (nytimes.com)
- World’s largest solar-powered yacht arrives in Hong Kong on home stretch of around-the-world voyage (digitaltrends.com)
- World tour in a solar powered boat. (izitso.net)
- The fall and rise of the electric boat (ravcasleygera.wordpress.com)
By RICHARD STEGEMEIER
Asked why he robbed banks, Willie Sutton reportedly said, “Because that’s where the money is.” The American Jobs Act, which calls for collecting $40 billion from oil companies over 10 years, sounds a lot like Willie Sutton. This bill will take about $400 from the average American family, rich or poor. But is there any truth in White House advertising that this Act will create jobs? The Solyndra bankruptcy wasted a half-billion taxpayer dollars and created no permanent jobs. The ethanol subsidy of about $5 billion per year is now recognized as misguided energy policy.
We can assume that administration officials are either appallingly ignorant of how the oil industry works or they are deliberately trying to increase the cost of gasoline to reduce demand. But the latter flies in the face of President Barack Obama’s decision this summer to release 30 million barrels from the Strategic Petroleum Reserve to lower the price of gasoline.
One purpose of the Act is to punish “Big Oil” over allegedly unfair tax breaks. There are several tax policy modifications that affect only oil companies. One is the partial repeal of the American Jobs Creation Act of 2004, which allowed a 9 percent tax deduction for companies that produce goods inside American borders. Oil companies were given only a 6 percent deduction, which under the Obama plan will drop to zero. In other words, there is a silent enticement for oil companies to invest in refineries, LNG plants and storage facilities abroad, say in Mexico or Canada.
Also repealed is the Percentage Depletion Allowance – again, only for oil and gas production. For coal and other minerals the 15 percent deduction from taxable income will continue. This will hurt only the little independents because big oil companies lost this deduction 36 years ago.
The third tax repeal will disallow oil drilling companies their Intangible Drilling Cost deductions (IDC’s). At least 75 percent of drilling costs are for consumables such as fuel, mud, cement, etc. But the new law will consider these expenses the same as machines that must be depreciated over many years thereby increasing current-year taxes. This will have a serious impact on small companies that drill 95 percent of all new wells in America. They are usually not rich and often rely on IDC’s to pay for the next well.
InterOil Corporation today announced that the Company has retained Morgan Stanley & Co. LLC, Macquarie Capital (USA) Inc. and UBS AG as joint financial advisors to assist InterOil with its soliciting and evaluating proposals from potential strategic partners in the liquefied natural gas (LNG) project currently being led by InterOil’s joint venture entity, Liquid Niugini Gas Limited.
The Company anticipates that these proposals will relate to obtaining an internationally recognized LNG operating and equity partner for development of the Project’s gas liquefaction and associated facilities in the Gulf Province of Papua New Guinea, together with a sale of an interest in the Elk and Antelope fields and in InterOil’s exploration tenements in Papua New Guinea.
InterOil has determined, in response to inquiry from potential LNG partners and in consultation with the Papua New Guinea Government, to engage in a formal partnering process. The considerable strengthening of the Asian LNG market, the increased interest in exploration and investment in Papua New Guinea, as well as the Company’s reservoir analysis and project design fundamentals lead the Company to believe that now is an attractive time to seek a partner.
The Company expects that successful completion of such a transaction will satisfy the objectives of complementing the Company’s planned LNG development capabilities with an internationally recognized LNG partner and generating a third party valuation for InterOil’s resources.
“We look forward to working closely with Morgan Stanley, Macquarie and UBS as they support us in this evaluation process and in reaching what will surely be a milestone for InterOil, its shareholders and Papua New Guinea,” said Phil Mulacek, Chief Executive Officer of InterOil.
- Paupa New Guinea: FLEX Updates on Gulf LNG Project (mb50.wordpress.com)
- InterOil, Pacific LNG sign supply deal with Noble Clean Fuels (mb50.wordpress.com)
- InterOil and Noble Sign Heads of Agreement on LNG Sale (prnewswire.com)
- Rudd to visit PNG (news.theage.com.au)
The field was discovered by Apache in 2009 during exploration and appraisal drilling in the Julimar-Brunello complex. Balnaves is a light, sweet oil accumulation in a separate reservoir in the Triassic Mungaroo formation, located adjacent to the large gas reservoirs of the Brunello gas field.
First production from the $438-million development is scheduled in 2014, with gross peak production of approximately 30,000 barrels of oil per day and estimated gross recoverable resource of 17 million barrels of oil and 30 billion cubic feet of gas. Two horizontal production wells will be connected to a floating production, storage and offloading (FPSO) vessel via subsea tiebacks. One water injection well will be used to maintain reservoir pressure. Gas will be reinjected into another reservoir for later production as part of the Wheatstone liquefied natural gas (LNG) Project.
Apache has agreed to lease the Armada Claire, an FPSO owned by Bumi Armada with production capability of 80,000 barrels of oil and 50 million cubic feet of natural gas per day and storage capacity for 750,000 barrels.
“We are pleased to sanction our third operated oil development in Australia since 2007,” said Thomas M. Maher, Apache’s region vice president and managing director in Australia. “With the Van Gogh field on production and first output from Coniston expected in 2013, Balnaves will add to our position as one of Australia’s leading oil producers.”
The Julimar and Brunello fields are large gas discoveries that will be developed to provide gas for the Wheatstone LNG Project, operated by Chevron Australia Pty Ltd. Apache Julimar Pty Ltd is operator of the Julimar Development Project, the WA-49-L upstream component of the Wheatstone Project.
Apache Julimar Pty Ltd has a 65-percent interest in offshore license WA-49-L and a 13-percent equity interest in the Wheatstone project. KUFPEC Australia (Julimar) Pty Ltd, a subsidiary of Kuwait Foreign Petroleum Exploration Co. k.s.c., owns the remaining interest in the offshore license and a 7-percent interest in the Wheatstone project.
Apache Corporation is an oil and gas exploration and production company with operations in the United States, Canada, Egypt, the United Kingdom North Sea, Australia and Argentina.
- Australia: Apache Wins Environmental Approval for Julimar/Brunello Gas Fields (mb50.wordpress.com)
- Apache Gives Go Ahead for Wheatstone LNG Project in Australia; Apache’s Julimar and Brunello Fields to Provide Feedstock Gas (prnewswire.com)
- Apache, Partners Sign Agreements to Sell LNG from Wheatstone to Tokyo Electric Power (prnewswire.com)
- Australia: Tap Oil Selling Zola Stake (mb50.wordpress.com)