PDVSA TO FORM NEW SERVICE JOINT VENTURES (REALLY)

C O N F I D E N T I A L CARACAS 000565 SIPDIS SENSITIVE SIPDIS ENERGY FOR CDAY AND ALOCKWOOD NSC FOR JSHRIER E.O. 12958: DECL: 04/25/2018 TAGS: EPET ENRG EINV ECON VE SUBJECT: PDVSA TO FORM NEW SERVICE JOINT VENTURES (REALLY) REF: A. 2006 CARACAS 3402 ¶B. 2007 CARACAS 666 Classified By: Acting Economic Counselor Shawn E. Flatt for Reason 1.4 (D) ¶1. (C) SUMMARY: PDVSA officials met with service company representatives and attorneys the week of April 14 to announce the formation of new joint ventures for the petroleum service sector. The new joint ventures will be restricted to individual product lines and will be guaranteed a 30% market share. END SUMMARY. RETURN OF A ZOMBIE POLICY ¶2. (C) After a number of false starts (Reftels A and B), PDVSA appears ready to begin forming joint ventures with service companies to compete in a wide number of petroleum products and services. Baker Hughes (BH) Vice President for Latin America Sales Edgar Pelaez (strictly protect throughout) told Petroleum Attache on April 24 that PDVSA officials met with service company representatives and attorneys the week of April 14 to announce the ground rules for the new joint ventures. ¶3. (C) According to Pelaez, individual joint ventures will be formed for separate products and services. The joint ventures will be limited to competing in the individual product or service's market and will not compete in other areas. For example, the joint venture that handles cement will only deal with cement, not other well completion products or services. PDVSA will hold a 60% stake in the joint ventures with an international service company holding a 25% stake and a local service company holding the remaining 15%. ¶4. (C) Pelaez stated the BRV has guaranteed each joint venture a 30% stake in its respective market. He added international service companies were relieved that 70% of each market was still open to competition. When asked how PDVSA would guarantee a joint venture a 30% stake, Pelaez opined that PDVSA may directly assign work on its own fields to the joint ventures. PLENTY OF DETAILS TO BE WORKED OUT ¶5. (C) Pelaez said details on the formation of the companies as well as details on their structure and operations remain to be worked out. For instance, it is not clear if the international service companies are expected to contribute facilities or personnel to the joint ventures. It is also unclear if international service companies are supposed to make offers to participate in particular joint ventures or receive an offer to participate directly from PDVSA. He said BH management is concerned that it may be asked to participate in a joint venture in an area in which it has a commanding market share and holds exclusive technology. BH does not have any interest in being a part of such a joint venture but it is not sure how to decline without being penalized by the BRV or PDVSA. Pelaez stated the Petroleum Chamber, the majority of whose members are local companies, has formed a working group to examine how local companies can participate. DUDDY