ExxonMobil (NYSE:XOM) and Chevron (NYSE:CVX) could be hit hard from the volatile and unpredictable consequences of doing business in Africa, as governments renege on their agreements and change them to extract far more money than they originally agreed to from the energy companies.
Basically what has been happening is governments are coming under pressure from socialist elements in their countries in order to change the terms of the deal through increased royalties and taxes from oil production.
Unfortunately leaders without principal don't mind changing the terms of the deal to satisfy voters.
This could dramatically affect expected margins and earnings of the sub-Saharan Africa assets held by Chevron and Exxon Mobil as the nations impose new terms.
Companies can find themselves held up in circumstances like these after paying for licenses. Governments can refuse to give approval for the licenses even after they've been paid for in order to increase taxes after the deal has been made.
Africa could suffer if they continue to operate in this way, as money will stop flowing to the region.
Energy companies and investors will need to take this into account when they make decisions and estimates about earnings expected from the region.
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