Global Processing

Chavez''s government seizes oil contractors

May 11, 2009
President Hugo Chavez announced that his government is nationalizing 60 oil contractors as he moves to assert greater control over Venezuela''s oil industry, according to the Associated Press. He said companies to be nationalized under a new law would include SIMCO consortium, which has worked injecting water into oil fields in western Lake Maracaibo for the past 10 years. State-run Petroleos de Venezuela SA, or PDVSA, is taking over all oil service work in the lake, where private companies have long helped extract crude, he said. "SIMCO consortium disappears today," Chavez said in a televised speech from a harbor in Lake Maracaibo, where he oversaw the seizure of 300 boats, docks and other assets belonging to oil contractors. "Now, it belongs to PDVSA." Venezuela''s state oil company has recently clashed with domestic and foreign service providers that help extract the OPEC nation''s heavy crude, accumulating billions of dollars in debts as it aims to renegotiate contracts to reduce costs by 40 percent. Numerous foreign contractors have halted work in Venezuela over delayed payments. Chavez said the takeovers would allow state oil company PDVSA to reduce its production costs by 20 percent, or $500 million. PDVSA says some of those contracts are now overvalued due to falling crude prices that have shrunk government revenue. Venezuela relies on oil for 93 percent of its export income, but world oil prices have fallen 60 percent since their July peak. The law approved by Venezuela''s largely pro-Chavez National Assembly covers companies that provide services including natural gas processing, the injection of natural gas or water into oil fields to improve recovery and management of docks and boats on Lake Maracaibo. Oil Minister Rafael Ramirez said Venezuela has now taken control of "more than 85 percent of the installations and activities" covered by the law. The law says companies could be paid with cash or bonds for their assets, while PDVSA has said it will absorb the 8,000 workers affected by the seizures of boats and docks. But PDVSA employees said they''re concerned the extra additions to a payroll that stood at 75,000 prior to the seizure -- triple its 2002 levels -- will mean fewer benefits for workers as cash flow tightens.