Chavez Moves to Take Over Oil Service Companies in Venezuela

May 8 (Bloomberg) -- Venezuelan President Hugo Chavez signed a law to allow the government to seize assets from oilfield services companies and said he’ll start taking over boats and docks on Lake Maracaibo today.

The National Assembly approved the law earlier yesterday, allowing for the nationalization of services including water injection at wells, gas compression and dock control.

“I’m going to enact this law immediately,” Chavez said last night. “We’re going to start to recover these assets, which will become property of the state. Now they’re liberated.”

Petroleos de Venezuela SA, the state oil company, is pressing foreign services companies to lower rates as growing debts hamper oil output. Production in Venezuela, the biggest oil exporter in the Americas, was down 8.4 percent last month from a year ago, according to Bloomberg estimates, and services firms have idled rigs this year because of past-due payments.

Venezuela depends on oil exports to finance half the government’s budget.

Chavez didn’t provide names of companies that would be targeted today.Schlumberger Ltd. and Halliburton Co., the world’s biggest and second-biggest oilfield services companies, both operate in Venezuela. The two companies declined to comment when asked about the new law on May 6.

Boats, Docks
Oil and Energy Minister Rafael Ramirez said the state oil company today will seize 300 boats, 61 diving boats and 39 terminals and docks and other assets used by the oil industry on Lake Maracaibo in Venezuela’s western Zulia state. PDVSA, as the oil company is known, will absorb 8,000 employees from subcontractors.

“These intermediary companies speculated, and took a large part of our oil earnings,” Ramirez said yesterday on state television. “With this, we’ll continue reducing costs in our oil industry.”
Venezuela’s output may fall below 2 million barrels per day for the first time in 20 years, said Patrick Esteruelas, a Latin America analyst at Eurasia Group in New York, in a research note yesterday.

Venezuela has already started expropriating assets this year from services companies that have idled equipment.

Yesterday, John Wood Group Plc, a services company based in Aberdeen, Scotland, said that PDVSA took over one of its contracts, and Houston-basedBoots & Coots International Well Control Inc. said it suspended operations in the first quarter because of past-due payments.

Williams Cos. said on April 29 that it wrote off $241 million for uncollectible Venezuela payments, while Helmerich & Payne Inc. said it may not be able to collect $116 million.
Helmerich has idled seven rigs, while Dallas-based Ensco International Inc. idled one, which was later seized by PDVSA.

Investment Plan
PDVSA cut its investment plan for this year to $14 billion from a previously planned $24 billion on April 28, and in February Ramirez said the company asked service providers to cut their fees by 40 percent after the price of oil plunged.

Chavez has pledged to maintain spending on social programs that provide subsidized food, health care and housing to the poor, even after crude oil prices plunged 61 percent since July.

Crude oil for June delivery rose 37 cents, or 0.66 percent, to $56.71 a barrel on the New York Mercantile Exchange yesterday.

Ramirez said May 6 that Venezuela, a member of the Organization of Petroleum Exporting Countries, supports efforts to raise the price of oil to $70 a barrel.

Angel Rodriguez, a lawmaker and president of the Energy and Mines Commission in the National Assembly, said in an interview May 6 the government won’t expropriate foreign-owned oil and gas drilling rigs.

To contact the reporter on this story: Matthew Walter in Caracas at mwalter4@bloomberg.net
Last Updated: May 7, 2009 23:54 EDT