CHAPTER 13 CONSIDERATIONS ATTENDING INVESTMENTS IN OIL AND GAS OPERATIONS IN LATIN AMERICA

• Jurisdiction: United States

International Minerals Acquisition and Operations
(Oct-Nov 1974)
CHAPTER 13
CONSIDERATIONS ATTENDING INVESTMENTS IN OIL AND GAS OPERATIONS IN LATIN AMERICA
Earl A. Brown, Jr.
Anderson, Brown, orn & Jones
Houston, Texas

TABLE OF CONTENTS

SYNOPSIS

POLITICAL EVALUATION

ECONOMIC EVALUATION

EXCHANGE RESTRICTIONS

SOURCES OF FINANCING

OVERSEAS PRIVATE INVESTMENT CORPORATION

WESTERN HEMISPHERE CORPORATION

CONCESSION AGREEMENTS AND SERVICE CONTRACTS

FARMOUT AND DRILLING CONTRACTS

MARKETING OF OIL PRODUCTION

SALARIES AND EMPLOYEE BENEFITS

CONCLUSION

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Many factors must be considered in connection with an investment in oil and gas operations in Latin America. In that connection, although the Latin American area includes Mexico and the countries of Central America, my remarks will be directed to investments in South America. Private oil and gas investments in Mexico are very limited and not characteristic; oil and gas operations in Central America have not been significant to date.

For orientation, attention is directed to a map of South America showing the population and types of government in the countries in this area. We see that approximately 70 percent of the total population of South America is now being governed by military regimes. With respect to the countries shown as having free elections and democratic forms of government, the military is still very influential in several of these countries. However, the desirability of military rule in this area is a

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much debated question; while the college professors generally feel otherwise, there are many people who feel that a military government is necessary at this stage in the development of South America, since this insures stability for the development of the natural resources and economy of this vast area. The map also illustrates the importance of Brazil in this area, with more than half of the total population of South America and a land area larger than that of the United States, excluding Alaska. In addition, the map shows the capital city of each country. The overlay on the map reflects the GNP and income per capita of each country.

Now let us refer to the Chart of South American Statistics. While many interesting comparisons can be made, only one definite conclusion can be drawn on the basis of these statistics: it is impossible to generalize about South American countries as a group because each country differs in many respects from the other countries in this area. Venezuela, with a population of 11,921,000 people and a democratic form of government, has the second highest income per person, due primarily to the production proceeds from its large oil reserves. Bolivia, with a military dictatorship, has the lowest income per person. Colombia, with one of the more stable democratic forms of

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Map

Omitted From Electronic Version

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SOUTH AMERICAN STATISTICS

1974

COUNTRY	G. N. P.	INCOME PER CAPITA	POPULATION
ARGENTINA	30,352,384,800	1224	24,797,700
BOLIVIA	1,245,816,000	242	5,148,000
BRASIL	55,945,824,000	528	105,958,000
COLOMBIA	10,711,339,600	442	24,233,800
CHILE	6,368,063,400	676	9,423,000
ECUADOR	2,453,023,500	348	7,055,000
GUYANA	302,148,000	396	763,000
PARAGUAY	805,494,000	298	2,703,000
PERU	8,002,039,000	521	15,359,000
URUGUAY	2,507,736,000	826	3,036,000
VENEZUELA	14,400,568,000	1208	11,921,000

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government, ranks among the countries with the lowest income per person. On the other hand, Argentina, with a modified democratic form of government, has the highest income per person; Brazil, with a military government and the largest population and land area, ranks fifth in per person income, but under its military government, the economy of Brazil is perhaps expanding more than anywhere else in the world if we disregard the inflated oil prices being received by the Arab countries.

It is thus apparent that no definite comparisons can be made regarding the economic effectiveness of a military government versus a democratic form of government. Rather, the economy of each South American country appears to be more influenced by such factors as location, natural resources, and the stage of development of the respective countries.

Almost without exception, the title to oil and gas deposits in South America are vested in the governments of the respective countries; thus title considerations are minimal, except that the investor should determine from the government records that the area of interest is available and has not been previously contracted by a third party. However, it is most important in evaluating an investment in oil and gas operations

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in South America for the investor to consider the political and economic conditions and history of the country in which the investment is to be made. For our purposes, we will here refer to such country as Petroleos.

POLITICAL EVALUATION

The first obvious action to be taken by an investor would be to examine the political climate and history of Petroleos, which would include a study of the constitutional and legal processes of the country. It may be that Petroleos has a long record...