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PDVSA awards $3.2B oil service contracts, protest brews

PDVSA

Schlumberger, Horizontal Well Drillers out of Oklahoma and Venezuelan contractor Y&V were awarded contracts to service joint ventures involving PDVSA and foreign partners.

PDVSA rushed the tender, did not provide enough details on contracts: Foreign partners

By Alexandra Ulmer, Marianna Parraga and Girish Gupta

CARACAS/HOUSTON, Sept 21 (Reuters) – Venezuela’s state oil company PDVSA said on Wednesday it has awarded $3.2 billion in contracts to drill wells in the Orinoco Belt, although sources close to the matter said some foreign partners are uncomfortable with the rushed tender and structural problems that could hinder projects.

The fresh discontent comes after Reuters reported in July that tiny Colombian trucking firm Trenaco, whose management was close to Venezuelan President Nicolas Maduro, won a multibillion-dollar contract to carry out similar work despite having no relevant experience.

In a rare rebellion, foreign companies protested to PDVSA that Trenaco was vastly underqualified, leading to the cancellation of the $4.5 billion deal amid concerns about transparency and political favoritism.

In a similar tender renewed this year, Schlumberger NV, Oklahoma-based Horizontal Well Drillers and Venezuelan contractor Y&V won contracts to drill a total of 480 wells at three joint ventures between PDVSA and foreign partners.

The projects are designed to add 250,000 barrels per day (b/d) in 30 months, PDVSA said, as the crisis-hit OPEC country’s production skids due to low investment, maintenance problems, limited diluent imports, theft, and a brain drain.

“Investment amounts to $3.2 billion, which demonstrates the strength of PDVSA and shows trust in the national oil company,” PDVSA said in a statement.

But some of PDVSA’s foreign partners are questioning or outright protesting that the deal was rushed and also questioning financial and structural issues, according to interviews with half a dozen sources at foreign oil companies and service firms.

“We’re going to fight this,” said a source at a foreign company.

The sources declined to be identified to avoid compromising business in Venezuela. PDVSA did not respond to a request for comment about the complaints.

UNANSWERED QUESTIONS

Sources said PDVSA rushed the tender and failed to provide enough details on the contracts, which in some cases were only approved by PDVSA’s simple majority in the joint ventures.

Ph: 432-978-5096 Website: www.mapleleafmarketinginc.com

Ph: 432-978-5096 Website: www.mapleleafmarketinginc.com

Hurt by low oil prices and a steep recession at home, PDVSA asked bidders to provide financing themselves and be repaid in future oil production, but the winners include relatively small service companies, according to PDVSA documents seen by Reuters.

Sources also said the cost per well, at around $6.5 million dollars, was deemed too high.

Other sources questioned why PDVSA would boost extra-heavy crude output when it does not have sufficient blending components or the infrastructure needed to turn the tar-like Orinoco oilinto lighter crude that can be easily sold on global markets. PDVSA’s cash-flow problems have at times left it unable to pay for the diluent imports it needs.

The joint ventures’ early production for this is expected to come online for mid-2017.

FINE PRINT

After the Trenaco episode caused friction with partners, PDVSA revived the sunk deal but separated it into six four-year contracts of around 100 wells each.

Schlumberger and Y&V won the two contracts to drill some 200 wells at the Petrovictoria joint venture, where Russia’s Rosneft has a 40 percent stake, one source said.

Schlumberger, the world’s largest oil services company, has scaled back its operations in Venezuela because it is owed money by PDVSA, and is securing external financing for the project, a separate source said.

In an e-mail to Reuters, Schlumberger confirmed the deal to construct 80 wells, adding “the details for the commercial terms including the collections assurance mechanism are still under negotiation.”

Horizontal Well Drillers won some $1.29 billion worth of contracts to drill 191 wells at Petroindependencia, whose minority partners include Chevron Corp, Venezuela’s Suelopetrol, and Japanese companies Mitsubishi Corp and Inpex Corp, a PDVSA document shows.

Horizontal Well Drillers has a 48-month credit line from Canada’s Callidus Capital for $350 million to finance the project, the document shows.

Callidus Capital, which describes itself as offering “creative funding solutions to companies that cannot access traditional lending sources,” did not respond to an email seeking comment.

And Y&V won one contract worth $647 million to drill 100 wells at Petrocarabobo, which includes Spain’s Repsol SA and India’s ONGC Videsh, a separate PDVSA document shows.

PDVSA’s joint venture partners did not respond to requests for comment.

The contractors “will have the support and operational expertise of Halliburton and Baker Hughes for specific project activities; 18 drilling rigs will be available,” PDVSA added in its statement.

The second of two contracts at Petrocarabobo was not awarded because no valid bid was received, two sources said.

Y&V has secured a credit line from commodities trader Burj Petroleum Corporation for up to $250 million, according to the PDVSA document.

Burj Petroleum, a crude and products trading company, did not respond to a request for comment.

(Reporting by Alexandra Ulmer and Girish Gupta in Caracas and Marianna Parraga in Houston; Editing by Brian Ellsworth, Meredith Mazzilli and David Gregorio)

Ph: 432-978-5096 Website: www.mapleleafmarketinginc.com

Ph: 432-978-5096 Website: www.mapleleafmarketinginc.com

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