Money slick: awash in cash, Latin America's petrocracies invest to keep the crude coming.

Record-high world petroleum prices have been a boon to both state-owned oil companies throughout the region and the private companies that do business with them. Just three years ago, in September 2003, US$25 a barrel was considered pricey and due for a sharp fall, perhaps to below $10 or lower. By April 2006, crude had tripled to a record $75 a barrel.

If prices hold up into the medium term--and the Chinese economic juggernaut stays on course--look for even more spending to offset global demand largely unforecast only a few years ago. Whether Latin America's petrocracies can take full advantage of the boom, however, is an open question.

Oil countries in the region vary widely in nature, from big exporters like Venezuela, to Brazil, both a major producer and consumer, to Bolivia, which has huge but little-exploited natural gas reserves. Then there's Mexico, which exports petroleum but imports natural gas. Despite the region's status as a net exporter, some countries, including Chile and Brazil, struggle to get enough natural gas.

In most of these countries, soaring world oil prices nevertheless have raised private companies' incomes with them. "Business has been great, fantastic," says Marcio Rocha, president of HRT-Petroleum in Rio de Janeiro, which does consulting and provides services for petroleum exploration and production. Rocha estimates that his sales this year will double.

Mexican state oil company Pemex has been spending $10 billion annually seeking new reserves to replace declining output at its largest field, Cantarell, and now plans to increase those investments sharply, to $13.1 billion 2006 from $10.80 billion in 2005. Most of the additional investments are to go to exploration and production, particularly for gas in offshore areas, but also in increasing refining capacity.

"For a long time, we've been under-investing a lot," says Rolando Galindo, a Pemex investor relations official. Eighty percent of the increase is going to exploration and production and 14% to refining, he said. Normally, this wouldn't mean much except to suppliers to the oil industry, but Pemex has made the controversial move to open natural gas production to private companies in arrangements called multiple service contracts. Those contracts would allow companies to extract the gas and sell it back to Mexico, opening the door to all kinds of new investment in the country. Petrochemical projects are back on track, too.

Empresas ICA, Mexico's largest civil construction company, is one of many companies hoping that Pemex' multiple service contracts pump money into its coffers. The company wants to build and modernize refineries for Pemex and work on alternative energy projects that are now profitable, thanks to high oil prices. "This has improved the business's prospects, which we hope will materialize soon," says Paloma Grediaga, director of investor relations at ICA. "One can't be certain of anything."

It's an understandable feeling. Brazil's state-run oil company Petrobras is flush with funds. Yet its historic source of natural gas, Bolivia, suddenly has become unpredictable. In May, Bolivian President Evo Morales, a socialist and ally of Venezuela's leftist firebrand Hugo Chavez, nationalized his nation's petrochemical industry, in which Petrobras is the largest investor. The move comes after a sharp increase on royalties to an effective 50% tax on gas companies and the ouster of former President Carlos Mesa, a political moderate.

With natural gas reserves of 53.3 trillion cubic feet, South America's second largest after Venezuela, and a population of only 9 million, Bolivia could satisfy its neighbors' gas needs for many years. Political instability is not new in Bolivia, but the recent nationalization left Brazil even more uncertain about where it will get its gas. Petrobras is now aggressively seeking offshore gas deposits, as well as expanding gasoline distribution in Paraguay, Uruguay and Colombia and seeking more oil in Angola and Nigeria.

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The company also plans to increase natural gas production at home by 6% per year until it reaches self-sufficiency (it hit oil self-sufficiency only recently). Altogether, the company plans to invest $11.30 billion each year through 2010, half of the money in exploration and production. Petrobras recently increased its planned investments by 64%.

Ecuador, meanwhile, took over operations once owned by U.S oil major Occidental for allegedly violating business laws, spooking investors and throwing the brakes on trade negotiations with the United States. But foreign petroleum companies, used to working in collapsing regimes and through civil wars, have experienced their worst headaches in oil-rich Venezuela, where the Chavez administration raised taxes on and inched up government control over the petrochemical industry. Venezuela's immense petroleum reserves--rivaling Saudi Arabia by some counts--have kept some foreigners in the country, but uncertainty about the rules and fears of nationalization have pushed many to freeze new investments for now.

"We've seen the market a bit weak because of the changes the government is making," says Javier Govia, head of sales for Propetrol, which supplies parts to the drilling rig industry. Govia says things should improve, but it's likely they will if only because his business dropped 60% in the first part of this year compared with 2005.

Egalitarian. Venezuela's state petroleum company Petroleos de Venezuela (PDVSA) says it is pouring profits into social programs, such as building houses for the poor. PDVSA is also channeling money to non-traditional businesses, such as privately run social production companies, which distribute their income in a more egalitarian manner. Politicians there forced royalties up to close to 17% from 1% before, citing higher prices as a windfall that foreign companies do not deserve.

But the oil giant also spends billions per year subsidizing gasoline. Venezuelans pay just a few cents per gallon. Nevertheless, the company plans to spend some $56 billion in the next seven years on projects including three new refining complexes, heavy oil production in the Orinoco region and natural gas off of the coast. Other projects on the drawing board include new pipelines that will run from Venezuela and Colombia off to the Pacific.

Chavez also has announced plans for an immense pipeline to carry Venezuelan gas to Brazil and Argentina, although analysts call it uneconomical and environmentally disastrous. PDVSA plans to increase oil production to 5.8 million barrels per day by 2012 from 3.3 million, although government critics charge that neglect at many fields has caused Venezuela's oil production to decline under Chavez's watch. They estimate oil output at than 2.6 million barrels a day--the average since the president was first elected in 1999.