CARACAS, Venezuela – Venezuela's state oil company is behind on billions in payments to private oil contractors from Oklahoma to Belarus, some of which have now stopped work, even as President Hugo Chavez funnels more oil revenue to social programs.
Petroleos de Venezuela SA, or PDVSA, says unpaid invoices jumped 39 percent in the first nine months of last year — reaching $7.86 billion in September. And that was when world oil was selling for $100 a barrel.
With prices plummeting by more than half, PDVSA is trying to renegotiate some contracts. But analysts say hardball tactics to reduce charges from crucial service providers could backfire by lowering Venezuela's oil output. And foreign debt markets are reflecting jitters about Venezuela's finances.
Oil accounts for 94 percent of Venezuela's exports and funds nearly half the socialist government's budget, and Chavez uses it to bankroll an international aid bonanza, showering allies with cheap fuel, refining projects and cash donations.
But U.S. contractor Helmerich & Payne Inc. said last week that it has stopped drilling with two of its 11 oil rigs in Venezuela because of delayed payments. The Tulsa, Oklahoma, company says it will stop three more rigs by the end of February and the rest by the end of July if PDVSA doesn't begin to pay off a debt it puts at nearly $100 million.
Dallas-based Ensco International Inc. said it suspended operations on an oil rig off Venezuela's Caribbean coast because it was owed $35 million, prompting PDVSA to take over operations.
And Belgazstroy of Belarus has stopped work on gas networks in western Venezuela because of nonpayment, Venezuela's ambassador to Belarus, Americo Diaz Nunez, told Russia's RIA-Novosti news agency, adding that two other Belarusian contracts are also in question.
Greg Priddy, a global oil analyst with the Eurasia Group in Washington, estimated that within a year, production could decline an extra 100,000 to 150,000 barrels a day if drilling slows — equal to $5 million of daily income even at today's slumping oil prices.
PDVSA said in a statement that service providers increased prices by as much as 40 percent when oil prices were high, and company officials said only Oil Minister Rafael Ramirez could discuss the debts issue. PDVSA headquarters did not respond to requests for an interview with Ramirez, but he previously said PDVSA will make good on its accumulated debts with contractors.
Venezuela's net oil income soared 225 percent in the first nine months of 2008, allowing PDVSA to stash $10.8 billion in a government-run investment fund to be used for infrastructure, agriculture and other projects.
But the debts are mounting as Chavez campaigns for a Feb. 15 referendum that would eliminate term limits for all elected officials and enable him to seek re-election indefinitely.
In Venezuela's oil-producing Zulia state, PDVSA has held off on paying 230 service providers for an average of six months, said Nestor Borjas, state director of the nation's Fedecamaras business chamber. The debts total about $465 million, he said.
The outstanding payments appear to be contributing to declining confidence in Venezuelan bonds, which have fallen 7 percent since Jan. 9, to an average yield of 17.4 percentage points more than U.S. Treasuries, said Enrique Alvarez, head of research for Latin American financial markets at IDEAglobal in New York.
He attributed the plunge to PDVSA's shortfalls in payment, falling oil prices and the referendum.
Still, some analysts agree with government assurances that it has enough cash accumulated from the days of $147-a-barrel oil to sustain itself through 2010 with oil prices at $45 a barrel.
"While Venezuela is still far from being in a comfortable economic and financial position, the expectations of a default price in the markets appear excessive," Alejandro Grisanti of Barclays Capital in New York said in a recent report.
And some suppliers say they're not worried by the delays.
"It's happened in the past. We've always been paid," said Jens Schmidt, general manager for Copenhagen, Denmark-based Maersk Drilling in Venezuela, whose 10 offshore rigs are all operating normally.
Franco says many oil companies around the world are delaying payments as they renegotiate contracts, but PDVSA is taking a stronger stance than most — one likely to discourage already reluctant investors. "It's part of a larger strategy of hardball," said Franco said.