As many as 39, and rising, Venezuelan oil service providers have been expropriated after the national government passed a law legally extending the state’s control over all aspects of the industry in the South American, oil-rich nation.
The smash and grab takeovers have come following the Presidential-controlled Venezuelan national assembly’s passing of a law, on May 7, which explicitly “reserves for the state, the goods and services connected to primary hydrocarbon activities”.
Following the new law’s announcement in the Official Gazette, the resolution took effect Monday; the day the expropriations began.
A blunter rallying cry was soon issued by Venezuela’s President, Hugo Chavez, when he proclaimed: “We will start to recover assets that will now belong to the state, as they always should have”.
According to the government’s official journal, since the law was ratified, Venezuelan Petroleum (PDVSA) and firms affiliated with the state-controlled company have “taken control of operation and the immediate possession of institutions, documentation, goods and equipment” of the 39 providers involved.
A large number of the newly nationalized companies are either backed by, or are, subsidiaries of foreign companies. Those infected include Zulia Towing and Barge Company, Gusteca, Premeca, Seatech, and Terminales Maracaibo – who, among a number of oil-related services, provide transport boats on Lake Maracaibo, an oil-rich region in western Venezuela quickly targeted by the government following the passing of the resolution.
President Chavez stated on May 8 that as many as 60 oil contractor companies will be nationalised as he seeks to assert greater control over the country’s oil industry.
The policy of reclaiming the control of the national oil industry recently came to the forefront when Venezuela’s state oil company clashed with both domestic and foreign service providers as it attempted to reduce outgoings (primarily production costs), and debts, by renegotiating contracts.
The nationalisation programme comes at a time when OPEC member-nation Venezuela is struggling to cope with lower oil prices, reduced output quotas and subsequent mounting debts with industry contractors.
Looking forward it is likely that the both sudden and desperate measure, adopted by the Socialist President, will dampen investment in the increasingly volatile Venezuelan oil industry.
Roger Tissot, of Gas Energy Latin America, said: “In the long run I think this will hurt Venezuela because some service companies may stay out of the country.”
Looking forward Tissot added: “It will be difficult for PDVSA to stay up to date with technology – in recent years the bulk of innovation has come from service companies, not from oil companies”.
The country is the western hemisphere’s largest exporter of oil, with a proven oil reserve of around 99 billion barrels.