Chavez latest seizures will likely reduce production


Venezuelan President Hugo Chavez’s seizure of assets at 60 oilfield service companies threatens to reduce the OPEC-member country’s output.

Petroleos de Venezuela doesn’t have the management and strategic capacity to operate these companies properly,” said Jorge Pinon, a fellow at the Center for Hemispheric Policy at the University of Miami, referring to the state-owned oil company. “You’ll see a substantial drop in oil production.”

Reeling from a 60 percent plunge in oil prices since July, Venezuela stopped paying some of its service providers last year, prompting many to idle drilling rigs. The seizures may discourage bidders as Petroleos de Venezuela SA, known as PDVSA, prepares to auction rights this year for the so-called Carabobo blocks, Venezuela’s biggest offer of oil reserves on record.

“The future of Venezuelan oil discoveries will probably lay fallow for some time,” said Christopher Sabatini, policy director at the Council of the Americas in New York. “PDVSA doesn’t have the capacity to undertake more exploration and development, and no one is going to be beating down the doors to get into Venezuela in this environment.”

Employees at PDVSA expropriated equipment yesterday from companies including Oklahoma-based Williams Cos. that provided services such as water and gas compression and shuttles for offshore oil workers. Chavez alleged the targeted companies were overcharging PDVSA and exploiting employees.

Output in Venezuela, a member of the Organization of Petroleum Exporting Countries, was 2.13 million barrels a day in April, down 23 percent from February 2005. Crude production may fall below 2 million barrels a day for the first time in 20 years, Patrick Esteruelas, a Latin America analyst at Eurasia Group in New York, said in a research note May 7.

The government depends on revenue from oil sales to finance half its budget. The state oil company owed service contractors $13.8 billion at the end of 2008, El Universal newspaper reported yesterday, citing a year-end report sent to the country’s national assembly.

“PDVSA is already very strapped,” Sabatini said. “You have to wonder when the wheels are going to come off.”


Chavez has been a dead beat in payments owed for services by these companies. Is there anyone in their right mind who will bid to drill in Venezuela or even provide well services? Would anyone insure the equipment used in such service from government theft? Chavez's mismanagement is catching up with him.


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