Venezuela oil industry woes hit China’s Petro-King
Services provider Petro-King warned investors of a slowdown
Chinese oilfield services provider Petro-King warned investors this week that a slowdown in its Venezuelan business would lead to a significant fall in profits for the first half of this year, making it the latest company to be hit by deteriorating conditions in Venezuela’s oil industry.
Petro-King said that it had been forced to delay the delivery of goods and services to Venezuela’s state-run PdV after late payment from the national oil company. It also said that it has seen rising operating costs in the country, where the inflation rate is running at more than 50%.
Petro-King has complained for months about delayed payments – thought to be around $20 million -- from the financially troubled national oil company. The situation is unlikely to improve this year as PdV’s financial situation worsens amid Venezuela’s economic crisis, warned analysts at PNB Paribas. If the payment delays continue, Petro-King could be forced to write down the value of much of its Venezuela work.
China has placed a big bet on Venezuelan oil through tens of billions of dollars in oil-for-loans deals. Those deals have helped to forge close energy ties between the counties and opened the door for Chinese companies to enter Venezuela’s potentially lucrative oil sector. China National Petroleum Corporation (CNPC) and Sinopec’s major heavy oil projects have dominated the headlines, but Petro-King is one of a number of smaller Chinese service firms and manufacturers that have rushed into Venezuela’s oil patch.
But the bet has not worked out as many in China hoped. Venezuela has supplied the oil promised to pay back its loans, but the China-Venezuela heavy oil projects are far behind schedule and Petro-King’s profit warning shows that close political ties have not shielded Chinese companies from the difficulties of doing business in Venezuela.
Many oilfield service companies have complained of mounting unpaid bills from PdV. In a regulatory filing at the end of the first quarter, Halliburton said that its total outstanding payments from PdV were $577 million, up from around $215m in 2010. Schlumberger has not reported a specific figure but says its unpaid bills from Venezuela make up more than 5% of its total receivables, implying a figure of at least $584m. Weatherford, another US services firm, said it had unpaid bills in Venezuela of more than $200m at the end of March.
In May, those companies reached a deal with PdV to extend $2 billion in loans to the company to help finance a major increase in development activity. The deal was similar to those signed between PdV and its upstream partners such as Repsol, Chevron, Eni, CNPC that have raised more than $10bn in much-needed stopgap funding. “All companies that want to get on board with this scheme of financing their work and who understand that we need to double activity in the country are welcome without problems," the head of PdV and energy minister Rafael Ramirez said in May.
Venezuela is sitting on some of the world’s largest undeveloped oil reserves and those companies are placing a long-term bet that being in a position to help tap into those reserves will outweigh the short-term financial pain.
More worrying for Venezuela’s oil sector is that companies are also reporting a slowdown in activity in the country, a sign that PdV’s cash crunch is slowing activity. Weatherford said lower demand for services in Venezuela was largely responsible for a $186m decline in its Latin America revenues in the first quarter compared to a year earlier.
Ramirez has repeatedly pledged to increase investment to raise oil production, by far Venezuela’s most important export. But the International Energy Agency said output fell from 2.47m barrels a day (b/d) in Q4 2013 to 2.45m b/d in Q1 this year, though it said production ticked back up to 2.5m b/d in May. Eulogio del Pino Diaz, PdV vice president, re-iterated the company’s goal of increasing oil production to 6m b/d in the next five years at a conference in Moscow this month.