PDVSA's perfect storm

Cortesía de Juan A. Muller - Petroleumworld.com - A perfect storm will strike Petroleos de Venezuela very soon, in amatter of weeks or perhaps even days.It is not entirely inconceivable that this perfect storm could engulf. Pdvsa before the 15 February referendum, with – hopefully – disastrous consequences for the dictatorial ambitions of President Hugo Chavez to remain in power for another 25 years. It all depends on how the oil/gas industry's four national unions, and dozens of smaller regional and local unions, react in coming days to the news now spreading like wildfire among the workers. It's confirmed. Pdvsa has run out of money. Pdvsa is not paying its debts to anyone including oil services companies, contractors, suppliers, transportation providers, waste disposal services, and thousands of workers. And Pdvsa, with a payroll that now exceeds 95,000 workers, has run out of cash just as its collective contract with the oil/gas industry's three national unions has expired. Pdvsa has to pay its debts quickly, and engage in serious contract negotiations with the unions immediately, to dispel the operational, financial and political storms which are already crashing into Pdvsa –with potentially unpredictable consequences for Venezuela. Pdvsa stopped paying its debts in August 2008, and reported accounts payable totaling over $7.86 billion as of 30 September 2008, up over 30% from the same period the year before. However, as of 31 January 2009 its unpaid debts had climbed to over $11.5 billion. Moreover, thousands of workers employed by oil services companies, contractors, transportation providers, waste disposal companies, trucking companies, etc. who work under contract to Pdvsa or its many subsidairies have not received a paycheck since 30 November 2008. Union officials in Zulia state tell Caracas Gringo that thousands ofworkers were paid by Pdvsa three times in a row in the past six weeks with checks that bounced at the bank. Cucaracha en baile de gallinas* Pdvsa is squirming like a cockroach in a chicken coop. *The "official"excuses for why Pdvsa is not paying its bills include: *Everyone in the company is 100% engaged in preparing for the referendum (i.e. breaking the law, because public entities and the employees of entities are prohibited from using their jobs and places of work for political campaigns.) But after the referendum, Pdvsa will start paying its debts again. No explanation as to why payments top pedin August 2008, but the campaign didn't start until December. *The oil services companies jacked up their costs by 40% and more when oil prices were very high, but now that prices have collapsed they should subtract 40% to reflect current market realities. Pdvsa is waiting for the new, lower-fee invoices to be submitted. *The oil services companies still haven't accepted new terms for renewing their contracts and instead are pushing unreasonably forhigher fees when they ought to be cutting their projected costs substantially. It's unclear why this should delay payment of older debts which are up to 12 months past due. That's right: 12 months, because the "new" Bolivarian Pdvsa has gradually stretched out the payment of many of its bills from 30-45days to 90 days, and in the past year to 180 days, which means that some (many?) debts it stopped paying in August 2008 already could have been up to six months old. No pay, no drill. The oil services companies are starting to reduce their operations as the unpaid bills pile up. Pdvsa's new strategic partners also are cutting back, mainly because majority stakeholder Pdvsa isn't complying with its capital spending commitments. Two weeks ago, Ensco International handed over the operation of its Ensco 69 Jackup rig in the Gulf of Paria to Pdvsa subsidiary Petrosucre. Local news reports -which Ensco did not deny or correct- said Petrosucre would operate the jackup rig until the contract expires and then Enscowould be free to dismantle and remove the rig from Venezuela. Pdvsa owes Ensco over $36 million. Tulsa-based Helmerich & Payne shut down two of the 11 rigs it has in Venezuela, and expects to shut down three more by the end of February if Pdvsa doesn't pay a past-due debt of $100 million. By mid-year all of H&P's rigs in Venezuela will be shut down and dismantled if Pdvsa doesn't pay its debt. At least, that's the time line reportedly under consideration at many oil services companies including H&P, Ensco, etc. The majority of Pdvsa's contracts with oil services companies and contractors expired at the end of 2008, and discussions now taking place on renewing these contracts for another year hinge on Pdvsa paying its past-due debts and the oil services companies chopping their fees at least by 50% in 2009. But there's a big Catch-22: the oil unions. Oil unions will seize foreign-owned rigs. News flash for the oil services companies: Expect angry Venezuelan oil workers to seize and indefinitely hold hostage the foreign-own eddrilling rigs now in Venezuela. Workers have already taken control of the two inactive H&P rigs, though the head office may issue PR releases denying this is so: Linkhere: Helmerich & Payne Responds to Venezuela News Reports "We're not going to let them take the rigs out of Venezuela," says regional union leader Will Rangel of the FUTPV, a fiercely pro-Chavez union. FUTPV members are responsible for taking control of H&P's two inoperative rigs, which reportedly were already dismantled when the FUTPV workers intervened Pdvsa officially isn't saying anything about the fact that hundreds FUTPV members also have been deployed to "guard" foreign-owned rigs across Venezuela. But a source at Pdvsa tells us, with a shrug: "Drilling rigs are scarce worldwide. We need rigs in Venezuela, and we have to keep those rigs here until these payment problems are settled. The FUTPV workers are simply defending their right to work, but their actions help us too. "Some union leaders believe that allowing any oil services companies tore move drilling rigs and other equipment from Venezuela would weakenlabor's political leverage in contract negotiations with Pdvsa and the Energy Ministry. [All "management" decisions relating to the contract negotiations are being made by Ramirez, who receives his orders directly from President Chavez.] All of the union leaders consulted directly by Caracas Gringo are adopting harsher positions with respect to Pdvsa as the implications of "zero cash" sink in. Four major oil/gas industry unions are (will be?) engaged in new contract negotiations: Fedepetrol, Fetrahidrocarburos, Sinutrapetrol and FUTPV. The first two are the traditional unions that pre-date Chavez and the Bolivarian revolution by several decades. Historically, these two unions were aligned ideologically with AD, Copei, etc. Sinutrapetrol and FUTPV are Chavez-era unions, and ideologically have been aligned with the Bolivarian revolution, which implies the Chavez regime has some influence over both. The core issue is money. Money is the glue that binds together Chavez's social compact with the poor working class. However, if the cash flow dries up the Chavez regime's tacit compact with the people will crumble very quickly. Leaders of the four national oil/gas unions are furious that Pdvsa has not renewed food commissary cards which lapsed in November, and has not renewed collective medical insurance policies which lapsed in October 2008. And with Pdvsa-issued paychecks bouncing by the thousands over the past six weeks, many workers are now raging that "Pdvsa is starving us." The growing rage of Venezuela's oil/gas workers isn't getting much coverage yet because the government-controlled news media is censoring the story. Foreign news organizations also have failed yet to detect the imminent labor conflict at Pdvsa. However, if oil services companies continue shutting down operations here while the unions erupt in conflict with Pdvsa, Venezuela's oil production could fall very quickly and very substantially.