Venezuela Pres. Chavez to seize some oil contractors under new law

ByRachel Jones, Associated Press Writer
May 8, 2009, 1:21 AM

CARACAS, Venezuela -- President Hugo Chavez said his government will begin seizing control of some oil contractors following the National Assembly's approval of a law that paved the way for the takeovers.

The law approved by the largely pro-Chavez assembly on Thursday enables state oil company Petroleos de Venezuela SA, or PDVSA, to take over contractors without following the usual procedures to expropriate business.

"Tomorrow we'll start recovering the goods and assets that will now belong to the state," Chavez said in a televised speech late Thursday after the legislative vote.

He said PDVSA will seize 300 boats as well as dozens of docks and other transportation installations in western Lake Maracaibo on Friday, and absorb the 8,000 workers affected.

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%.

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% of its export income, but has seen world oil prices slide 61% since their July peak — to settle at $56.71 on the New York Mercantile Exchange on Thursday.

The companies covered by the legislation provide such services as 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.

The law was approved by 153 lawmakers from Chavez's ruling party, while eight lawmakers voted against the measure and three abstained.

Oil Minister Rafael Ramirez said the law could affect foreign companies such as U.S. natural gas processor and distributor Williams Cos. WMB, based in Tulsa, Okla. — which said in April that it plans to write off $241 million related to unpaid fees from PDVSA.

"It's fundamental that we control of all of this to guarantee the development of primary activities," Ramirez said in comments published by Venezuela's state-run Bolivarian News Agency.

PDVSA has already taken over the operations of some companies that have claimed a default, including the SIMCO consortium, which has worked injecting water into oil fields in Lake Maracaibo for the past 10 years.

Houston-based Wood Group, which is a 49.5% partner in the consortium, said in a statement Thursday that PDVSA took over its operations earlier this year "following the consortium submitting a notice of default due to nonpayment and other contractual disputes." A spokeswoman for the company declined to comment on the new law.

While Ramirez denied that oil drillers will fall under the law, Patrick Esteruelas, an analyst with the Eurasia Group in New York, said the law's vague wording means these and other service companies could also be affected.

At least two U.S. oil drillers have halted operations in Venezuela over delayed payments, including Helmerich & Payne, based in Tulsa, Okla. The company has halted seven of its 11 oil rigs in Venezuela this year, saying PDVSA owes it $116 million.

Venezuelan oil service companies are also "very afraid," said Nestor Borjas, who heads the business chamber Fedecamaras in western Zulia state. PDVSA is behind an average eight months on payments to 220 companies in oil-rich Zulia responsible for everything from oil well maintenance to providing transport, he said.

Under Chavez, Venezuela has already nationalized foreign-owned steel and cement companies, as well as four major oil projects.

But Esteruelas said PDVSA seems to be aiming more to pressure companies into accepting its terms rather than planning for widespread nationalizations.

"I don't think that PDVSA wants to immediately take over the entire service sector," he said. "That would be a logistical nightmare."

He and other analysts warn the law could discourage foreign investors, including some of the very companies PDVSA is trying to attract to bid on exploration areas in the eastern Orinoco River basin.

Associated Press writer Fabiola Sanchez contributed to this report.

ABC News Live

ABC News Live

24/7 coverage of breaking news and live events