After being rebuffed, Big Oil again looks abroad

updated 4:17 p.m. ET March 29, 2009

HOUSTON - Plunging crude prices have begun to play out in favor of Western oil companies in one regard, giving them leverage with oil-rich countries that only months ago had no reason to compromise.

Countries like Venezuela, Libya and Russia have kept a tight grip on their vast oil reserves in recent years as crude prices soared above $100 per barrel, translating into big revenues. Much of that money, rather than going back into the oil industry, was spent on unrelated political and social programs.

At $50 per barrel, these countries are far more constrained and can't adequately fund some oil and gas projects.

Experts say Western oil corporations, who stockpiled cash when profits were flush, can shift operations to any corner of the globe and have the capital that allows them to strike deals with state-controlled producers on very favorable terms. When that might happen is uncertain, but energy experts and some executives have said deals are imminent if prices remain at current levels.

The new opportunities for the major Western oil companies come even as the United States attempts to shift away from fossil fuels. Just this week, President Barack Obama said the nation must free itself "from the dangerous dependence on foreign oil."

Still, the International Energy Agency and other forecasters have said fossil fuels will be the primary source of global energy for decades to come, and national oil companies control roughly three-quarters of the world's proven reserves. So, for Western oil companies, it makes sense to strike deals in places where they know there's crude.

When oil was $100 a barrel, "these national companies were saying, 'What the hell do we need the majors for? We've got gobs of cash,'" said Amy Jaffe, an energy expert at Rice University's James A. Baker III Institute for Public Policy.

Now, some fields are not economical to develop with oil at current prices. In other cases, crumbling infrastructure makes the work more difficult and expensive, if not impossible, for state-run companies.

"As the economy and prices collapsed, it's a different picture," Jaffe said.

Chevron Corp., Royal Dutch Shell PLC and others have said they expect greater access to reserves in countries with nationalized oil and gas industries, something that could help them stem declining production.

But there are risks involved.

As recently as two years ago things went so badly in oil-rich Venezuela that Exxon Mobil and ConocoPhillips fled the country, leaving behind billions in assets. Libya's Moammar Gadhafi threatened earlier this year to nationalize his oil industry — again.

The reaction to oil prices, which recently hit five-year lows, is varied by country.

Saudi Arabia, the OPEC powerhouse, said it won't cut funding at its state-run Aramco. But oil production is dropping in other countries, slashing revenues that fund national budgets. Contractors are shutting down rigs in Venezuela because the government has stopped paying them.

"The longer we're in this global downturn with weaker prices, the more those governments are going to need the (international oil companies)," said Dan Yergin, an author and chairman of Cambridge Energy Research Associates, an energy consultancy.

The world's big oil corporations already do some business in countries with nationalized industries, but the terms are often slanted heavily in the country's favor. In the current environment, Yergin said, companies like Exxon and Shell will be looking for more favorable and "durable contracts, where the rules won't change."

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