Oil rigs pulled from storage as Venezuela eyes 1.3m barrels a day

Oilfield service companies that for years kept rigs and specialized equipment stored in Venezuela have begun removing them from warehouses for assembly and repair as the government ​advances a review of oil and gas contracts that could lead to fresh activity, four sources involved in the preparations said.

Since a sweeping reform of Venezuela’s ‌main oil law was approved in January, foreign and local producers have been submitting required documentation while negotiating the ratification or amendment of their contracts.

The review, which must be completed by the end of July, has already led to some initial agreements for area expansions, new block awards and asset swaps, prompting many of the involved companies to begin searching for the drilling rigs needed for the new work.

At least nine rigs ​of between 500- and 1,500-horsepower have been taken out of storage by several foreign firms in recent weeks to prepare for onshore deployment, while another five are ​being assessed before moving, the sources said. The moves show the service companies are growing more confident of renewed oil production in Venezuela.

RIGS ⁠STORED, REMOVED AFTER SANCTIONS

It is unclear how many rigs and how much specialized oil equipment remain stored. Some companies removed them from Venezuela while others placed them in storage after ​Washington in 2019 imposed sanctions on the country’s energy sector, limiting activities of US service firms including SLB (SLB.N), Halliburton (HAL.N), Baker Hughes (BKR.O) and Weatherford International (WFRD.O).

The equipment being dusted off would service projects ​operated by joint ventures between state-run PDVSA and private companies in the Orinoco Belt and Lake Maracaibo, the country’s two main oil regions. Foreign service providers prefer to work for companies long-established in Venezuela that have good payment records, the sources said.

Most PDVSA partners have not completed their new drilling campaign plans, but, as part of recent agreements signed with the government, producers including Chevron (CVX.N), Repsol (REP.MC) and Shell (SHEL.L) have announced ​fresh projects and output expansions that will require additional rigs.

Venezuela’s new oil minister, Paula Henao, told investors and providers in recent weeks that the country is also looking for pumps, ​frequency converters, wellheads, valves, pipelines, gas compressors and chemicals for drilling, producing, processing and transporting crude and gas.

If sourced, the rigs and equipment could help boost the country’s total production to 1.37 million ‌barrels per day ⁠of crude by year-end from the current 1.1 million bpd, according to Henao’s presentations seen by Reuters.

Venezuela’s Oil Ministry, PDVSA and Chevron did not reply to requests for comment. Repsol and Shell declined to comment.

During an earnings call last week, Halliburton said it has been discussing commercial terms with customers for operations in Venezuela after touring some facilities. In a separate call, SLB said Venezuela continues to be an exciting “growth opportunity.”

STORED RIGS VERSUS IMPORTS

Companies with equipment in Venezuela may have an advantage over those planning to import it, as paperwork required both from ​Caracas and Washington – from contracts to licenses ​and US Treasury clearance – is less burdensome ⁠and deployment would be faster.

Repairs, however, are expected to be needed before moving many of them to the oilfields where they would operate. If those costs surpass $1 million per rig, medium-term contracts of about 12 months would be needed to justify the expense, one of the ​sources said.

“Many companies are first reactivating the rigs they have in Venezuela as challenges to import, especially big equipment, remain,” an ​oil executive said, citing bureaucracy, ⁠lack of firm contracts and payment concerns after many oilfield service firms in past years had to write down debts related to PDVSA’s payment delays.

Venezuela only had two drilling rigs marked as active in the Baker Hughes rig report at the end of March, which sources said are working for Chevron’s projects. Smaller workover rigs are typically not included in the list.

In Henao’s presentation, the ⁠ministry identified ​93 rigs needed through 2028 to boost oil output, mostly at the Orinoco Belt.

At Lake Maracaibo, France’s Maurel & ​Prom (MAUP.PA) is expected to complete this year the installation of at least one drilling barge, the second to arrive in recent years in that area after a jackup rig operated by China Concord Resources Corp.