Schlumberger to Pare Venezuela Services on Lack of Paymentsby
Reduction to happen this month in coordination with customers
No progress in establishing new mechanisms to address issue
Schlumberger Ltd. will reduce activity in Venezuela after the world’s largest oil services provider failed to collect enough payments from the national oil company.
The reduction will take place this month in close coordination with all customers in Venezuela to continue servicing those with available cash flow, the Houston- and Paris-based contractor said in a statement Tuesday. Venezuela, which holds the biggest oil reserves of any country, has been battered by the collapse of prices as most of the government’s revenue comes from petrodollars.
In October, Schlumberger was said to be shifting some of its workers from Brazil to Venezuela, reinforcing the contractor’s commitment at the time as others in the industry pulled back. By late January, Schlumberger said it had entered into a deal with Petroleos de Venezuela SA during the fourth quarter to receive certain fixed assets in lieu of payment of about $200 million of accounts receivable.
"Schlumberger appreciates the efforts of its main customer in the country to find alternative payment solutions and remains fully committed to supporting the Venezuelan exploration and production industry," the company said in the statement. "However, Schlumberger is unable to increase its accounts receivable balances beyond their current level."
Venezuelan authorities have struggled to make the country’s currency controls work for foreign oil partners. Venezuelan Energy Minister Eulogio Del Pino said earlier this month that partners of PDVSA, as the state-owned producer is known, would be allowed to use a new floating rate that last sold dollars for 312 bolivars. On the black market, however, one U.S. dollar can buy almost four times as much. With triple-digit inflation, spending in bolivars can look very expensive when transacted at the official rate of 10 bolivars per dollar or the newer floating rate.
Still, the Venezuelan oil giant denied it’s struggling to pay its bills. In a statement late Tuesday, PDVSA rejected the cutbacks, labeling them a “manipulation” by the media and said it would continue to make payments in “various forms” to the service provider.
The issue of collecting payment in Venezuela has only grown worse and demonstrates a difficult predicament for the national oil company, J. David Anderson, an analyst at Barclays Plc, wrote Wednesday in a note to investors. Baker Hughes Inc. began to reduce its footprint in the Latin American country in late 2014, while Weatherford International Plc announced self-imposed cuts there last quarter.
"PDVSA doesn’t have the cash flow to pay oilfield service companies," Anderson wrote. "And yet it needs oilfield service companies to maximize production to increase cash flow."
Kelley Hughes, a spokeswoman at Weatherford, declined to comment, while Melanie Kania, a spokeswoman at Baker Hughes, wasn’t immediately able to comment. Emily Mir, a spokeswoman at Halliburton, didn’t immediately return phone and e-mail messages seeking comment.
Schlumberger has laid off about 34,000 workers since the third quarter of 2014 as it seeks to cut costs to weather the rout. Crude has fallen about 60 percent from its 2014 peak. The activity cutbacks in Venezuela are a result of insufficient payments received in recent quarters and a lack of progress in establishing new mechanisms to address the issue, Schlumberger said.
In March 2013, Schlumberger said it would reduce work in Venezuela because of mounting overdue payments from PDVSA. The company subsequently reached an agreement and announced two months later that it would provide a $1 billion rolling credit for a joint venture in Venezuela.
Schlumberger is estimated to have generated the most sales in Venezuela, with the country accounting for about 3 percent of its $35.5 billion in total revenue last year, Kurt Hallead, an analyst at RBC Capital Markets, wrote Wednesday in a note to investors. The country represented more than 10 percent of Schlumberger’s $8.8 billion in total accounts receivable last year.
For Halliburton, the world’s second-largest oil services provider, Venezuela accounted for $704 million in accounts receivable, or 13 percent of the company’s total bills yet to be paid, Hallead wrote.
Schlumberger and Halliburton each climbed more than 1 percent at 12:17 p.m. in New York. Baker Hughes was up 0.2 percent to $41.32 a share, while Weatherford fell 3.2 percent.