« BACK  |  PRINT

RS

FRONT PAGE CONTRIBUTOR

Deadbeat Chavez Takes One From ACORN’s Playbook

In declaring squatter’s rights, maybe Uncle Hugo has heeded the advice of a certain former Community Organizer.

On May 7, Venezuela’s National Assembly passed a law allowing the selective nationalization of oil service firms. On May 8, President Chavez exercised his newly minted authority and nationalized the assets of some 60 foreign-owned oil-service companies.

Service companies are not the owners of reserves; Venezuela already stole nationalized those some time back. Service companies assist the oil operator (in this case state-owned oil company PDVSA) with specialized expertise, technology and assets; some of them only drill wells, some gather, process and compress gas, some operate docks and boats.

A full list of companies involved has not been made available, but Tulsa, OK-based Williams Companies (WMB) recently recorded a $241 million charge to earnings for uncollectable Venezuelan debt. Other companies that have stopped working over unpaid bills are Tulsa-based driller Helmerich & Payne and the Wood Group of Scotland. Halliburton and Schlumberger are reportedly in negotiations with PDVSA.

Back in January, Chavez took over a rig owned by Ensco over a $35.5 million debt.

From stratfor.com (requires subscription):

Some of these companies are small, with only a few dozen employees. Larger international companies that specialize in these services all over the world operate some of these services as well. For all of the contractor companies, their competitive advantage comes from their efficiency and specialization in different support services for the companies that perform the oil production.

{Venezuelan National Oil Company] PDVSA is not known for its timeliness on payments to contracting companies and its reputation got much worse in 2008. PDVSA ended the year with $13.9 billion in unpaid bills to other companies, according to unpublished year-end reports by Dow Jones Newswires. The amount was a 146 percent increase over debts owed at the end of 2007. Coupled with the high oil prices of 2008 that should have given PDVSA some breathing room, the report spells serious trouble for PDVSA’s financial situation.

And Venezuela’s financial situation. Hugo will find that a bureaucratic state-owned oil company is not as effective and efficient as private industry. And since his populist popularity is largely based on the cash flow from petroleum revenue, trouble in the oil fields could quickly translate into trouble for Hugo.

The nationalization makes sense for the Venezuelan government, but only in the short term. Because of its lack of funds, PDVSA has essentially been channeling resources to critical production areas, but selectively allowing some production to falter and halting some wells. This includes deferring repairs and allowing smaller wells to halt production — which presents a challenge for the future because it can take months to restart wells and some are never recoverable. The slowing of operations has led to a production decline of about 8.4 percent in April year-on-year, according to Bloomberg. [emphasis added.]

A medium- to long-term increase in costs for the beleaguered company is all but certain. This is particularly true given that the government is now absorbing the cost of labor for these operations. The highly organized and powerful oil workers’ unions will be willing to use strikes to pressure the government on wage issues. [R'uh-r'oh! - ed.]

Get Alerts