Reply #18: That's not the way it works [View All]

[Braulio]

Venezuela nationalized the oil companies (the oil producers), it didn't nationalize the service sector (the rigs, the huge number of companies providing services were largely kept in private hands). After the nationalization in the 1970's, they went on to give service contracts to private oil companies, starting in early 1990. They also signed association agreements which allowed oil companies to invest in heavy oil developments. What the Chavez regime did was eliminate the service agreements, and give the oil companies ownership of shares in companies (PDVSA branches) which in turn have licenses to exploit the oil fields. In the service sector area, he has given haphazard orders to nationalize SERVICE companies to avoid paying them.

This nationalization of service companies is driven by PDVSA's lack of money to pay its bills, because it owes billions of dollars, and at the same time its bonds are rated at nearly junk status, which means they have to pay about 14 % interest when they borrow. PDV and the Venezuelan government are in a dead end street, production is going down, their debt rating is lousy, they lack the technical skills to work their oil fields, and they are slowly killing off the private service sector. It's going to be interesting to see how they destroy the economy. And this is really going to help Colombia, because Venezuela's help for the FARC is going to disappear, they are going to be a basket case, with people starting to starve as early as next year.