Tulsa-based Helmerich and Payne faces hard line in Venezuela

Journal Record, The (Oklahoma City), Mar 10, 2009 by Kirby Lee Davis

Helmerich and Payne may face a write-down of $50 million or more because of the Venezuelan government's hard line over contractor payments.

Because of the tremendous drop in oil futures prices over the last eight months, from more than $140 a barrel to under $40, Venezuela has decided to cut 50 percent of what it owes contracting companies serving Petroleos de Venezuela, Oil Minister Rafael Ramirez said Friday.

He vowed to take over operations of companies that halt work with the government-owned oil company over payment demands.

Petroleos did just that in January. The Associated Press reported that after Dallas-based Ensco International suspended operations on an oil rig off Venezuela's Caribbean coast because it was owed $35 million, PDVSA took over operations.

"We aren't going to allow any rig to stop in this country," Ramirez said.

Like many other contractors, Helmerich and Payne finds itself in a somewhat similar predicament.

In late January, the Tulsa drilling contractor reported almost $100 million in past-due debt owned by Petroleos de Venezuela for 11 H&P contracted rigs operating in the South American country.

While it did not suspend operations, Helmerich vowed to idle rigs as contracts expired if PDVSA continued to fall further behind in its payments.

This comes as more and more energy companies reduce their exploration activities in the face of both low oil prices and tightening credit restrictions. In a Feb. 27 investor presentation and form 8-K filing with the U.S. Securities and Exchange Commission, Helmerich warned that 43 percent of its U.S. land rig fleet could be idled by the end of this month.

In January, Helmerich pulled the plug on two PDVSA-contracted rigs as their contracts expired. The company warned that three more would go idle by the end of February if the payment situation did not change, with all 11 potentially sidelined by the end of July.

"We expect to get paid," President and Chief Executive Hans Helmerich said in a Jan. 29 earnings conference call.

Although Helmerich and Payne officials would not confirm the idling of five rigs at the close of February, company officials Monday said nothing has changed since its Feb. 27 presentation, where Helmerich reported no progress in negotiations with Petroleos.

The company did report a third rig idled Feb. 27, while two had been impacted by a local union's work stoppages earlier that month.

Those 11 rigs accounted for 51 percent of Helmerich's $328.2 million international drilling revenues in fiscal 2008, according to the company's annual report. They also represent a third of its international land fleet.

Helmerich said the Venezuelan operation represents about 6 percent of the company's revenue and 3 percent of its net book value in terms of long-term, long-lived assets.

Ramirez told the Associated Press that PDVSA has recently paid off debts to 94 percent of its more than 5,700 service contractors, but is still in negotiations with 56 service companies. He did not name them or what is owed.

Ironically, Ramirez suggested Venezuela, the fourth-largest U.S. oil supplier, may need to voluntarily reduce drilling activity. He suggested OPEC may have to order production cuts at its March 15 meeting in Vienna to reduce world inventories and stabilize prices.

"If the sort of destruction of demand exists that we're seeing now," he said, "an additional production cut will have to be proposed."