July 20, 2007 / 4:18 PM / 12 years ago

UPDATE 1-Venezuela drops 2007 rig count target by 40 pct

(Recasts; adds analyst comment, details, background)

By Brian Ellsworth

CARACAS, July 20 (Reuters) - Venezuela’s difficulties in acquiring oil rigs amid soaring global demand could lead to lower oil production amid a nationalization crusade by leftist President Hugo Chavez.

Chavez has forced the hand of foreign energy companies in Venezuela with an aggressive campaign to take over oil projects that last month pushed Exxon Mobil (XOM.N) and ConocoPhillips (COP.N) out of multibillion-dollar heavy crude ventures.

Now this tough position has created stumbling blocks in Venezuela’s search for oil rigs crucial to industry operations and has even led to corruption allegations against top officials at state oil company PDVSA.

“I think it’s a serious challenge. It has been known for a while, but what’s new about this is that PDVSA is publicly admitting that it has these problems,” said David Kirsch, an analyst with PFC Energy in Washington.

Energy Minister Rafael Ramirez told local media the nation has lowered its 2007 rig count target by around 40 percent, with total operating rigs pegged at about 120, compared with an original target of 191.

He said Venezuela has had trouble convincing rig contractors to participate in Venezuelan bids, partly because companies are required to donate 10 percent of the value of their Venezuelan contracts to social development projects.

Venezuela last year awarded bids to 12 companies in a tender to bring in 27 rigs within 180 days, but only five of the companies were able to meet the commitments, local media quoted PDVSA Vice President Luis Vierma as telling a legislative committee.

Legislators questioned Vierma on Wednesday over the award of a rig contract to a Colombian company, which ultimately did not provide the rig. Critics said the company had such limited capital that it should not have qualified for the bid.

Ensuring rig capacity is crucial for Venezuela’s oil industry, as its fields’ output tends to decline by around 25 percent each year — particularly in the mature fields of the west — unless new wells are drilled.

PRODUCTION PROBLEMS

The problem comes amid growing concerns that PDVSA’s output may fall after it took over operations at four multibillion-dollar heavy crude upgrading projects previously run by foreign oil companies.

Venezuela’s official figures show output at 3.07 million bpd, though international energy agencies say it is only around 2.5 million bpd.

PDVSA’s figure is below its official figure of 3.3 million bpd reported in 2005, when Venezuela launched a plan to raise production to 5.8 million bpd by 2012.

Vierma said on Wednesday Venezuela currently has 112 rigs in operation.

He specifically mentioned Schlumberger (SLB.N) as one of the companies that had refused to participate in tenders.

When asked about Venezuelan operations, Schlumberger Chief Executive Andrew Gould said during a Friday conference call, “We’re perfectly prepared to invest, if they invited us to tender for work.”

PDVSA is also taking over rigs and associated drilling equipment that belong to Venezuela but were being operated by private companies, such as Maersk (MAERSKb.CO). That sparked the outrage of contractors, who shut down three rigs in the Lake Maracaibo area two weeks ago to protest losing their jobs.

“We cannot be so vulnerable” to rig supply problems, Ramirez told the local daily El Universal.

Additional reporting by Deisy Buitrago in Caracas and Anna Driver in Houston

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