WHY OIL COSTS MORE: CASE STUDY – VENEZUELA

Why? Because traditional relationships have completely broken down and oil-rich countries are taking control of their own resources. Venezuelan President Hugo Chavez took a further step last month. Petroleos de Venezuela SA (the national oil company popularly known as PDVSA, or Peh-Dah-Vay-Sa) will move into the oil services business, eliminating multinational middlemen like Halliburton. This gives Chavez more leverage, making oil less available to the US and more available to Chavez' Latin American allies. (4th in the WHY OIL COSTS MORE series: KAZAKHSTAN, SAUDI ARABIA, NIGERIA)

Venezuela Setting Up Oil Services Company
Fabiola Sanchez, August 14, 2007 (AP via Forbes)

WHO
Venezuelan President Hugo Chavez, Venezuelan Oil Minister Rafael Ramirez, Venezuelan national oil company Petroleos de Venezuela SA (PDVSA)

A popular Venezuelan image, superimposing the PDVSA logo on the country's flag to show the pride the nation takes in its source of wealth and power.

WHAT
PDVSA will expand to provide oil field services. First job: assembling drilling rigs. First customer: Chinese National Petroleum Corp.

WHEN
Completion of 1st field services contract, the assembling of 13 Chinese-made drilling rigs, will be in 2 years.

WHERE
The announcement was made August 28 in Caracas, Venezuela’s capital, via a televised interview. Chavez has long used Venezuela’s largely state-controlled television to do politics (and recently began suppressing non-state controlled outlets).

WHY
- PDVSA already owns a chain of retail outlets that includes the US CitGo stations as well as extensive upstream resources (drilling equipment, pipelines and refineries).
- The oil field services PDVSA proposes to take up have previously been subcontracted to multinational powerhouse players like the US’ Halliburton Co. and Schlumberger Ltd.
- The move follows Chavez loudly proclaimed intent to make Venezuela independent of US and multinational oil company influence. ConocoPhillips, Royal Dutch Shell and other big companies have recently been strong-armed out of longstanding exploration and production arrangements in the country.
- PDVSA will offer its services to energy hungry neighbors like Colombia, Nicaragua and Ecuador, allies Chavez has been cultivating.
- PDVSA recently declared an “operational emergency” due to a worldwide drilling rig bottleneck and the International Energy Agency estimated Venezuelan production has fallen from 2.6 million barrels/day last year to 3.37 bpd this year. PDVSA says their production is at 3.1 million bpd.

Hugo Chavez accepting his second term as President before a portrait of his hero, Simon Bolivar.

QUOTES
Ramirez: "We're going to create our own firm, called PDVSA Services…We can have our own Halliburton, ours, the Boliviarian one."