Williams Cos Deems PDVSA in Default, Plans Write-Down

HOUSTON (Dow Jones Newswires), Apr. 29, 2009

Williams Cos. (WMB) on Wednesday issued notices of default to Petroleos de Venezuela SA (PVZ.YY) as the pipeline operator no longer expects the state-controlled company to pay outstanding bills.

As a result, Williams will record a first-quarter write-down of $241 million, pushing the company into the red for the first quarter. Results are due to be released Thursday.

The announcement highlights the dire situation of the Venezuelan state oil company, which has fallen behind on payments to firms operating its drilling platforms as revenue has plummeted on lower oil prices and declining crude exports. As of September, the latest available figures for PdVSA's finances, the company owed about $7.9 billion to suppliers, a 39% jump from the same nine-month period the year before, but many believe the figure is now much higher.

In addition to managing the South American country's oil production, the company is in charge of various social spending programs. Declining investment in oil extraction has led to a plunge in PdVSA's production levels, analysts say.

A high-level government official told Dow Jones Newswires on Tuesday that PdVSA plans to issue between $2 billion and $3 billion in debt to pay bills owed to oil service companies.

But Venezuelan oil minister Rafael Ramirez threatened on Tuesday to take over service companies that fail to agree on new rates for their services.

"We will not pay [the bills] of contractor companies that have pretended to speculate and don't care about our company," he said in a speech to oil workers.

Ramirez, who is also president of PdVSA, said the state-owned oil company plans to begin the assembly of its own oil rig equipment in June, with help from Chinese technology and know-how.

Williams operates a pipeline business and provides services to PdVSA through long-term agreements. Williams said the non-payments, first disclosed in the company's annual report filed two months ago, said it will stop recording revenue from its assets in the country.

As a result, 2009 earnings are expected to be 4 cents less than they otherwise would have been. Williams, which is also a natural-gas producer, in February cut its earnings target range to between 60 cents and $1.10 per share on the commodity-price plunge.

Williams said Wednesday potential action against PdVSA includes international arbitration.  

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