Chavez Seizes Assets of Oil Contractor

Chávez Seizes Assets of Oil Contractor

By SIMON ROMERO
Published: May 8, 2009
CARACAS, Venezuela — President Hugo Chávez asserted greater control over the country’s energy industry on Friday by seizing the assets of some foreign and domestic oil contractors while his government grapples with a sharp decline in oil revenue and mounting debts.

Carlos Sosa
Venezuelan soldiers at an event presided over by President Hugo Chávez on Friday celebrating the seizure of contractors’ assets. The seizures took place largely in Zulia State in the west.
The move points to a greater concentration of power by Mr. Chávez, who is busily exerting sway over important industries and political institutions during the economic crisis. In recent weeks, his government has also hounded top rivals, stripping the mayor of Caracas of financing for the city budget while forcing the mayor of Maracaibo to seek asylum in Peru after he was confronted with corruption charges.
The move by Mr. Chávez on Friday also raises concern about Venezuela’s ability to increase its declining oil production at a time of low oil prices. The national oil company, Petróleos de Venezuela, hired the contractors to help it produce oil by operating drilling rigs, using technology to extract oil from aging wells or moving personnel or equipment on boats.
Venezuela, which relies on oil for about 93 percent of its export earnings, has not paid some of the oil contactors since late last year, according to filings by companies like Williams Companies, based in Tulsa, Okla., which said last month that it did not expect to receive $241 million it was owed here. Petróleos de Venezuela had been seeking a reduction of about 40 percent in its overall debt to the companies, which is estimated by industry analysts to be about $10 billion.
Our “people will never again be anyone’s slave,” Mr. Chávez said Friday.
Industry representatives in the oil-producing state of Zulia said uniformed soldiers had begun occupying oil installations on Thursday, shortly before the National Assembly approved a measure allowing the takeovers. The move deepens Mr. Chávez’s control of the oil industry, following the imposition of higher royalties on foreign oil companies, raids on their offices by tax authorities and the nationalization of large oil-producing projects in recent years.
In other countries, national oil companies have been trying to negotiate better terms with contractors since prices plunged with the onset of the global financial crisis. But Mr. Chávez’s move marks an aggressive turn in such negotiations, highlighting the risks that many energy companies face in doing business in Venezuela.
Some foreign companies began shutting down their drilling rigs earlier this year when it became apparent they would not get paid by Petróleos de Venezuela. Helmerich & Payne, a drilling company based in Tulsa, has told investors that it stands to lose $116 million because of unpaid bills by Petróleos de Venezuela.
Particularly for large oil-services companies, like Schlumberger or Halliburton, opportunities still exist in Venezuela, where they have carved out a presence that has spanned decades. It was not immediately clear whether they could remain as minority partners with Petróleos de Venezuela or continue talks over debts they hoped to collect.
For the time being, Mr. Chávez’s government said it would expropriate at least 13 drilling rigs, 39 oil terminals and about 300 boats used in waters and land around Lake Maracaibo in western Venezuela. Still, industry leaders said the scope of the expropriations could easily be widened. Cathy Mann, a spokeswoman for Halliburton declined to comment on whether the company would be affected.
Despite the abrupt shifts in energy policy here, large oil companies like Chevron and Total of France have tried to maintain their business activities in the country, attracted by its sizable oil reserves. Unlike some other major oil countries, like Saudi Arabia or Mexico, Venezuela still allows foreign companies to be minority partners in nationalized oil fields.
In an attempt to increase production, Venezuela has recently been soliciting bids from private oil companies in the West, as well as from state-controlled Chinese and Russian companies, for new oil projects capable of producing up to 1.2 million barrels of oil a day. The bidding has been delayed this year, but it is scheduled to begin here in late July.
“For those thinking about bidding, the action against the contractors is another reminder of how unsettling the environment in Venezuela can be,” said RoseAnne Franco, lead analyst for Latin America at PFC Energy, a company in Washington.
While the new projects up for bid would be assembled in the Orinoco Belt, an area with an enormous hydrocarbon reserve in southern Venezuela, the seizure of the contractors’ assets on Friday took place largely in Zulia, in western Venezuela, where some of the country’s oldest oil wells are located.
Zulia is also a bastion of opposition to Mr. Chávez. Resentment has been festering against the president there since corruption charges were brought against Manuel Rosales, a leading opposition figure who ran against Mr. Chávez for president in 2006 and was elected mayor of Maracaibo last year. Mr. Rosales fled to Peru last month rather than submit to an order for his arrest to face corruption charges.
Mr. Chávez will expand his power in Zulia with the takeover of the contractors by his loyalists, but it is a move that could heighten tension in one of the most strategically important states.
“They want to come for all of Zulia,” said Néstor Borjas, a leader in Fedecámaras, a regional business association in western Venezuela.
“They come with their soldiers from the National Guard, and they take what they want,” he said, “and you, as the owner of your company, can do absolutely nothing.”
María Eugenia Díaz contributed reporting from Caracas, and Jad Mouawad from New York.