Venezuela Announces $3.2b in Oil Deals as Default Looms

Venezuela Announces $3.2b in Oil Deals as Default LoomsVenezuela Announces $3.2b in Oil Deals as Default Looms

Venezuela, teetering on the brink of an economic collapse, is rushing through a tender for billions of dollars of drilling contracts to boost oil production in the Orinoco Belt.

Its state-owned oil and natural gas company PDVSA said last week that it has awarded $3.2 billion in contracts to drill in the Orinoco Belt. The contracts, PDVSA says, will add 250,000 barrels per day within 30 months from about 480 wells to be drilled, Oil Price reported. The deal asks the drilling companies to pay for the cost of drilling and then receive compensation in future oil production. PDVSA described its drilling campaign as “one of the world’s largest drilling projects.”

However, some of the foreign companies involved are reportedly uncomfortable with the way the tender was rushed and they also question how viable the contracts will be.

A few of the winners are said to have political connections to the government in Caracas and also have very little experience in oilfield services, raising questions about favoritism. Some companies are wondering why PDVSA is choosing to invest in heavy oil when it can no longer afford to import sufficient volumes of lighter blending fuels to blend the heavy crude into a marketable product. Meanwhile, Venezuela and PDVSA are trying to convince creditors to accept a $7 billion bond swap to relieve the country of crippling debt payments falling due in the next two months.

The proposal called for extending debt maturities out over the next few years, giving Venezuela some breathing space.

Conditions for both Venezuela and PDVSA continue to deteriorate, as The New York Times detailed this week. PDVSA has tried to convince the financial markets and its creditors that it will bounce back, but that appears to be wishful thinking. As things grow worse, a default could trigger faster production declines.