Is Shutdown The Beginning Of The End For Venezuela’s Oil Sector?

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Is Shutdown The Beginning Of The End For Venezuela’s Oil Sector?

Is This Shutdown The Beginning Of The End For Venezuela’s Oil Sector? by Dave Forest

I discussed in Prime Meridians this past weekend a $1.4 billion lawsuit brought against Venezuela state energy firm PDVSA. With the major this week filing a motion to quash the suit, which claims it illegally transferred billions out of the U.S. in order to duck a settlement.

And news this week suggests that PDVSA may badly need the money. In fact, it may already be too late for the firm — and perhaps the wider Venezuelan oil sector.

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Oilfield union officials in Venezuela’s Lake Maracaibo region leaked news to Platts that all is not well in the drilling sector here. With sources saying that major international operator Schlumberger has halted the majority of its operations.

Union leaders said that Schlumberger has shut down four of six rigs it was operating for offshore oil production in Lake Maracaibo. The reason being — a lack of payment for drilling services from PDVSA.

This shutdown looks to be somewhat of a “last straw” for PDVSA’s operations. After funding for drilling here appeared to come under stress earlier this year — when both Schlumberger and Halliburton said they were reducing rigs in Venezuela due to non-payment. At the same time, fellow drillers San Antonio and Petrex suspended a total of 36 rigs across Venezuela.

But PDVSA had appeared to be making headway — with Schlumberger saying in June it had reached an agreement with the oil major to keep six rigs operational in the Lake Maracaibo area.

The fact that most of those drills have now been idled suggests that PDVSA’s last-ditch contract efforts have failed. Possibly signalling a significant cliff ahead for drilling across Venezuela — which could foreshadow an accelerated decline in production.

Such a downturn would have big implications for a) global oil supply, b) Latin American oil trade (including the U.S. Gulf Coast), and c) Venezuela projects, national finances, and politics. Watch to see if PDVSA can find a way to get the idled rigs restarted — and for news on further drilling shutdowns in the country.

Here’s to running dry,

Dave Forest

Venezuela

Updated on

Dave Forest writes Pierce Points Free Daily E-Letter, an advisory on mining and energy read every day by BP, Rio Tinto, JPMorgan, BNP Paribas, Repsol, GDF Suez, GE, Platts, Warburg Pincus, and the UN. Sign up for free at www.piercepoints.com. Mr. Forest has funded and managed over $80 million in global exploration and development in natural resources, and continues to design and develop projects globally. He is a professional geologist.
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