U.S. oil firms pay about $3 billion a year in royalties to the Venezuelan government, a number that dwarfs the $200 million they'd be paying if previous Venezuelan administrations remained in charge, President Hugo Chavez said.

"They used to hand out the oil for free here," said Chavez during a speech Monday night that culminated Venezuela's Independence Day celebrations. "This has now ended and we are free."

The left-wing leader has been in power for 11 years and one of his key moves has been to take oil-drilling profits away from foreign oil companies and give more to the state for social, infrastructure and other projects.

Around 2005, Chavez ripped up contracts between the government and big oil companies, including Exxon Mobil Corp. (XOM), and re-wrote them to give state-owned Petroleos de Venezuela, or PDVSA, a majority stake.

Most companies, including California-based Chevron (CVX), the U.K.'s BP PLC (BP), Royal Dutch Shell PLC (RDSA) and France's Total (TOT), reluctantly agreed to the changes.

Others such as Exxon and ConocoPhillips (COP) called Chavez' changes illegal, left the country and continue to pursue their cases in international courts.

Chavez called the previous Venezuela administrations and their supporters "mini-Yankees" that essentially worked for U.S. corporate interests and did nothing for the Venezuela people. He said Venezuela only charged foreign oil companies a 1% royalty rate before he arrived in 1999.

The Chavez government has steadily increased that royalty rate, bumping it up to 16% in 2004, and bringing it to as high as 33%.

But such high rates have caused many companies to reduce their involvement in Venezuela or forego new investments. Overall oil production - sales of which are the country's main revenue source - has dropped to 3.0 million barrels a day from about 3.4 million barrels a day a decade ago.

In the Carabobo heavy oil auction in February for drilling rights in the Orinoco region, the government was forced to reduce royalty rates to as low as 20% because foreign firms showed little interest in paying more.

Chavez comments late Monday also came at the start of a conference in Caracas of the left-leaning regional trade group Alba, which includes countries such as Venezuela, Bolivia, Cuba, Ecuador, Nicaragua, and others.

Fellow Alba members were told by Chavez that Venezuela feels a historical obligation to share its oil wealth with brother nations.

-By Dan Molinski, Dow Jones Newswires; 58-414-120-5738; dan.molinski@dowjones.com
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