Latin America news blurs energy picture

www.chron.com Analysts advise waiting for calm Jan. 11, 2003, 5:44PM By ANDREI KHALIP Reuters News Service

RIO DE JANEIRO, Brazil -- Latin America is treacherous territory for oil and gas investors, awash with fears about Venezuela's unrest and general strike, economic crisis in Argentina and Brazil's new leftist government.

Sector analysts suggest investors sit it out until calm returns to the region, which partly opened to foreign investment in the past decade and is still considered less risky than the former Soviet Union and some Middle East countries.

"It was a time of big shocks last year in Latin America, but it is a big question whether we see any recovery now," said Matthew Shaw of Wood Mackenzie oil consultancy in Edinburgh. "It's time to wait and see, really."

The problems in the region, which in total produces more oil than world leader Saudi Arabia, add to the pressure most foreign companies are facing at home to cut unnecessary risks in a sluggish global economy.

Although some assets have become seemingly cheap, it is difficult for companies to evaluate opportunities because of uncertainties over the region's economic prospects and politics, he added.

With Venezuela's strike still crippling crude output in the world's fifth-largest oil exporter, investors have plenty to worry about, even though higher world oil prices resulting from the strike will still bring a benefit to those with diversified portfolios.

"There is concern about restarting production of heavy oil in Venezuela," said Myles McDougall of ABN Amro in London. It may take months to re-establish wellhead pressure, and some wells may have to be redrilled in costly operations, experts said.

Heavy oil accounts for more than half of the Andean nation's output, which slumped from 3.1 million barrels per day in November to 600,000 now. Some refineries along the U.S. Gulf Coast depend on this kind of crude.

The strike, organized by the opposition seeking to oust populist President Hugo Chavez, affected state oil giant Petroleos de Venezuela's credibility and raised concerns about its debt, threatening Venezuela's efforts to attract fresh foreign energy investment.

Despite a modest economic recovery in the past few months in Argentina, drilling activity is low, and investors are bracing for a new bout of uncertainty ahead of early presidential polls in May.

A freeze on fuel prices and a 30 percent retention of export revenues in dollars are also hampering investment.

Brazil, the region's No. 3 oil producer after Mexico and Venezuela, has lived through a crisis of investor confidence ahead of presidential elections last October that brought leftist Luiz Inacio Lula da Silva to power.

Analysts say the statements by his new energy officials have been moderate so far, suggesting that a free-market fuel pricing system and sales of exploration licenses to foreign firms would be preserved. But they said they needed time to evaluate whether that commitment would last.

As for Bolivia, rich in natural gas, most analysts are skeptical that firms working there would be able to ship liquefied natural gas to the U.S. markets any time soon, because of Bolivia's political problems with sea access.

Most experts singled out Ecuador as the country with the steadiest oil development. Ecuador will sell concessions for one of its big oil fields this year and should finish a 450,000 barrel per day pipeline to coastal ports for export.