Venezuela to seize services players

Venezuela today approved legislation allowing the nationalisation of a group of oil service companies, opening the door for future takeovers as President Hugo Chavez extends control over the oil industry.

The law will make it easier for the government to seize assets owned by services giants such as Halliburton and Schlumberger as state oil company PDVSA builds up billions of dollars in debts with contractors amid low oil prices.

It will directly affect natural gas producer Williams Companies, which runs a key facility that boosts output of some of Venezuela's most valuable crude and which last month took a $241 million charge for PDVSA non-payment.

The move could lead to further declines in the Opec nation's oil production by risking slowdowns in key services following years of underinvestment by PDVSA, which bankrolls the social programmes that keep Chavez popular.

"This seems like it's an easy way out of this current debt dispute with service companies but it's a short-sighted approach," said Antoine Halff, vice president of research at the Newedge Group brokerage in New York.

"First, there are questions about how well PDVSA can run those services companies, but there are also questions of how this will affect future investment in oil projects," he said.

The law puts the state in charge of companies providing a range of services including gas and water reinjection and marine transport in oil-rich Lake Maracaibo and gives PDVSA the right to take over companies involved in those operations.

The law will let the government expropriate companies and compensate companies with bonds instead of cash, order preliminary takeovers of service company assets while courts settle disputes and possibly annul existing contracts.

Other oil service companies in Venezuela include Baker Hughes and BJ Services.

"A sector as important as oil cannot be subject to the whims of private companies, it must be subject to the control of the state," Reuters quoted Energy Minister Rafael Ramirez telling reporters yesterday.

He said the government will release a list of which companies would be taken over under the legislation, adding that Williams Companies was "within the reach of the law".

The move appears targeted at specific service companies that have been hampered by severe cash flow problems due to lack of payment by PDVSA, which as of last year owed $8 billion to contractors and services providers.

Debts with Williams Companies are becoming increasingly evident and Lake Maracaibo transport companies have faced repeated strikes by unpaid workers

But representatives of larger service companies worry the measure will eventually extend to them as well.

"The way the law is written, it's obvious they can take our assets whenever they want," an executive from a major service company who asked not to be identified told Reuters. "The confiscatory nature of it is very alarming."

The state will now have the option to take over service companies in the areas mentioned in the same way it nationalised four multi-billion dollar oil projects in the Orinoco belt in 2007.