Venezuela slashing investment in oil contractors by 50 %

Mar 06, 2009 01:00 AM

Venezuela's top oil official said the government is slashing by 50 % the amount it spends on oil industry contractors because of low crude prices.
Petroleos de Venezuela, or PdVSA, is renegotiating service contracts in an effort to reduce costs, Oil Minister Rafael Ramirez told.

Venezuela relies on oil for 94 % of exports and nearly half the government's budget, but prices for Venezuela's heavy oil basket have plummeted more than 70 % from last July's average price of $ 129.54 a barrel -- to an average $ 38.73.
"We hope to diminish service costs associated with oil wells and drilling rigs by around 50 %," Ramirez said. Some contractors have been asking for payments based on last year's inflated oil prices, he said.

Ramirez warned contractors against trying to halt work to demand payment, saying if they do, "we're going to take over those rigs like we already did with Ensco."
Dallas-based Ensco International said in January that it suspended operations on an oil rig off Venezuela'sCaribbean coast because it was owed $ 35 mm, prompting PdVSA to take over operations.
"We aren't going to allow any rig to stop in this country," Ramirez said.

Many service providers have been complaining of delayed payments for months. US contractor Helmerich & Payne, based in Tulsa, Oklahoma, said in February it had stopped drilling with two of its 11 oil rigs in Venezuela because of a PdVSA debt of nearly $ 100 mm. Ramirez said PdVSA has recently paid off debts to 94 % of its more than 5,700 service contractors, but is still in negotiations with 56 service companies -- to which it owes a yet-to-be negotiated amount in backlogged payments.
"There's a group of transnational companies with whom we're discussing problems," Ramirez said.

Venezuela, the fourth largest US oil supplier, contracts companies to do work from running oil drills to performing maintenance. Ramirez said Venezuela has 266 active oil rigs -- 51 of which belong to PdVSA and the rest of which are contracted. Houston-based oil services company Baker Hughes put the number of active rigs in Venezuela at 62 in February -- eight less than a month earlier.
Ramirez said just four of Venezuela's oil rigs have been halted because of recent OPEC production cuts, while 17 have been temporarily stopped for routine maintenance.

Ramirez said OPEC may need to make another production cut at its March 15 meeting in Vienna to stabilize prices because world inventories remain high.
"If the sort of destruction of demand exists that we're seeing now," he said, "an additional production cut will have to be proposed." Ramirez spoke after a ceremony where contracts were signed with a handful of international oil companies that have promised to help exploit Venezuela's natural gas reserves.

Six companies including US-based Chevron and Portugal's Galp, agreed to invest a total of $ 200 mm in the first phase of the project, which is expected to require $ 12 bn and start producing natural gas by 2013.
Ramirez said participating companies are expected to help find financing for the project.

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