As contracts are re-examined, companies dust off oil rigs that have been stored in Venezuela

Four sources said that oilfield service companies have started removing equipment and rigs from Venezuelan warehouses to be assembled and repaired. This is because the government has begun reviewing contracts for oil and gas that could result in new?activity. Since the January approval of a sweeping reform to Venezuela's oil law, foreign and local producers have submitted required documentation as they negotiate ratification of or amendments to their contracts. The review must be completed before the end of July. It has already resulted in some initial agreements regarding area expansions and new block awards. Asset swaps have also been made.

Sources say that nine rigs between 500 and 1,500 horsepower have been removed from storage in the last few weeks by foreign firms to be deployed onshore. Another five rigs are being evaluated before they move. The moves are a sign that service companies have become more confident about the future of oil production in Venezuela.

RIGS STORED AND REMOVED POST SANCTIONS

Uncertainty surrounds the number of rigs, and the amount of specialized oil equipment that remain in storage. Some companies have removed the rigs from Venezuela, while others have placed them in storage. This is after Washington imposed sanctions in 2019 on Venezuela's energy sector. These included SLB, Halliburton Baker Hughes, and Weatherford International.

The equipment that was dusted off will be used to service joint ventures between the state-run PDVSA, and private companies operating in Venezuela's Orinoco Belt or Lake Maracaibo. The sources claim that foreign service providers prefer companies with a long history in Venezuela, and who have a good track record of payment.

As part of the recent agreements with the government, producers such as Chevron Repsol and Shell announced new projects?and expansions in output that will require more rigs.

Paula Henao has told investors and suppliers in recent weeks that Venezuela is also interested in pumps, frequency convertors, wellheads and valves, as well as pipelines, compressors for gas, and chemicals to drill, produce, process and transport crude and gas.

Henao presented a list of equipment and rigs that could be used to boost production from 1.1 million barrels a day to 1,37 million by the end of the year.

Chevron, PDVSA, and Venezuela's Oil Ministry did not respond to requests for comments. Repsol and Shell declined comment.

Halliburton stated that it had been discussing commercial terms for operations in Venezuela with its customers during a call about earnings last week. This was after visiting some facilities. SLB stated that Venezuela remains a "growth opportunity" in a separate conference call.

STORED RIGS VERSUS IMPORTS

The companies that already have equipment in Venezuela will likely be able to deploy it faster than those who plan to import the equipment, since paperwork from both Caracas and Washington is easier. This includes everything from licenses to contracts and U.S. Treasury approval.

Before moving many of these rigs to the oilfields where they will operate, repairs are likely to be required. One source said that if the costs exceed $1 million per rig then medium-term contracts lasting about 12 months will be required to justify the cost.

Many companies are reactivating their rigs that they already have in Venezuela, as there remain a number of challenges to importing, particularly large equipment. An oil executive cited bureaucracy and lack of contracts, along with payment concerns, after oilfield service firms in the past had to write off debts due to PDVSA payment delays.

Baker Hughes' rig report for the month of March showed that Venezuela had only two active drilling rigs, according to sources. These rigs are said to be working on Chevron projects. The?list does not include smaller workover rigs.

Henao presented the Ministry's findings that 93 drilling rigs are needed to increase oil production through 2028, mainly in the Orinoco belt. Maurel & Prom, a French company, is expected to finish installing at least one drilling rig this year on Lake Maracaibo. This will be the second drilling barge to arrive there in the last few years, after a jackup rig owned by China Concord Resources Corp.

(source: Reuters)