Cutting Bone

Schlumberger is a firm PDVSA simply cannot afford to stiff, because it can't produce oil without its help. And yet, that's exactly what PDVSA is now doing.

Schlumberger, the giant oil-field services company, announced yesterday it’s cutting back operations in Venezuela, after PDVSA failed once again to settle its accounts payable with the firm.

The company’s decision to pare back its operations in Venezuela is a big deal: oilfield service firms like this do much of the high tech, knowledge-intensive service work it takes to keep PDVSA running. Just about any yahoo can stick a drill bit in the ground, push a button and make it go whirrrrrr! – but the work of making sure that drill-bit is the right one for that geology, of performing the sophisticated maintenance work it requires, of knowing when it needs to be replaced, at what angle it should be put in, how hot it can get for how long, and a very long etc. – that’s all high-tech work that you need firms like Schlumberger to carry out.

In particular since PDVSA’s technical and engineering soul got ripped out following the 2002-2003 strike, the division of labour has become more stark: PDVSA puts in the brawn, the oilfield contractors put in the brains.

The news comes after the latest tiff in Schlumberger’s years’ long tug-of-war with what seems like the Client from Hell. In a brief few grafs, Reuters’s gives you a sense of what dealing with PDVSA’s been like these last few years:

“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 a statement.

“However, Schlumberger is unable to increase its accounts receivable balances beyond their current level.”

The company said the reduction will take place through this month, allowing for a safe wind-down of operations.

Schlumberger in 2013 gave PDVSA a $1 billion credit line to allow it to continue delivering services despite the accumulating debts. It took a $49 million loss last year due to Venezuela’s currency devaluation and another $472 million in 2014 for the same reason.

PDVSA’s press office, meanwhile, awoke from its decade-long nap to deny that Schlumberger is doing what Schlumberger says it is doing.

Reuters says that, in a statement, the company

…added that “additional work required by the corporation will be distributed to other companies that provide similar services,” without elaborating.

Which, when you think about it, is totally bizarre: “They’re not cutting back on the work they do for us! Besides, we’re hiring other companies to do that work anyway!”

I have a four year old whose arguments make more sense than that.

That PDVSA doesn’t even have the money to pay guys like this – guys they pretty much need to keep the wells running, and not even just in the long term, but pretty much in the short term too – tells you all you need to know about the scale of the cashflow crunch the company’s now facing.

Schlumberger’s not exactly a new kid on the block in Venezuela. They’ve been doing business there since Pompeyo Márquez was seven years old: all the way back in 1929. That’s a long time ago. Even now, Venezuela still accounts for 10% of the firm’s worldwide business. A company like that doesn’t begin to withdraw from a market like this unless things have gotten pretty damn extreme out there.

The press statements about the partial pull-back vaguely noting PDVSA has now transferred ownership of unspecified “fixed assets” to the firm in lieu of $200 million worth of past due bills. Needless to say, nobody bothers to tell Venezuelans which specific bits of our oil industry are being privatized to cover the maula state’s uncollectable debt. But I think it’s safe to say, now: things have gotten pretty damn extreme out there.

Caracas Chronicles is 100% reader-supported. Support independent Venezuelan journalism by making a donation.