All politics is local, expropriation edition

Me and my rig

10-second exposure of me and a drilling rig. This is how some of us spend our vacations.

PDVSA President Rafael Ramirez:

There are rig owners that have declined to discuss with PDVSA the rates for services and have preferred to keep their equipment locked up for a year in Anaco, in Anzoategui state. This is the case specifically of the company Helmerich & Payne, a U.S. transnational firm. That’s why an eminent domain declaration over them is being requested at the National Assembly, to thus assume control. We won’t allow them to sabotage our operations as they did at the end of 2002.

Helmerich & Payne President Hans Helmerich:

Our dispute with PDVSA has never been very complicated and our position has remained clear: We simply wanted to be paid for work already performed. We stated repeatedly we wanted to return to work, just not for free. We are surprised by yesterday’s announcement only because we have been in ongoing efforts in a good faith attempt to accommodate a win-win resolution, including a willingness to sell rigs. We have worked in Venezuela for 52 years and wanted to continue under reasonable conditions. At the same time, Helmerich & Payne has reduced its number of rigs in Venezuela in half since 1998. At that point, almost 30% of our land rigs were in that country, as compared to under 5% of our land rigs today.

Am I the only one to see these comments as more similar than different? Both of them are ostensibly talking about 11 oil rigs that have been sitting around for the past year.

Ramirez glosses over whether Helmerich is refusing to make concessions on future rates (which would be price-gouging) or, as the company insists, refusing to renegotiate the bills for work already performed. Helmerich skips over more than a century of the U.S., Britain, and Europe trying to bully Venezuela on oil affairs and, humiliatingly often, succeeding.

But the key similarity is that neither of them are talking to the general public. Ramirez is talking to Venezuelan voters. Helmerich is talking to his shareholders. The real situation is, and will probably remain, opaque. It’s entirely possible that this will be a straightforward, paid-in-full nationalization like that of Ternium (although I don’t think Helmerich has the Kirchners in his korner) or it may go to arbitration and not get paid for years. It’s possible that both of them are really on the same page as far as the takeovers of the rigs; the Venezuelan government wouldn’t miss a chance to score points with voters by making a routine takeover look like a powerful revolutionary act that is putting the empire in its place. It’s also possible that Helmerich is about to lose its rigs, and its insurer about to pay a few million bucks. Just another day in Rashomon-land.

Back here in reality, both Baker Hughes and Schlumberger show Venezuela rig count having bottomed around the beginning of the year.

5 thoughts on “All politics is local, expropriation edition

  1. locojhon

    Wait a minute, Setty.
    You’re not suggesting that the USG in consort with MNCs could possibly be colluding to wreak economic havoc in Venezuela, are you?
    Next thing you’ll be telling me is that Arbenz was deposed by the United Fruit Company.
    I’m shocked, I tell ya—shocked!

    1. sapitosetty Post author

      I suppose that’s a possibility, I hadn’t really thought of it. I don’t see any evidence of collusion, or of an attempt to wreak economic havoc. I see a company that is playing what it sees as the normal game: rules is rules. But it looks to me like they are being typically gringo, ignoring the historic context. On the other side, my impression is that for Rafael Ramirez and Hugo Chavez, the historic context is primary. To them, every moment of any relationship between Venezuela and the USA is infused with this history. So for them, any sort of confrontational approach carries echoes of this history and leads to what outsiders may see as an overreaction. A PDVSA worker taught me a local truism a few days ago when we were talking about the apparent rhetorical overreaction to what outsiders may see as pretty minor issues: “once bitten by a snake, you’re scared of a worm.”

  2. Steve

    Sorry, but I just don’t see how Venezuela has been abused in its relationship with the USA. Especially involving oil service companies.

    And H&P mentions, they have been in Venezuela for over 50 years. That is “historic”. Venezuela had earned a reputation as a good place to work, and had benefited from lower prices for services than in many other countries. The industry was large enough to support local manufacturing of many components, such as drilling bits and pump parts, and local ownership of major contractors, such as cementing, engineering and construction, etc. That promoted REAL local investment (as opposed to the capital flight so prevalent in the continent), a rise in the professional and middle classes, people who had benefited from stability and progress.

    Chavez has ruined all of that, single-handedly.

  3. Quico

    I think you’re glossing over the really interesting bit in this story: what this does to Venezuela’s ability to get rigs moving forward, and the (possible) impact of Deepwater Horizon on this situation.

    A friend of mine in the industry was telling me that startling numbers of drilling contractors now find themselves sitting on idled rigs in the Gulf due to the drilling moratorium there, which has turned the rig market quite suddenly from a renters’ market into a landlord’s market, with dozens of companies scrambling to find places to locate their rigs now that the Gulf is out of reach.

    The really interesting bit, it seems to me, is the way the disaster in the Gulf ended up strengthening Ramírez’s hand and abating the risks inherent in nationalization. ¿O no?

    1. Steve

      Quico, I think that’s an oversimplification.

      If I understand you correctly, you’re saying that events in the Gulf of Mexico are going to make rigs more accessible to PDVSA and generally favor Venezuela.

      I disagree. In my opinion Venezuela’s treatment of their contractors and other businesses is and will continue to have a deterrent effect, meaning that Venezuela will not benefit from the rigs that are becoming available.

      There are several rig markets, but I’ll lump them into two for now:

      1. Land and shallow water drilling rigs. This is what Venezuela has and needs. These are not affected by the Obama administration’s ban at all. Their availability depends on oil prices; more precisely, what oil companies think oil prices are going to do.

      2. Deepwater rigs are a different breed altogether. Those are the ones that may be banned in the USA (in legal limbo for now), but there are only 33 of these rigs. Some of those owners are looking for work but PDVSA is not on their list of potential customers. Venezuela has no deepwater reserves and no plans (or money) to search for or develop them. Other companies and other places need such rigs, and some may go to Brazil, Angola, or other places. I don’t think their owners are so desperate that they will consider going to Venezuela.

      The ban is going to put a crimp in long-range production plans, which will help the price of oil go up faster than it might have done otherwise. This helps Venezuela, but only indirectly.

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