Venezuela Seizes US Oil Rigs

[LongBlade]

OK, so here's the deal. Venezuela owes a US oil company money. They're months behind payments.

The oil company says "enough is enough" and closes down two oil rigs. A Venezuelan judge decides that's a good enough reason to seize the oil rigs for themselves.

Nothing could go wrong here, could it?

Venezuela is quietly seizing control of two oil rigs owned by a unit of Houston-based Superior Energy Services after the company shut them down because the state oil monopoly was months behind on payments.

The seizure started Thursday after a judge in the state of Anzoategui entered a Superior depot and ordered the company to hand over the rigs to an affiliate of state-owned PDVSA. Four members of the local police and national guard are overseeing the equipment's removal.

source: http://www.foxnews.com/world/2013/11/01/venezuela-seizes-us-owned-oil-rigs-in-dispute-over-unpaid-bills/?intcmp=latestnews

[Martok]

They know the Fourth Fleet isn't that far away, right? 

[eyebiter]

.

[Mr. Bigglesworth]

4th fleet? 1 B1B could deliver the message.

[Dolan50]

2 Oil rigs!
Hardly worth a military response or 1 American servicemans life.
Our country can hardly afford another war right now over this trivial matter.

A private company doing business with an authoritarian regime.
They gambled and lost.Too Bad.I've no sympathy for them,they knew the risks!

You want to privatize the profits don't expect the American people to come rushing to your aide to socialize the loss.

They should have heeded this warning from 2010 when this company had 11 of its rigs nationalized by this regime.

Helmerich Warns Other Firms After Venezuela Seizes Oil Rigs - WSJ ...
online.wsj.com/.../SB1000142405274870417800457535155220398146...‎
Helmerich & Payne is warning other oil-field-services companies doing business in Venezuela ... Helmerich Warns Other Firms After Venezuela Seizes Oil Rigs.

[Staggerwing]

A few drones circling the rigs with Valkyrie-style loudspeakers blasting Brittany Spears should do the trick. No fuss, no muss, and no lives lost (excepting any venezuelan soldiers who might jump to their doom rather than keep listening if the evac boat is too slow in arriving...)

[Dolan50]

I think it's no secret what kind of business deals you can expect from this regime.
I also think all the major players know this.

http://transitions.foreignpolicy.com/posts/2013/10/03/trapping_investors_in_venezuela

"The foreign investors that come to Venezuela generally do so to tap into the enormous rates of return to be had in the country's energy sector. With one of the world's largest oil reserves and a government craving the technology and the capital to extract it, the South American country is rife with opportunity.

However, such high returns also come with extremely large risks: an overbearing regulatory regime, no judicial protection, a government that puts politics above business, and rulers that frequently seem to act on a whim.

Much of Venezuela's oil sector is, to put it frankly, in diapers. According to the U.S. Energy Information Agency, in 2012, Venezuela had 212 billion barrels of oil in proven reserves. This is only topped by Saudi Arabia's 267 billion barrels. Yet, much of this wealth remains untapped.

Whereas Saudi Arabia pumps almost 12 billion barrels of oil per day, Venezuela is only pumping a fifth of that amount. The gigantic Orinoco oil belt in southeastern Venezuela, which holds much of the country's reserves, is not being exploited to its full capacity.

This unfulfilled potential also lurks in other areas of the economy. For example, Venezuela has the largest proven reserves of natural gas in South America, and yet it exports none of it. Much of this has to do with lack of technology. For example, neighboring Trinidad and Tobago -- which has opened up to foreign firms that brought with them significant technological advances -- is a natural gas exporting powerhouse.

Since high oil prices would more than enough cover production costs, the returns on investing in oil are there for the taking -- provided you get on the government's good side. In hyper-politicized, revolutionary Venezuela, the only institution left standing is the presidency itself.  If you get in the strongman's good graces, he will be willing to give you assets and a juicy partnership. This ensures that the courts will do your bidding, you will have no labor problems to speak of, and you will not be hassled by regulators.

This, however, comes with a huge caveat. Similarly to being in business with the mob, things can change on a dime. When you're in the good graces of the people in power, things are very, very good. When you're out of favor, you end up "sleeping with the fishes."

ConocoPhillips learned this the hard way.

In 2007, ConocoPhillips -- then a partner of state oil giant PDVSA in exploiting the Orinoco oil belt -- found it had fallen out of the good graces of the ruling clique. Then-President Hugo Chávez nationalized the company's assets without suitable compensation, so ConocoPhillips decided to sue Venezuela in the World Bank's International Center for Settlement of Investment Disputes (ICSID), an international court that handles these issues.

The three-judge panel ruled against Venezuela, deciding that Venezuela had indeed seized ConocoPhillips' assets without due compensation. Curiously, it based its ruling solely on an obscure International Treaty Venezuela signed with the Netherlands in 1991 which said, roughly, that any Dutch national could bring claims regarding nationalization to the ICSID unilaterally. Luckily for ConocoPhillips, it had transferred its stakes in the joint venture to its Dutch subsidiaries a few years prior to the seizure of its assets, so this obscure treaty protected it.

In its ruling, the panel observed that Venezuelan law does not allow for international arbitration practices, but that the Netherlands treaty does. The damages phase for Venezuela is ongoing, and legal scholars have stated that any assets Venezuela holds in member countries could be used to pay for damages. Venezuela stands to lose much from this process.

Whether it was luck or strategy, an obscure investment treaty from 1991 was the only thing that saved ConocoPhillips -- and that speaks volumes about the risks facing foreign investors in Venezuela. Venezuela's laws are so arcane that investors require an international tribunal to protect them; internal legislation does nothing to protect foreign investors from being expropriated. Venezuela is the country with the second largest haul of cases brought before the ICSID for precisely that reason. Venezuela is not happy about this, and it has made it clear that, from now on, anyone interested in investing in the country will have subject themselves to the country's notoriously corrupt courts. It has also repeatedly denounced the Netherlands treaty, and withdrawn from the ICSID.

Venezuela needs foreign investment, and it gets very little of it. Without foreign investment, Venezuela will not fully realize its potential and its economy will miss out on a chance for significant growth -- this at a time when the country is suffering painful shortages. By the time production ramps up, oil prices may have reverted to the mean, and Venezuela will have lost a significant opportunity. In order to change this, it needs rules that protect investors' assets. It needs to see foreign investors as partners and welcome them instead of leaving them out in the cold.

If Venezuela's rulers do not get this into their heads, investing in the country will remain an extremely risky endeavor."

[OJsDad]

Since it's an oil company and with the current US President, nothing will be done.

[Windigo]

Since it's an oil company and with the current US President, nothing will be done.

Why should there be anything done? Like Dolan said.... it was private money and they knew the risks.  Houston fat-cats are worth American blood?

[Martok]

Houston fat-cats are worth American blood?

No.  But whenever oil is involved, it seems like we can't help ourselves. 

[Jarhead0331]

Houston fat-cats are worth American blood?

No.  But whenever oil is involved, it seems like we can't help ourselves.

I agree with what the others have said.  To paraphrase, our president is a pussy, who probably sees this as legitimate redistribution of wealth anyway.

[Dolan50]

I wouldn't be surprised if Superior Energy Services wasn't late or absent in greasing the palms of some of the  Venezuelan officials in that country and that's why they fell out of favor.

The Venezuelan officials probably have some Chinese investors all ready lined up and willing to give them a better deal than the western oil cartels in helping them in exploiting this region for their own personal enrichment.

[Dolan50]

China to Invest $28 Billion in Venezuelan Oil.
September 19,2013.
http://thediplomat.com/pacific-money/2013/09/19/china-to-invest-28-billion-in-venezuelan-oil/

"Some initially believed Maduro would seek to improve Venezuela's ties with the U.S., which had been badly strained during Chávez's tenure as president. These expectations appear to have been misplaced as the two countries have maintained frosty relations under Maduro's presidency.

The US$28 billion in oil deals seems to cement Maduro's intent to continue Chávez's legacy of courting China as a way to counterbalance U.S. influence in the Latin American country. Under Chávez Sino-Venezuelan ties blossomed.

According to the Wall Street Journal, China has loaned some US$40 billion in Venezuela in recent years. These loans are often repaid in oil and natural resources. Already, China receives 600,000 barrels of Venezuelan oil every day. Venezuela recently surpassed Iran to become China's third largest oil supplier."

[Dolan50]

I found this interesting.Considering Venezuela nationalized it's oil industry back in the 1970s and may own the rigs and Superior Energy services may just have a contract to service them.

"Snubbing units are not a "rig" per se, but rather a device that a rig would use to work on well that is live or has the potential to flow while work is being performed. It essentially contains the pressure with large rubber inflatable bladders that seal against the pipe that you run in and out of the well to work on the wellbore.

I tell you how the watch is made to tell you that these are rather dangerous and complex items, and require rather specialized people to operate. Or you end up with a blowout. They also require extraordinary maintenance. Not any set of monkeys can operate or maintains these. And you don't just get the parts from the Venezuelan Wal marts. Their isnt much PDVSA can do with them without Superior's people and parts. They are essentially boat anchors otherwise, unless PDVSA wants to sell them back to Surperior Energy Services or auction them off to some other service provider.

That being said, Venezuela pulls this tactic as a way of negotiating their bills, and operating contracts.. They will negotiate a better position, get some graft for a few inlaws and state officials , then let superior back in and continue on for while until the next round of negotiations needs to take place. It's not new.

PDVSA needs American, and more often Canadian, expertise to develop, operate and maintain their fields. They simply cannot function without outside help. This goes on all the time."

Started digging around the internet looking for more info on exactly what type of contract Superior has with the Venezuelan govt. and haven't really found anything which makes me wonder how much of this contract deal is actually above board.

[Windigo]

Good sleuthing Dolan.

Yes snubbing is dangerous drilling. Gas formations (sometimes oil) under very high pressure. Even careful crews can have blowouts.

I was under the impression that Venuzelan oil was heavy oil, needing specialized refineries like on the Gulf Coast, hence a push to get a large pipeline down there to transport Alberta Oilsands oil.