Venezuela's PDVSA Falls Behind on Payments to Oil Service Firms

CARACAS (Dow Jones Newswires), Jan. 15, 2009

Venezuela's state-owned energy company is struggling to pay its bills as cash flow dries up due to rock-bottom oil prices.

Petroleos de Venezuela SA has fallen several months behind on payments to oil service companies and other suppliers that keep its oil business running, a source of concern for many in the industry.

Oil company executives say PdVSA, as Venezuela's flagship firm is known, stopped paying service firms in August and the debt to all suppliers may have risen by as much as $3 billion. As of September, bills owed to suppliers stood at $7.86 billion, a 39% jump from the same nine-month period in 2007, according to PdVSA figures.

French oil services company Schlumberger Ltd. (SLB) and U.S. firm Halliburton Co. (HAL) are now owed a combined $800 million to $1 billion by some estimates. Officials at both companies declined to comment on the matter.

"We're having a hard time, just as many other firms in a similar position around the world," Eudomario Carruyo, a PdVSA board member and head of finance told Dow Jones Newswires in an interview. "Our revenues just got cut in half."

Carruyo would not confirm the amounts owed to top suppliers. "The amounts are important, but they're manageable," he added.

The price for Venezuela's basket of crude and products has lost more than $100 since reaching record levels last summer, to $37.62 a barrel, less than half of last year's average.

The outlook for world oil prices and other commodities looks grim for the medium term. The global economy is slowing sharply, and the U.S., Venezuela's top oil customer, is expected to suffer the roughest tumble in decades.

Under the circumstances, PdVSA is pondering its financial strategy for the coming year, Carruyo said. As an initial step, the company plans to renew a $1.16 billion credit line with a group of banks led by BNP Paribas (BNPQY) for "a similar amount." Other financing options are also on the table.

But foreign companies are already signaling concern. Regional executives for both Halliburton and Schlumberger have visited Venezuela over the past month to discuss pending bills.

In some instances, service firms have stopped taking on new oil well service offers and are mainly working on those fields with standing contract agreements.

In a recent meeting with service companies, a PdVSA board member asked them to cut down on their charges by 40%, according one executive with knowledge of the meeting. The proposal did not sit well with those firms.

"This is worse than the oil strike," an oil executive said, recalling a three-month oil industry strike that began in December 2002. "At least back then we were getting paid."

Members of the Venezuelan Petroleum Chamber are now planning an emergency meeting with PdVSA to discuss a way out.

Amid the troubles, President Hugo Chavez has vowed to subordinate all state priorities to fund popular social spending programs. Indeed, PdVSA has sacrificed needed oil investment over the past few years to finance entitlements for the poor.

"You can bring the oil price down to zero, but the revolution will go on," Chavez said during his yearly address to congress Tuesday, a message that has become his mantra of late.

Already the leftist leader signaled to fellow members of the Organization of Petroleum Exporting Countries, OPEC, that Venezuela will support any output cuts needed to push up oil prices. Chavez, long a champion of strengthening the oil cartel, has long relied on OPEC muscle to foster high crude prices.  

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