PDVSA in Talks with Service Companies to Cut Costs

CARACAS (Dow Jones Newswires), Jan. 30, 2009

Petroleos de Venezuela SA, or PdVSA, said Friday that the company is actively trying to cut its costs, renegotiating contracts with suppliers and service companies while seeking to protect oil workers.

PdVSA "has sat down with contractors to renegotiate standing contracts," Eulogio Del Pino, a PdVSA director, noted in a statement emailed directly to Dow Jones Newswires. "It is necessary for them to adapt their excessive rates to the current scenario."

Del Pino's statement came in response to a Dow Jones story noting delays in PdVSA's bill payments to service companies and other suppliers. "The situation is being manipulated for political purposes," Del Pino said in the message, regarding the issue of unpaid bills.

The state-oil company notes that oil-service firms pushed up rates by as much as 40% last year as oil prices soared, and have failed to bring those back down. "Under the circumstances that increase is not justifiable," the statement added.

The company's finances have been hit hard by the steep oil price decline in second half of 2008. Prices have fallen more than $100 a barrel since reaching record highs last summer. The Venezuelan basket of crude oil and products stood at $37.95 a barrel Friday, less than half the average level in 2008.

As part of talks with suppliers, the PdVSA statement added, the company is asking these contractors to pay workers at the wells even before reaching a settlement.

PdVSA noted that some contractors are spreading rumors of possible worker layoffs. No worker layoffs will take place, PdVSA said, "despite the oil industry's financial situation."

The state company's cash problems have become a concern lately for companies operating in the Andean country. Two U.S. dilling firms have already shut down rigs due to lack of payment and have indicated they might stop additional rigs if pending debts aren't settled.  

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