Finance & Investing
News Services
Newsletters
Get free industry updates via email.
Daily News
Weekly News
Equipment Updates
Weekly Job Register
Monthly Event Guide
Our privacy
pledge.


advertisement

Venezuela Tries to Attract More Oil Rigs, Halt Departures

change text size
CARACAS Feb.9, 2007 (Dow Jones Newswires)

Faced with a declining rig fleet in a tight global market for oil services, Venezuela is preparing a fresh licensing round to attract new drilling equipment and renew contracts for those on the ground, industry executives say.

But Petroleos de Venezuela S.A. (PVZ.YY) is increasingly slow about paying its contractors and insists on paying in a local currency that is difficult to convert into dollars, dampening interest in projects with the state oil firm.

PdVSA is still looking to hire a rig for the offshore Mariscal Sucre gas project, where the company first hoped to start drilling in mid-2006. Meantime, foreign operators are neck-deep in a contract overhaul, delaying some work at privately run fields until at least the second half of the year.

Contrary to PdVSA's intentions, industry watchers expect drilling activity to slow down this year, denting the country's production capacity at a time of rising costs at the state firm.

"I don't think you'll see a lot of new capital deployed down there by the operators, nor the service companies," Halliburton (KRY) Chief Financial Officer Christopher Gaut said in a Thursday web cast.

Halliburton provides drilling and waste management services to oil companies in Venezuela. Gaut said currency restrictions are a "constant struggle," and described other Latin American oil producers Brazil, Argentina and Mexico as better markets for growth.

This environment could jeopardize PdVSA's long-term plans to double production by 2012.

"PdVSA is running around trying to make sure rigs don't leave the country," said one industry executive. "We've got a downward trend since July that they are starting to notice."

Venezuela's oil rig fleet peaked at 76 in mid-2006, the highest number in operation since 1998, according to data by Baker Hughes, an oil services firm. Since last July, 13 oil have gone out of service, two last month. Active natural gas rigs also fell to 10 from 12 over the period.

Baker Hughes figures only include active drilling rigs, not those doing workover and completion work. PdVSA claims it has over 100 rigs in operation.

Of the 49 Venezuela rigs tracked by Rigzone, an industry web site, only 29 are active, with another five ready for work. The remaining 15 require restart investments.

President Hugo Chavez's socialist policies are partly to blame for declining activity. Last year, PdVSA forced service companies to include good works, such as building schools and clinics in impoverished oil production zones, as requirements for new contracts. The increased costs contributed to a number of null and void bidding rounds last year.

"There are no win-win deals out there," said an executive at a drilling company.

PdVSA hopes to spawn a domestic oil services industry to avoid relying on foreign firms such as Schlumberger (SLB) and Baker Hughes (BHI), and is giving preference to local companies and those from politically allied nations, such as China.

Last August, PdVSA said it hired 27 new rigs from mainly domestic and Chinese companies, "breaking with the monopolistic practice of only contracting multinational firms," said PdVSA in a statement at the time.

Industry sources said many of the contracts from last year were for renewals, and a number of the vaunted domestic rig suppliers were unable to deliver due to mechanical issues.

Baker Hughes' monthly rig count showed a decline, not a rise in activity in the second half of last year. Oil service executives say PdVSA is now making a new attempt to drum up business, putting together a bid offer for dozens of rigs, ranging from small workover rigs to offshore barges.

An executive from a U.S. firm said PdVSA is "inspecting the (domestic) rigs this time to make sure bidders have what they're offering."

It remains to be seen if the state firm will offer attractive enough terms to expand activity. Venezuela, which sits on the largest conventional oil reserves outside the Middle East, has had success bullying foreign oil majors with tax hikes and contract changes. But unlike oil companies, which need new reserves to replace what they produce each year, oil service firms can easily pick up and move to other, more hospitable nations such as Colombia and Trinidad, where their services are in high demand.

"We're on a totally different business model," said an executive at a European service company. "When supply is tight, you've got to give more generous terms and conditions."

Copyright (c) 2007 Dow Jones & Company, Inc.

Related Companies

Most Popular Articles
From the Career Center
Jobs that may interest you
Directional Driller
Expertise: Directional Driller
Location: Houston, TX
 
Multilateral/Whipstock Advisor-Strategy and Product Development
Expertise: Drilling Consultant
Location: Houston, TX
 
Deepwater Drilling Engineer
Expertise: Drilling Engineering
Location: Houston, TX
 
search for more jobs