Barron’s: OPEC Eyes U.S. Frackers as Venezuela Oil Rigs Hit Low

Russ Dallen, a lawyer, publisher and the managing partner of Caracas Capital, notes today that U.S. energy services companies are keeping a presence in Venezuela despite U.S. government sanctions, given the investment needed to tap Venezuela’s bountiful oil reserves. He writes:

“Last year with great fanfare, the Venezuelan government announced billions of dollars of new investments in its oil industry to increase production, from Halliburton (HAL), Schlumberger (SLB) and a small, unknown U.S. company known as Horizontal Well Drillers, based out of Oklahoma. As the drilling data above shows, those investments do not seem to have been forthcoming and the number of active drills continues to fall. One of the reasons is that PDVSA is not paying its debts. … Venezuela’s unpaid $636 million debt to Halliburton does not include $200 million in Promissory Notes that Halliburton swapped into PDVSA Promissory Notes in 2016. Likewise, Schlumberger is owed even more by PDVSA according to Schlumberger’s 1Q2017 financials – $1.2 billion. Schlumberger then swapped $700 million of that debt into new 2017 issue PDVSA Promissory Notes during the 2nd Quarter of 2017. … By the way, both the 2016 and 2017 issue PDVSA Promissory Notes are 3 year amortizing financing deals that total over $2 billion and would seem to fall afoul of some parts of the U.S. Government’s August O.F.A.C. sanctions on financing PDVSA. … So, it was with much bemusement that we noticed 2 gringos from a small Oklahoma outfit named Horizontal Well Drillers being trotted out live on Venezuelan TV signing a contract to invest in a $3.2 billion drilling project. It turns out that the firm doesn’t have much capital …”