Schlumberger and PdVSA Working Things Out

Schlumberger Ltd. said Monday it expects to keep working in Venezuela and is on the way to resolving its problems with that nation's state-run oil giant, which owes the oil-service provider hundreds of millions of dollars.

The announcement came two weeks after Schlumberger Chief Executive Paal Kibsgaards cited "collection issues" while saying that the company would "temporarily" cut back on activity.

Venezuela depends on international oilfield-services companies' help it develop its vast oil resources, analysts say. But they add that the country's government also relies on its national oil company, Petroleos de Venezuela, or PdVSA, as a source of cash to finance some social programs--leaving it short on cash at times.

Venezuela's oil minister, Rafael Ramirez, told reporters on March 22 that PdVSA's debts to service providers rose by 35% in 2012 compared with the previous year, when it said it owed service providers more than $12 billion.

PdVSA has not yet released its complete 2012 financial results, but said in a report on its website that its total debt rose 15% to $40 billion last year.

Still, Schlumberger has offered few specifics on what has changed in its relationship with PdVSA that led the company to stay.

Mr. Kibsgaards, in a statement posted on the company's website Sunday, said that collections from Venezuela have improved to the point where the company will recognize revenue from Venezuela in its first-quarter operations.

"We further expect to finalize a new payment agreement with PdVSA," he said, adding, "we anticipate ramping up activity to meet the current and future needs [of PdVSA]."

Schlumberger wrote in its most recent annual report that Venezuela accounts for between 5% and 10% of its outstanding payment balance, which puts the amount it is owed at $650 million and $1 billion--one of only five countries to account for that much.

Last month, after Mr. Kibsgaards's comments on cutting back on activities, Oil Minister Ramirez, who is also PdVSA's chief, said that many statements were taken out of context by various media outlets, incorrectly suggesting tensions were high between PdVSA and its partners.

Mr. Ramirez said he was visited by the Schlumberger head and had a "very good meeting" where "we clarified all of the issues."

"We don't just resolve our problems through the microphone. We called the president of Schlumberger. He showed up yesterday," Mr. Ramirez told reporters at the PdVSA headquarters in Caracas on March 22. He added that the Schlumberger chief will return to Venezuela at the end of April to tour the Orinoco heavy oil belt with PdVSA officials "to see the big push our guys are making out there in drilling and production."

In securities filings, several oil-field-services companies have complained about delayed payments from PdVSA and have said they are owed hundreds of millions of dollars for their work there, in addition to write-downs some have had to take after Venezuela announced a surprise devaluation of its currency earlier this year.

Barclays analyst James West said Monday that Schlumberger "took a hard line" with PdVSA, and the Schlumberger report of progress on the issue is good news for the other Big Four services companies--Halliburton Co., Baker Hughes Inc. and Weatherford International, which all have significant operations in Venezuela.

Mr. West said that although there have been periods of nonpayment in Venezuela depending on what else is going on in the country politically, some 95% of all receivables have been paid eventually.

"It ebbs and flows. When there's an election, PdVSA tends to stop paying," he said. "Usually over time, the majority of it is resolved for the big services companies."


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