Chavez "Steals" U.S. Oil Rigs

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Can Hugo Chavez Steal His Way To Safety?

Christopher Helman, 01.30.09, 12:20 PM EST
As energy revenues plunge and debt mounts, Venezuela's president swipes a U.S. oil rig. Expect more of the same.

This week, Venezuelan national oil company PDVSA seized control of an offshore drilling rig owned by Dallas-based Ensco International. It was an audacious move that reflects the slow-motion breakdown of one of the world's biggest state-owned oil companies. PDVSA subsidiary Petrosucre is in arrears on $35.5 million it owes Ensco for drilling services; the Ensco 69 rig is under contract through August 2010 at a rate of $185,000 a day.

Ensco is but one of many contractors waiting to get paid. As its revenues plunged with the price of crude, PDVSA has, in recent months, reportedly built up $8 billion in unpaid debts to suppliers like Schlumberger (nyse: SLB - news - people ) and Halliburton (nyse: HAL - news - people ).

Another drilling company, Tulsa, Okla.-based Helmerich & Payne (nyse: HP - news - people ), announced Thursday that PDVSA owes it $100 million. Helmerich idled two of its five rigs in Venezuela and says the other three will likely stop work within weeks.

This is the natural progression of President Hugo Chávez nationalizing the assets of some Western oil companies in Venezuela. Why pay for something when you can simply steal it? Chávez needs all the cash he can muster to keep up his lavish social programs ahead of a Feb. 15 national referendum that will determine whether he is legally allowed to seek a third term.

Ensco 69 is the only rig Ensco has working in Venezuela right now. With Petrosucre showing no signs it intends to pay its bill, Ensco ordered its crew on the rig--which can drill to depths of 30,000 feet, standing in 300 feet of water--to halt operations. Petrosucre employees and contractors then decided to take control themselves while the Ensco team watched.

Ensco said in a statement that it is committed to working out this problem. Petrosucre has informed Ensco it is free to terminate the contract and remove the rig, but doing so would likely make it even harder for Ensco to collect. With the demand for drilling rigs plunging in recent months, Ensco is unlikely to match Petrosucre's contract terms elsewhere.

Analysts with Tudor, Pickering, Holt & Company in Houston figure estimate the replacement value of the 33-year-old rig in the current market is $15 million. The contract is worth some $85 million in annual operating income

Given Chávez's willingness to nationalize the assets of U.S. oil companies, Ensco will likely compromise with Petrosucre on new contract terms--within limits. What if Venezuela ends up nationalizing the rig and booting Ensco's crew? Ensco says it is insured for $65 million. The fracas isn't likely to sideline Ensco's plans to mobilize the Ensco 68 rig in Venezuela this quarter under contract with Chevron (nyse: CVX - news - people ). (35 cents of earnings per share in 2009 and 25 cents in 2010).

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Ensco says Venezuela owes $35 million for drilling

The Associated Press

Published: January 28, 2009

CARACAS, Venezuela: Ensco International Inc. said Wednesday that it suspended oil drilling operations off Venezuela's Caribbean coast because the South American nation owes the U.S.-based company over $35 million for its services.

Dan Rabun, president and CEO of Ensco, said the company is eager to settle the disagreement that led Venezuela's state oil company, PDVSA, to take control of one of its oil rigs and accuse the Dallas, Texas-based oil services firm of abandoning operations.

Petrosucre, a joint venture between PDVSA and Italy's Eni, is now operating the rig known as Ensco 69.

"We remain committed to providing the same standard of safe and reliable services to PDVSA as we have in the past, and we are hopeful that the situation involving ENSCO 69 soon can be resolved to the mutual satisfaction of Petrosucre and Ensco," Rabun said in a statement.

Of Ensco's 46-rig fleet, Ensco 69 is the only one operating in Venezuela. Ensco said in Wednesday's statement that Petrosucre has informed the company that PDVSA is "temporarily" taking over the rig's operations.

On Tuesday, PDVSA said Ensco had refused to accept certain methods of payment for services that began in December 2008. Petrosucre assumed control on the base of "public use and social interest" to guarantee the rig's continued activity, PDVSA said.

PDVSA is becoming increasingly short of cash due to depressed world oil prices, leading to complaints of unpaid bills from some contractors and service providers.

Prices for light, sweet crude have fallen more than 70 percent since July's record high of over $147.

Eduardo Garmendia, president of the Venezuelan Association of Metal Industries and Mining, told The Associated Press on Wednesday that PDVSA has accumulated multimillion dollar debts with Venezuelan companies that supply the state-run company with valves, pipes and tanks.

PDVSA's debts with local suppliers has reached $69.7 million, Garmendia said.

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Venezuela's Chavez seizes oil service companies

Fri May 8, 2009 8:14pm BST

FACTBOX: Major oil service companies in Venezuela

By Daniela Garcia

CIUDAD OJEDA, Venezuela (Reuters) - President Hugo Chavez on Friday tightened his grip on Venezuela's oil industry in tough economic times, seizing a major project from a U.S. firm and a range of assets from local service companies.

Chavez is a socialist former soldier who has already nationalized large chunks of the OPEC nation's economy, including most of the energy sector and telecommunications companies.

State oil company PDVSA started taking control of gas injection operations from Williams Companies (WMB.N) in the west of the country late on Thursday, said an official at the company who asked not to be named.

Military vehicles rolled through the streets of Ciudad Ojeda, on the shores of oil heartland Lake Maracaibo, where the government seized hundreds of boats and shipyards after Chavez signed a law to nationalize a group of oil service companies.

"We have started to nationalize all these activities connected to oil exploitation," Chavez said from a confiscated boat sailing across the lake. "This is a revolutionary offensive."

Flush with cash amid an oil boom, the president in 2007 nationalized oil projects worth billions of dollars, leading oil giants Exxon Mobil (XOM.N) and ConocoPhillips (COP.N) to quit the nation and sue for compensation.

Crude revenues have fallen in recent months and he is now moving against smaller service companies the government has struggled to pay. The new law gives the government the option to pay compensation in bonds rather than cash.

The move could lead to further declines in oil production by risking slowdowns in key services following years of underinvestment by PDVSA, which bankrolls the social programs that keep Chavez popular after a decade in office.

The law makes it easier for the government to later seize assets owned by service giants such as Halliburton (HAL.N) and Schlumberger (SLB.N) as state oil company PDVSA builds up billions of dollars in debts with contractors.

It appears to be targeted at specific service companies that have been hampered by severe cash flow problems due to lack of payment by PDVSA, which as of last year owed at least $8 billion to contractors and providers.
Debts with Williams Companies have built up in recent months and Lake Maracaibo transport companies have faced repeated strikes by unpaid workers

Chavez told hundreds of oil workers dressed in the red shirts that identify his supporters that the takeovers included a water injection project part-owned by British company Wood Group (WG.L).

According to Williams' filings with the U.S. Securities and Exchange Commission, it has three gas compressor facilities in Venezuela with a net book value of $324 million.

Oil Minister Rafael Ramirez said the facilities help PDVSA pump 500,000 barrels of crude per day from Venezuela's best quality fields in the eastern state of Monagas.

Other oil service companies in Venezuela include Baker Hughes (BHI.N) and BJ Services (BJS.N).

(Additional reporting by Ana Isabel Martinez and Brian Ellsworth, Frank Jack Daniel in Caracas and Anna Driver in Houston; Writing by Frank Jack Daniel; Editing by Christian Wiessner)

© Thomson Reuters 2009 All rights reserved.

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Venezuela Seizes 60 Oilfield Service Company Assets

By Matthew Walter and Daniel Cancel

May 8 (Bloomberg) -- Venezuelan President Hugo Chavez seized assets from 60 oilfield services companies including Oklahoma-based Williams Cos., using a law the national assembly passed yesterday.

Employees at state oil company Petroleos de Venezuela SA worked through the night to take over operations from companies that provided services such as water and gas compression and maritime support, Chavez said. Venezuela’s benchmark government bonds fell the most in 2 1/2 months.

“Today, the private services companies disappear, we don’t need them, the people and workers can do the labor and be more efficient,” Chavez said. “We’re going to bury capitalism in Venezuela.”

PDVSA, as the state oil company is known, is pressing foreign oil services companies to lower their prices as growing debts hamper oil output.

Production in Venezuela, the biggest oil exporter in the Americas, was down 8.4 percent last month from a year ago, according to Bloomberg estimates, and services firms have idled rigs this year because of past-due payments.

The government seized two gas injection units called El Furrial and PIGAP II from Tulsa, Oklahoma-based Williams Cos., the company said today in a statement. Williams said April 30 it had declared PDVSA in default for non-payment and might cease operations in Venezuela.

‘Available Options’

“We’ll pursue all available options including negotiating with PDVSA,” Williams spokeswoman Julie Gentz said today in an interview. “It may also include arbitration.”

U.S. oil giants Exxon Mobil Corp. and ConocoPhillips have taken their investment disputes to international arbitration after their assets were seized by Venezuela in 2007.

Venezuela still owes about $10 billion for unpaid nationalizations, according to Ecoanalitica, a Caracas-based economic consulting firm.

Chavez also confirmed that PDVSA has taken over the SIMCO Consortium, which was operated by Aberdeen, Scotland-based John Wood Group Plc.Bobbie Ireland, a spokeswoman at the Wood Group, said yesterday in an e-mailed statement that PDVSA had taken control of its contract, and that it’s in a “strong contractual position” to recover money due.

PDVSA owed service contractors $13.8 billion at the end of 2008, El Universal newspaper reported today, citing a year-end report sent to the country’s national assembly.

‘Liberated’ Assets

Chavez didn’t provide names of all of the companies whose assets he said would be “liberated.” Schlumberger Ltd. and Halliburton Co., the world’s biggest and second-biggest oilfield services companies, both operate in Venezuela. A Halliburton spokesman declined to comment today, and Schlumberger didn’t return a call.

The law approved yesterday by the National Assembly stipulates the government will pay book value for the nationalized assets using cash or securities, after deducting labor and environmental costs. Under the statute, the Oil and Energy Ministry is required to publicly identify companies with assets subject to seizure.

Oil and Energy Minister Rafael Ramirez said today the government has seized 300 boats, along with water injection operations on Lake Maracaibo, a center of oil production, and gas compression units in eastern Venezuela. PDVSA will absorb more than 8,000 employees from subcontractors, he said.
‘Reducing Costs’

“These intermediary companies speculated, and took a large part of our oil earnings,” Ramirez said yesterday on state television. “With this, we’ll continue reducing costs in our oil industry.”

PDVSA will save $700 million by assuming the “primary” service activities from private companies, Ramirez said.

The yield on Venezuela’s 9.25 percent bonds maturing in 2027 surged 54 basis points, or 0.54 percentage point, to 14.56 percent at 4:15 p.m. in New York, according to JPMorgan Chase & Co. The bond’s price fell 2.5 cents on the dollar, the most since Jan. 29, to 66.25 cents.
There are $4 billion of the bonds outstanding.

Venezuela’s oil output may fall below 2 million barrels per day for the first time in 20 years, said Patrick Esteruelas, a Latin America analyst at Eurasia Group in New York, in a research note yesterday.

Unpaid Bills

Services companies have been idling equipment in Venezuela since the beginning of the year because of unpaid bills. Houston-based Boots & Coots

Williams, which has gas processing facilities in the country, said on April 29 that it wrote off $241 million for uncollectible Venezuela payments. Helmerich & Payne Inc. said it may not be able to collect $116 million. Helmerich has idled seven rigs, while Dallas-based Ensco International Inc.

PDVSA cut its investment plan for this year to $14 billion from a previously planned $24 billion on April 28, and in February Ramirez said the company asked service providers to cut their fees by 40 percent after the price of oil plunged.

Chavez has pledged to maintain spending on social programs that provide subsidized food, health care and housing to the poor, even after crude oil prices plunged 61 percent since July.

Crude oil for June delivery rose $1.78, or 3.1 percent, to $58.49 a barrel at 4:15 p.m. on the New York Mercantile Exchange.

Ramirez said May 6 that Venezuela, a member of the Organization of Petroleum Exporting Countries, supports efforts to raise the price of oil to $70 a barrel.

Angel Rodriguez, a lawmaker and president of the Energy and Mines Commission in the National Assembly, said in an interview May 6 the government wouldn’t expropriate foreign-owned oil and gas drilling rigs.
To contact the reporter on this story: Matthew Walter in Caracas at mwalter4@bloomberg.net; Daniel Cancel in Caracas at dcancel@bloomberg.net.
Last Updated: May 8, 2009 17:07 EDT International Well Control Inc. said yesterday it suspended operations in the first quarter because of past-due obligations. idled one, which was later seized by PDVSA.

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Venezuela to seize 11 oil rigs from U.S. company

Friday, June 25th, 2010 at 12:44 am | BNO News | Leave a Comment
By BNO News



ZULIA, VENEZUELA (BNO NEWS) – The Venezuelan government, through Venezuelan Petroleum (PDVSA), will seize and nationalize 11 oil rigs from Helmerich & Payne which have not been used in a year, Venezuelan Oil Minister Rafael Ramirez announced.

The oil rigs will boost the national production of oil and strengthen the Venezuelan policy on foreign oil drilling. According to Ramirez, the unused oil rigs have been used by opposition groups in an attempt to disrupt the South American country's oil production.

Helmerich & Payne (H&P), a U.S. company, said that they haven't been informed about this matter as of Thursday and demanded PVDSA to fulfill the payments owed to the company for its services. According to the company, PDVSA owes them approximately $43 million. In contrast, Ramirez declared that Helmerich did not want to negotiate with Venezuela and that they are asking for high amounts of money.

"The owners of the company just simply don't want to negotiate and are asking for extremely high amounts of money, so workers decided to take into custody the facilities while National assembly reaches a decision," Ramirez said.

The nationalization will save at least $300 million per year which could be used then for deep drilling tasks in the north of Monagas.

H&P worked in Venezuela for 52 years. In the past, they have expressed their interest in continuing working there but only under favorable conditions. The Company expressed their dismay at Ramirez' remarks and said that they made several propositions including the sale of the oil rigs.

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UPDATED ON: Friday, June 25, 2010 04:55 Mecca time, 01:55 GMT

News Americas Venezuela seizes US oil rigs Hugo Chavez, the Venezuelan president, has been pushing a policy of energy nationalisation [Reuters] Venezuela has nationalised a fleet of oil rigs owned by a US-based company which had been shut down in a dispute over payments. In a statement the Venezuelan government said that seizing control of the 11 rigs was the only way to get them restarted after a year of idleness. The move comes as Hugo Chavez, Venezuela's socialist president, pushes ahead with a policy of energy nationalisation as he seeks to expand the state's role in the economy. He has also taken over assets in telecommunications, power, steel and banking. The fleet of oil rigs belonging to Oklahoma-based energy firm Helmerich and Payne have been idled for months following a dispute over payments by the Venezuelan state oil company, PDVSA. Announcing the takeover of the rigs Rafael Ramirez, the Venezuelan oil minister, said companies that refused to put their rigs into production were part of a plan to weaken Chavez's government, "There is a group of drill owners that has refused to discuss tariffs and services with PDVSA and have preferred to keep this equipment stored for a year," Ramirez told reporters in the oil producing state of Zulia. "That is the specific case with US multinational Helmerich and Payne." Payments dispute Helmerich and Payne announced in January 2009 that it would begin shutting down its drilling operations because PDVSA owed the company close to $100m. The US firm is not first oil services company to have complained about a delay in payments. Last year Dallas-based Ensco International Inc. said that it had suspended oil drilling operations off Venezuela's Caribbean coast because Venezuela owed it $35m - prompting PDVSA to take over the company's operations. Government critics and many business owners have argued against the spate of nationalisations under Chavez saying the seizures violate private property rights. Commenting on the latest move a spokesman for the US State Department said he hoped that Helmerich and Payne would be compensated and suggested the takeover and other recent nationalisations are scaring off private investment in Venezuela. "We would just call on them, if they did make such a move, to compensate the owners of those wells," Mark Toner told reporters in Washington. "This is the latest in such an instance where international investors, their investments are being nationalised by the government of Venezuela. It doesn't speak or bode well for the investment climate there."

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Obama will quickly follow suit.

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Chavez Formalizes Seizure of US-Owned Oil Rigs

Venezuela decrees expropriation of 11 rigs owned by US oil driller Helmerich & Payne

By FABIOLA SANCHEZ

The Associated Press

CARACAS, Venezuela



Venezuela took control of 11 oil rigs owned by U.S. driller Helmerich & Payne on Thursday after the company shut them down because the state oil monopoly was behind on payments.

The government's "forced acquisition" of the rigs took effect with publication of President Hugo Chavez's decree in the Official Gazette. Red-clad Chavez supporters celebrated the takeover in an outdoor rally in the town of Anaco, where some of the rigs are located.

Oil Minister Rafael Ramirez told the cheering crowd that the government "is taking control of this drilling company that has been nationalized by the revolution."

He said the government decided to seize the oil rigs because Helmerich & Payne had left them idle for about a year.

"Those foreign investors simply decided ... to halt their operations and leave in their facilities 11 rigs that we needed," Ramirez said. "Primary oil production activities have to be continuous, and no one can stop them for any reason. ... No one has the right to halt the country's economic activity."

Ramirez earlier defended the expropriation, telling state television on Wednesday that the Tulsa, Oklahoma-based company had refused to discuss rates for its drilling services. He said state oil company Petroleos de Venezuela SA, or PDVSA, is willing to discuss a fair price for the drills and if no agreement is reached, the matter will go to arbitration.

Helmerich & Payne has said it halted operation of some rigs because it simply wanted to be paid for its work.

The U.S. company announced in January 2009 that it was halting about four of its drilling rigs because PDVSA owed the company close to $100 million. Several months later it said more of its rigs were out of operation due to the unpaid debts.

The company said in a statement last week that PDVSA still owed it about $43 million as of June 14.

Other oil services companies have complained about delayed payments. Dallas-based Ensco International Inc. said last year that it had suspended drilling off Venezuela's Caribbean coast because it was owed $35 million — prompting PDVSA to take over its operations.

Starting in 2008, PDVSA accumulated unpaid debts of about $7.5 billion to oil industry service contractors. The state oil company paid off more than $5 billion of those debts in 2009, partly relying on bonds to cover its obligations.

Copyright 2010 The Associated Press.