Venezuela readies law to seize some oil services

CARACAS Tue May 5, 2009 7:47pm EDT

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CARACAS May 5 (Reuters) - Venezuela's Congress on Tuesday gave initial approval for state seizure of a group of oil service companies, upping the ante in a months-long dispute over billions of dollars in unpaid debts.

The legislation would extend President Hugo Chavez's control over the OPEC nation's oil industry as state oil firm PDVSA struggles to make ends meet amid the tumble of crude prices from highs near $150 per barrel last year.

It could directly affect natural gas producer and pipeline company Williams Companies Inc (WMB.N), majority owner of a gas compression facility in Venezuela, which in April reported a $241 million charge related to nonpayment by PDVSA.

The law puts the state in charge of companies providing a range of services including gas and water reinjection and marine transport for the oil industry previously operated by PDVSA but later contracted out to third parties.

"As of the publication of this law, PDVSA or a subsidiary it designates will take possession of the assets and control of the operations reserved activities," said the law, which must be given a second approval by the Chavez-controlled Congress.

It would let the government expropriate companies and compensate firms with bonds instead of cash, order preliminary takeovers of service company assets while courts settle disputes and could even annul existing contracts.

The move appears targeted at specific service companies that have been hampered by severe cash flow problems due to lack of payment by PDVSA, which last year owed some $8 billion to contractors and providers.

Marine transport companies that move workers and equipment in the oil-rich lake Maracaibo -- services mentioned in the law -- have faced repeated strikes by workers that have gone without pay due to growing PDVSA debts.

Troops earlier this year took over a company partly owned by British Engineering company the Wood Group (WG.L) that carries out water injection in Lake Maracaibo following a massive buildup of debts, two sources told Reuters.

Analysts say slowdown in key service operations would lead to severe losses in production in Venezuelan fields. (Reporting by Brian Ellsworth; Editing by Christian Wiessner)

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