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Chavez to expand Venezuela oil nationalizations
June 6, 2009 / 5:01 PM / 8 years ago

Chavez to expand Venezuela oil nationalizations

By Frank Jack Daniel - Analysis

CARACAS (Reuters) - President Hugo Chavez has already nationalized most of Venezuela’s energy industry and is preparing to bring chemicals under his wing, but he may still target firms running gas and oil services.

A former soldier inspired by Cuba’s Fidel Castro, Chavez has made energy nationalization the linchpin in his drive to build his own brand of socialism. He has also taken over assets in telecommunications, power, steel and banking.

Over the last month, Chavez has seized a gamut of mostly small oil service companies along with U.S.-owned gas compression units, adding to the mammoth heavy oil projects Venezuela took over in 2007.

The government is now mopping up what is left, preparing to take a majority stake in the OPEC nation’s main private petrochemical projects and possibly eyeing natural gas.

But the really lucrative area of the oil business that Chavez has not yet touched is oil well services such as drilling rigs run by global giants like Halliburton (HAL.N), Schlumberger (SLB.N) and Baker Hughes BHI.N.

“To the extent that the higher value service companies, the drilling companies, refuse to accept the terms that are on offer or refuse a write-down on their debt, they too will be vulnerable to a takeover,” said Patrick Esteruelas of Eurasia Group in New York.

Chavez has not said the companies are in the spotlight but the government is committed to nationalizing all of what it considers strategic parts of the economy.

“We are determined to regain full petroleum sovereignty and it turns out that in Venezuela almost everything was privatized,” Chavez told reporters in Argentina in May.

Halliburton and Schlumberger declined to comment about recent nationalizations, while Baker Hughes did not immediately respond to a request for comment.

These companies provide a range of services including exploration and enhancing output at existing fields. Their takeover could have repercussions in production and future investment in one of the world’s major oil exporters.

Flush with oil cash, Chavez has often compensated nationalized companies fairly, but the 2007 takeovers in the oil industry led to lawsuits from ConocoPhillips (COP.N) and Exxon Mobil (XOM.N).

DEBTS, RISING OIL PRICES

State oil company PDVSA ran up $14 billion debts with all the service companies when oil prices plunged over the last year. Those debts preceded the takeover of smaller transport and water and gas injection firms in May. Companies that do not resolve disputes with PDVSA could be headed for trouble.

Oil prices have been on the rise in recent weeks and could provide a way for PDVSA to pay off its debts, or to pay for more takeovers. The service companies hit in May, including Williams Companies Inc (WMB.N), may be compensated with bonds rather than cash, according to Venezuela law.

Big players like Halliburton and Schlumberger have so far avoided public spats with the government over debts, but smaller companies such as driller Helmerich and Payne (HP.N) Ensco (ESV.N) have gone as far as to stop working rigs over fees in arrears.

Earlier this year, PDVSA seized a rig owned by Ensco and in May the U.S. company said it sought to terminate its contract in Venezuela.

Chavez’s favored model for running nationalized industries is via joint ventures where the private partners have a 40 percent stake. He has used that arrangement for oil upgrading projects worth billions of dollars, as well as the steel industry.

The proposed law for petrochemical companies also limits private participation in projects to 40 percent, with the government taking its usual 60 percent stake.

The law should easily pass through the Chavez-ally controlled national assembly and could see reduced holdings for companies such as U.S. chemical maker FMC Corp (FMC.N). privately held Koch Industries and Japan’s Mitsui (8031.T), Mitsubishi Corp and Mitsubishi Gas Chemical.

Such a model could be acceptable to oil service companies with a long-term view on Venezuela who want to keep close to some of the world’s largest oil reserves, regardless of the current unstable business climate.

France’s Total SA (TOTF.PA) and Norway’s StatoilHydro (STL.OL) received around $1 billion of compensation after reducing their holdings in the 2007 takeovers. Britain’s BP Plc (BP.L) and the U.S. company Chevron Corp (CVX.N) also remained as minority partners.

Venezuela’s largely undeveloped natural gas sector is also ripe for a regulation shake up, since under the present law gas projects can be 100 percent privately owned, against the grain of Chavez’s socialist ideals.

Editing by Patricia Zengerle

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