There is no doubt about it, mining for oil is big business around the globe. While several countries in South America have been mining since the 1980s, the last decade or so is where the oil boom really took off. In many countries mining rents, taxes, and royalties have been applied to improve schools, increase access to public programs, reduce poverty, and stabilize the middle class. With the rapid and impressive advances in oil and gas extraction, exploration is being reevaluated.
The more oil fields the better used to be the plan of approach. However, advances in drill-free extraction have many mining companies in South America revisiting their existing wells to see if they still have more to offer. This is exciting because one of the largest challenges with mining—is finding sites that are easy and safe to drill—without disturbing the local community, wildlife, or surrounding natural resources.
Oil mining may be profitable, but it is a priority that often uproots and disturbs communities and local wildlife. For this and many other reasons, countries sometimes expropriate the land on which they allow foreign companies to rent and mine. This is not done carelessly or haphazardly as this is income many rely on, but each country and region has its guidelines.
If expropriation is not the issued, then contract renegotiation is. This includes the state renegotiating terms, or the mining company renegotiating terms. This is all par for the course, but more of an issue with the improved drill-free mining technologies. Both of these factors have mining companies exploring other options, even other countries in South America.
Mining extraction varies greatly. It may go from a 2 or 3 million gallons per day one year, and drop by 20% or more the next. When the profits in taxes and royalties drop, the rents are likely to increase. Again, negotiation is a constant in the world of oil. With many rent contracts up soon, mining rents are expected to skyrocket, leaving companies weighing the pros and cons of less expensive places to mine.
Rest assured that the local government keeps a close eye on the market trends. With the combination of high prices, regressive contracts, high sunken investments, and some major shifts in global political leaders, governments are asking for a larger share of profits. This is part of what keeps oil investor profits and consumer prices in constant flux. Countries or regions of countries who get too aggressive, need to be prepared for companies who are open to exploring new options—both in their country and in nearby locations.
Both offshore or on land oil mining continue to expand in South America, as it remains one of the world’s leading places to drill and mine. Brazil, Columbia, and Venezuela remain some of the top producers in Latin America.