Friday, May 8, 2009

Chavez Nationalizes Oil Services Companies Operating in Venezuela

In 2002 PDVSA's engineers and oil workers went on strike along with other unions as well as businesses to protest Chavez placing his men on the board of directors of PDVSA. In 2003 the Venezuelan NOC fired all PDVSA's striking engineers and oil workers and replaced them with Chavez cronies. In the immediate aftermath, oil production never recovered to the pre-strike value of 3 MM bbl/day and has continued its steady decline to 2.4 MM bbl/day.

Most of the oil in place in Venezuela is extra-heavy, sour (high in sulfur), and requires significant upgrading. Most of these upgrading facilities were joint ventures with international oil companies and the oil services companies were providing secondary recovery techniques to help stem the drop in Venezuelan production (Venezuela's field output is steadily degrading and require more complex secondary and tertiary extraction techniques to maintain output).

Firing the PDVSA engineers was disastrous enough, but now nationalizing the oil services companies who have been the only thing keeping production from imploding, that is an incredibly dangerous move on Chavez's part. I would gamble that Venezuelan output is going to be hindered significantly by his actions.

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