Venezuela turns to oil minnows as big players stay away

With brand-name drillers unwilling to jump in, Venezuela is resorting to a newly formed US company for help in shoring up production from its crude reserves, the largest in the world.

Schlumberger and Halliburton, the world’s biggest oil-service providers, have announced more than $2 billion in combined write-offs for unpaid bills in Venezuela since the second quarter of 2017. That has left the South American country little choice but to reach out to secondary service companies with its oil exports slumping to a 28-year low.

The result is an agreement with Erepla Services of the US, created in 2018, to boost production at the Tia Juana and Rosa Mediano fields in exchange for half the oil produced, according to documents seen by Bloomberg.

Erepla will supply rigs and crews in the onshore fields for 25 years, with an option to extend for another 15 years, according to the contract.

All the oil produced will initially be bought by Erepla Trading from Petroleos de Venezuela, the state energy company. PDVSA will receive 50.1 per cent from any subsequent resale, while Erepla will get 49.9 per cent. The agreement gives PDVSA oversight but not operational control.

PDVSA declined to comment on the contract. Erepla’s director, Ali Hasan Rahman, did not immediately comment.

It is not the first time Venezuela has been forced to turn to lesser lights within the industry for help.

In 2017, closely held Horizontal Well Drillers – a company relatively unknown even in its home town of Purcell, Oklahoma – was hired to explore three areas in the Orinoco Belt.

PDVSA and Venezuela are the target of financial sanctions imposed by the US. In November, Erepla applied for a licence to work in Venezuela with the Treasury Department’s Office of Foreign Assets Control, which applies sanctions.

With a government shutdown in the picture and the threat of the US potentially tightening the screws further, it is unclear how long it may take.

Venezuela, once Latin America’s largest oil exporter, ended 2018 with a whimper as overseas sales dropped to the lowest in nearly three decades.

Home to the world’s biggest crude reserves, the country exported 1.245 million barrels per day last year, its lowest total since 1990, as production tumbles amid an economic and humanitarian crisis.

Creditors, meanwhile, have sought seize its assets including oil cargoes and its prized Citgo refineries in the US.

Falling exports compound the pain, as oil is the country’s main source of revenue.

The Opec member’s crude production fell by more than half in the past five years to reach a daily average of 1.346 million barrels last year, according to Opec secondary source data.