Oil service companies already owed billions from Venezuela's state-run Petroleos de Venezuela are at risk of losing the very moneymaking assets that help produce oil from the OPEC member nation.
Venezuela's President Hugo Chavez has the power under a new law to seize local assets of international oil-service companies and based on early reports soldiers have already begun taking action. Chavez has nationalized industry sectors before including large chunks of oil production and telecommunications. This time it's focused on oil services -- firms that keep the inner working of the oil industry working -- and specifically on companies operating with very little cash flow due to a lack of payment by PDVSA.
The Chavez-controlled government owes about $14 billion in unpaid bills to oil service companies. Several companies including drilling contractor Helmerich & Payne, Enesco and most recently Houston-based Boots & Coots International Well Controlhave stopped work in Venezuela until they receive payment. Helmerich & Payne is owed $116 million from PDVSA and the company's CEO has said it will no longer book revenue from Venezuela until it receives payment.
Companies at risk are those operating in Lake Maracaibo including those providing water, steam and gas injection services to increase the rate of extraction from oil wells. That means the largest towage operators Zulia Towing, Terminales Maracaibo Maritime Services and Marine Services will likely see their operations taken over. Word is that's already happening with soldiers starting to take control of a fleet of 300 supply crew boats, tugs and barges used to support the oil industry.
Natural gas processor and distributor Williams Companies is in a tough postion and will see its finances squeezed even further with today's developments. The company has already announced plans to write off $241 million due to unpaid fees from PDVSA. Today the government seized two of its natural gas compression facilities.
Other takeovers today include a water injection project part-owned by John Wood Group and SIMCO consortium. In all, Chavez said it will nationalize 60 oil contractors.
Baker Hughes, BJ Services and oil service giants Halliburton and Schlumberger also operate in Venezuela.
This is obviously a horrible situation for oil service companies. At the very least they're going to have to fight long and hard to recoup some funds. Venezuela isn't going to fair any better.
Chavez has determined he can take over the assets, avoid the unpaid debt, supposedly save $500 million in costs and put locals back to work. There are some ridiculously huge flaws in his rationale. Oil service companies provide the technical expertise needed to keep oil pumping out of Venezuela. Without them oil production will fall.
Chavez has tried this before and it has failed miserably. Back during the oil boom in 2007, he nationalized oil projects causing super majors Exxon and ConocoPhillips to leave and sue for compensation.
In the meantime, Williams Cos. and others are faced with the slow prospect of international arbitration. And that's not going to put money back on their bottom line anytime soon.