x Abu Dhabi, UAEThursday 27 July 2017

Venezuela seizes 60 firms

Venezuela seizes the assets of 60 oil service companies, paving the way for their nationalisation under a new law passed last week.

Venezuela has seized the assets of 60 oil service companies, paving the way for their nationalisation under a new law passed last week. The facilities seized on Friday included gas injection facilities owned by the US energy group Williams Companies, which are considered crucial for boosting oil output from the fields that produce Venezuela's most valuable crude. Hugo Chavez, the president of Venezuela, also sent troops to Ciudad Ojeda, an oil town on the shores of Lake Maracaibo, to seize oilfield service facilities including shipyards and hundreds of boats.

"We have started to nationalise all these activities connected to oil exploitation. This is a revolutionary offensive," Mr Chavez said from a confiscated boat sailing across the lake, according to Reuters. The move signals the president's willingness to expand government control over the industry, which produces 93 per cent of Venezuela's state revenues, as a short-term solution to the country's money woes. The nationalisation law, passed on Thursday, allows Caracas to pay for seized assets with government bonds.

The national oil company, Petroleos de Venezuela (PDVSA), hurt by falling crude prices, stopped paying contractors for their services late last year and has been trying to negotiate much lower rates for drilling and well services, with the aim of cutting costs by 40 per cent. At the end of last year, PDVSA owed US$13.9 billion (Dh48.07bn) to suppliers, most of which remains unpaid. A number of contractors have responded by idling their rigs.

Patrick Esteruelas, an analyst with Eurasia Group, a New York political risk consulting firm, told Dow Jones: "This is a strong message for oil rig companies playing hardball and reluctant to agree on a write-down of their bills." High global oil stockpiles are likely to limit the immediate effects of the seizures on crude prices. But in the medium term, the seizures could result in lower crude production by the biggest western hemisphere OPEC exporter, pushing prices up once global oil supplies again become constrained.

"Petroleos de Venezuela doesn't have the management and strategic capacity to operate these companies properly," Jorge Pinon, a fellow at the Centre for Hemispheric Policy at the University of Miami, told Bloomberg. "You'll see a substantial drop in oil production." Christopher Sabatini, of the Council of the Americas in New York, said: "PDVSA doesn't have the capacity to undertake more exploration and development and no one is going to be beating down the doors to get into Venezuela in this environment."

In 2007, Mr Chavez nationalised oil projects worth billions of dollars. The international oil companies Exxon Mobil and ConocoPhillips left Venezuela and sued for compensation. @Email:tcarlisle@thenational.ae