PDVSA is back in contract-signing mode, following its…interesting experience with Trenaco earlier this year. Take it away, Reuters:

Venezuela’s state oil company PDVSA said on Wednesday it has awarded $3.2 billion in contracts to drill wells in the Orinoco Belt, although sources close to the matter said some foreign partners had complaints the tender was rushed and there were structural problems that could hinder projects.

The fresh discontent comes after Reuters reported in July that tiny Colombian trucking firm Trenaco, whose management was close to Venezuelan President Nicolas Maduro, won a multibillion-dollar contract to carry out similar work despite having no relevant experience. 

In a rare rebellion, foreign companies protested to PDVSA that Trenaco was vastly underqualified, leading to the cancellation of the $4.5 billion deal amid concerns about transparency and political favoritism.

The projects are designed to add 250,000 barrels per day (bpd) in 30 months, PDVSA said, as the crisis-hit OPEC country’s production slips due to low investment, maintenance problems, limited diluent imports, theft, and a brain drain.

(And, lest we forget…)

Oil production has already seen steep declines, with a cumulative drop of almost 230,000 b/d in January–June 2016, according to OPEC’s Monthly Oil Market Report (MOMR).

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  1. Why the difference between the $4.5 billions to Trenaco and the actual $3.2 to the new contractors? Less drilling? Less “cuanto hay pa’eso?

  2. Two comments:
    1. The 250,000 barrels per day addition to the production of the Faja, to be accomplished in 30 months, is roughly similar to the loss of production already existing, via natural declination of existing wells, which is of the order of 15-20% per year. This means, again roughly, that what PDVSA will be doing is largely to compensate for the decline, not to add net new production. Humpty Dumpty needs to run faster to stay in the same place.
    2. The companies that won the contracts this time around look much better: Schulemberger, one from Oklahoma and one Venezuelan, Y&V that, at least has experience in the oil patch. What is doubtful is the quality of the financing companies that I have seen listed for the Oklahoma company and the Venezuelan outfit. They do not sound kosher to me. They are little known outfits, fly by night? This is where an investigation would be required. PDVSA claims that the contracts evidence their financial clout. They are not financing this, they will pay the contractors with oil, and that’s another doubtful point’, given the collapse of the production.
    What a mess!

      • It is not said, and PDVSA won’t disclose it, but payments will be guaranteed by an off-take agreement. If they finalise the deal by then (…these deals have not been finalised, by the way) expect something to be said during SLB Q3 2016 Earnings Conference Call on 21 October.

    • Callidus is a real lender, but something of a bottom feeder, albeit a relatively well-managed one based in Canada. They had some issues a year or so ago with the stock value and a few other investor fundamentals and were taken over by a PE firm. They are currently under the umbrella of Catalyst Capital Group, which specializes in troubled Canadian companies.

      So are they legit with substantial backing? Yes. Are they the best choice for the borrower? Probably not.

  3. Pdvsa is so short of money it cant even pay the imported light crude cargoes it buys from BP and others (to blend with the otherwise unsellable faja crude) in cash so increasingly its resorting to the payment in oil mechanism to fund its investment expenses, The presence of tankers waiting to be paid their cargoes before unloading them off Curacao has been in the news for quite some time now . People wanting to do business with Pdvsa are now routinely required to bring their offer together with a financial package ……part of the new normal in todays bankrupt Pdvsa .

    Dr Coronels comments, as always, are informative and revealing …..there is however one item which he does not dwell upon and which might be of interest, Y&V (the Venezuelan partner) has been favoured with numberless contracts by Pdvsa and other Govt controlled companies in the last few years , rumour has it that its covertly owned by interests linked to vociferous regime honcho DDC.

  4. Vaporware to entice bondholders in the swap. They can’t pay current bills. Halliburton ans Schlumberger have almost closed because of non payment. I call BS.

    • Wanley,
      I understand this to be true that Haliburton and Schlumberger are both owed over 1 Billion US Dollars and have basically shut down Venezuelan operations.
      I am certain that Haliburton released a statement to this effect. They have stated that they have a skeleton force in Venezuela and for all practical purposes have stopped maintaining the oil wells.
      This may have come from a quarterly or annual report. I am a stockholder and I am certain that I heard this news.

  5. Bee:

    This report gives the details on the deal, read all of it, towards the end and you will see what you are asking for:
    “UPDATE 2-Venezuela PDVSA awards $3.2 bln oil service contracts, protest brews – Reuters News
    21-Sep-2016 01:07:30 PM

    New throughout, adds details on the deals, problems

    By Alexandra Ulmer, Marianna Parraga and Girish Gupta

    CARACAS/HOUSTON, Sept 21 (Reuters) – Venezuela’s state oil company PDVSA said on Wednesday it has awarded $3.2 billion in contracts to drill wells in the Orinoco Belt, although sources close to the matter said some foreign partners are uncomfortable with the rushed tender and structural problems that could hinder projects.
    “Investment amounts to $3.2 billion, which demonstrates the strength of PDVSA and shows trust in the national oil company,” PDVSA said in a statement.

    Sources said PDVSA rushed the tender and failed to provide enough details on the contracts, which in some cases were only approved by PDVSA’s simple majority in the joint ventures.

    Hurt by low oil prices and a steep recession at home, PDVSA asked bidders to provide financing themselves and be repaid in future oil production, but the winners include relatively small service companies, according to PDVSA documents seen by Reuters.

    Sources also said the cost per well, at around $6.5 million dollars, was deemed too high.

    Other sources questioned why PDVSA would boost extra-heavy crude output when it does not have sufficient blending components or the infrastructure needed to turn the tar-like Orinoco oil into lighter crude that can be easily sold on global markets. PDVSA’s cash-flow problems have at times left it unable to pay for the diluent imports it needs.

    The joint ventures’ early production for this is expected to come online for mid-2017.
    As for Y&V, they have been around for some time, I think pre-Chavez times, but I cannot vouch for their being honest (or for being dishonest). I would have to investigate them. There is so much to do!!!

  6. Gustavo, even if the financing arrives–250m bbls. in 30 mos., early production coming online in mid-2017? Maybe they’re talking shale, not tar sands (joke).

  7. They recieved money from China about a year ago which tied to Pdvsa execution of a number of short term projects , i.e. those which would bring the most money in the shortest possible time …included money on pipelines , increased natural gas production (to substitute refined fuels used in power generation) and the like .Dont known what happened to these projects . This financing of course was payable with oil.

    They also had a project to seek to raise production not just in the Faja but anyplace where production could be lifted by working on old shut down oil wells also in a very short time frame ….dont know what happened to the project , probably abandoned from lack of money…(i.e financing)

    Now we have this project to raise production short term in the faja using oil financing ………

    All these projects seek outside contractors to hike production or other oil operations on a short term horizon using outside financing revealing that Pdvsa capacity to produce itself the oil it has underground is fast becoming unfeasible and that it has no money of its own to fund these projects …!!

    Moreover that its running out of money making production very fast …..posing the probability that its reaching a threshold were it will no longer be able to continue to subsidize the regimes even most basic financial needs ………tied to this the effort to deferr payement of its external bond debt by swaping existing debt instruments for others expiring at a later time and Cubas desperate call to Russia to please supply them the oil which Venezuela is no longer supplying ……..

    This is the backdrop picture against which we must see all the sleazy fraudulent political manouvering the regime is doing to forestall the effect of the oppos increasing political presence and the persecution of its leaders…!!

    Y&V by the way didnt exist before Chavez time , Y&V is really the merge of two different companies during Chavez time , (some existing from before Chavez) ……..understand that the shareholding has changed hands several times in the last 10 years ………they have gotten some pretty luchrative work acting as partners to international companies in really big Pdvsa and Pequiven projects……in the Red Red Pdvsa big luchrative contracts usually involved some level of understanding between the Pdvsa managers handing out those contracts and regime connected contractors.!! but there is no hard evidence so far of those connections .!!

  8. Off topic but not really , on the proposed Pdvsa bond swap ……There were no takers ..so …Pdvsa is now officially proposing to improve its offer by raising the exchange terms by 170 US$ (april bond) and 220 US$ per 1000 US$ of bonds exchanged ……..things are really getting hairy for Pdvsa , Reuters just reported that a tanker that had waited 100 days for payment before unloading its million bl cargo had just recieved the money demanded by its supplier and begun unloading at Bullen Bay Curacao and that there were three other tankers moored off Curacao waiting to be paid before discharging their cargoes…. !!

    What no one appears to mention is that Pdvsa owes US$ payments not only to the bond holders but to a lot of other creditors both commercial and financial and that anyone of them can pull the plug and bring action agaisnt Pdvsa to insolvency by demanding its money from an offshore tribunal …..!!

    Maduro’s watery eyes and slumped shoulders in his meeting with Secretary Kerry in Cartagena , tell a story of desperation !! Look for the photo !!

  9. Y&V is a question mark for me, So far. I have not been able to find much about them, good or bad.I welcome inputs good or bad.
    However, their financing agent, Burj Oil Corporation, smells bad, at least in Internet. They seem to be a typical fly by night outfit, at least in what you can see.
    See my preliminary report on them in my blog: http://www.lasarmasdecoronel.blogspot.com
    We are sick and tired of PDVSA contracting with the scum of the business world. So many of these refuse have links o the PDVSA managers! Again, see my blog today on this subject.


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