The Discerning Texan

My grandfather the East Texas oil fields for Humble Oil and Refining Co. (later ExxonMobil), and ended up working for the company for 50 years. When I was a kid I used to love helping him "put a Tiger in his tank".

Exxon's stock has probably been one of the most successful stocks over the years. The irony has always killed me about people who are so upset that Exxon is actually successful. Rather than buying shares in the company and sharing in that success, they argue for Government intervention to make them not so successful. Hillary Clinton has been up front about wanting to soak the energy companies if she were to win the Presidency. And recently Hugo Chavez tried to pull the ultimate government intervention when it siezed about $12 billion dollars worth of ExxonMobil assets in Venezuela as a part of its Communist takeover of industry there. Only one problem: Exxon did not "play ball".

Some analysts are a bit shaky on XOM stock right now, despite unprecedented stresses on world oil markets, because they don't like the confrontational stance the company has taken since Hugo Chavez siezed its assets. You see they had the audacity to go to International Court to try and freeze Venezuelan assets until their stolen stake was returned. And they won.

I'm not selling my Exxon stock, I can tell you that. The Tiger is still around, and--judging by this story--it is well on its way to tearing Hugo Chavez a new one. If the stock price keeps going down (or even if it doesn't), my advice is: buy, buy, buy... :

Exxon puts the smack-down on Hugo Chavez: Court freezes Venezuelan assets

You may file this under: It's about time.

I've been patiently waiting for something to be done regarding the seizure of Venezuelan oil infrastructure by communist dictator Hugo Chavez. It appears that time has come, with the help of Exxon Mobil Corp. (NYSE: XOM). As reported by Reuters, approximately $12 billion in Venezuelan assets have been frozen. It's just too bad that John F. Kennedy isn't still around. He'd have already parked an armada of gunboats a mile off the sunny shores of Venezuela. There's a limit to the amount of guff we should take from an out-of-control communist dictator.

Stephen Zamora, professor of international law at the University of Houston Law Center, told Reuters news service, "To me it sounds like a very aggressive tactic." His reaction to the freezing of approximately $12 billion in assets of Venezuela state oil firm PDVSA summed the move up as an aggressive yet novel tactic. As of this writing, PDVSA has not issued a formal statement about the asset freeze. The White House has also declined comment.

Amy Meyers Jaffe, energy policy researcher at Rice's Baker Institute, in regard to this action told Reuters: "These are precedents that are going to be important for what people can and cannot do in the oil industry." There are rules to be followed in the world of successful capitalism. That rule book should soon weigh heavy on the hot little head of Hugo Chavez. In my humble opinion, it's just about time for that.

The company's stance against Chavez is not only tough, but it is also quite likely to succeed. And there are more reasons for this than just the court judgments which have gone ExxonMobil's way.

Yesterday Chavez threw a tantrum for the benefit of the anti-American press, angrily threatening to cut off all Venezuelan oil sales to the US if Exxon's lawsuit against it holds up, and the frozen Venezuelan assets are not unfrozen. That made a lot of headlines, but carrying out that threat would appear to be nothing short of suicidal for Chavez (h/t Glenn Reynolds):

Although Venezuela still is a significant oil supplier to the U.S. its relative importance has been decreasing during the last 5 years, going from second to fourth place among U.S. import sources. This is due to the loss of production capacity of the Venezuelan oil industry, a decline brought about by the politicization of the state-owned petroleum company under Chavez. Not only has production capacity declined but also half of the Venezuelan oil exports to the U.S. can only be refined in the United States due to its physical properties. This means that Chavez cannot easily sell this oil to alternative clients such as China or India. For this to be possible these countries would have to build refineries capable of processing Venezuelan oil, something that would take at least three to four years to accomplish, even if they started today.

It gets even better.

In parallel with this lack of flexibility Venezuela is facing a decline in its international monetary reserves since Chavez keeps raiding them. These monetary reserves only represent some six to seven months of imports at the current level since Venezuela is now importing close to $40 billion per year, mostly in food. Therefore, an interruption of oil income derived from the cut off of oil supplies to the United States would most probably cause the Chavez’s regime to collapse in less than a year as the result of internal protests, no outside intervention required.

Emphasis in that last paragraph is mine. Like I said: it's a great buying opportunity. To bad I can't sell short on Chavez futures...