|CARACAS (Reuters) – The government will quickly take control of hundreds of small boats and other assets belonging to oil service companies operating in Venezuela, President Hugo Chavez said on Thursday, tightening his grip on the industry.
Earlier in the day, Venezuela's legislature approved a law allowing the nationalization of a group of oil service companies. Chavez said the takeovers will start on Friday in the Lake Maracaibo oil heartland.
"Tomorrow we will start to recuperate assets and goods that will now belong to the state, as social property, as they should always have been," Chavez said, adding that thousands of workers would be taken on by state oil company PDVSA.
The law will make it easier for the government to later seize assets owned by service giants such as Halliburton and Schlumberger as state oil company PDVSA builds up billions of dollars in debts with contractors amid low oil prices.
The socialist president nationalized oil projects worth billions of dollars two years ago and is now moving against smaller service companies that the government has struggled to pay as crude revenues fell in recent months.
It will directly affect natural gas producer Williams Companies Inc, which runs a key facility that boosts output of some of Venezuela's most valuable crude and which last month took a $241 million charge for PDVSA nonpayment.
The move could lead to further declines in the OPEC nation's oil production by risking slowdowns in key services following years of underinvestment by PDVSA, which bankrolls the social programs that keep Chavez popular.
"This seems like it's an easy way out of this current debt dispute with service companies but it's a short-sighted approach," said Antoine Halff, vice president of research at the Newedge Group brokerage in New York.
"First, there are questions about how well PDVSA can run those services companies, but there are also questions of how this will affect future investment in oil projects," he said.
The law puts the state in charge of companies providing a range of services including gas and water reinjection and marine transport in Lake Maracaibo and gives PDVSA the right to take over companies involved in those operations.
The law will let the government expropriate companies and compensate firms with bonds instead of cash, order preliminary takeovers of service company assets while courts settle disputes and possibly annul existing contracts.
STATE RUN SERVICE COMPANIES
Other oil service companies in Venezuela which include Baker Hughes and BJ Services.
"A sector as important as oil cannot be subject to the whims of private companies, it must be subject to the control of the state," Energy Minister Rafael Ramirez told reporters on Wednesday.
He said the government will release a list of which companies would be taken over under the legislation, adding that Williams Companies was "within the reach of the law."
The move appears targeted at specific service companies that have been hampered by severe cash flow problems due to lack of payment by PDVSA, which as of last year owed some $8 billion to contractors and providers.
Debts with Williams Companies are becoming increasingly evident and Lake Maracaibo transport companies have faced repeated strikes by unpaid workers
But representatives of larger service companies worry the measure will eventually extend to them as well.
"The way the law is written, it's obvious they can take our assets whenever they want," said an executive from a major service company who asked not to be identified. "The confiscatory nature of it is very alarming."
The state will now have the option to take over service companies in the areas mentioned in the same way it nationalized four multibillion dollar oil projects in the Orinoco belt in 2007.