VENEZUELA: U.S. COMPANY EXTERRAN ASSETS SEIZED

C O N F I D E N T I A L SECTION 01 OF 02 CARACAS 000725

SIPDIS

ENERGY FOR CDAY AND ALOCKWOOD, DOE/EIA FOR MCLINE
NSC FOR RKING
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TREASURY FOR RJARPE
HQ SOUTHCOM ALSO FOR POLAD

E.O. 12958: DECL: 06/08/2019
TAGS: EPET EINV ENRG ECON VE
SUBJECT: VENEZUELA: U.S. COMPANY EXTERRAN ASSETS SEIZED

Classified By: Economic Counselor Darnall Steuart, for reasons 1.4(b) a
nd (d).



1. (C) SUMMARY: PDVSA has now seized additional U.S. company
assets under the auspices of the May 7 Organic Law permitting
the expropriation of companies involved in the oil services
industry. Exterran (formerly Hanover Compression Corporation
and Universal Compression Holdings) confirmed June 8 that
PDVSA has seized company assets in Venezuela, including gas
compression units and electrical generators. According to a
company executive, Exterran's assets in Venezuela are held by
a Spanish holding company, giving it the option of resorting
to international arbitration under Spain's Bilateral
Investment Treaty with Venezuela. Representatives of
international oil companies (IOC's) involved in joint venture
operations with PDVSA have expressed grave concerns about the
impact of these seizures on their oil production operations.
End Summary.

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EXTERRAN ASSETS SEIZED
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2. (C) On June 2, Exterran filed a Form 8-K with the U.S.
Securities and Exchange Commission stating, "In May 2009,
three joint ventures in which we have minority interests were
named by MENPET (Petroleum Ministry) in those resolutions and
their assets were seized. As of June 2, 2009, our wholly
owned operations have not yet been named in MENPET
resolutions. However, on June 2, 2009, PDVSA commenced
taking possession of our assets and operations in a number of
our locations in Venezuela." By e-mail June 8, Rob Price,
Exterran Vice President for Latin America North (protect),
confirmed to EconCouns that PDVSA had seized all Exterran
assets in Venezuela. (NOTE: Exterran had minority interests
in the Wood Group's Simco and Williams' Wilpro operations in
western and eastern Venezuela respectively. END NOTE) Price
added that Exterran believed the GBRV would issue on June 8 a
resolution officially naming Exterran as a company whose
assets would be seized, however no resolution has yet been
published in Venezuela's Official Gazette, its U.S. Federal
Register equivalent. Finally, Price informed EconCouns that
Exterran's assets in Venezuela are held by a Spanish holding
company, giving Exterran the option of resorting to
international arbitration under Spain's Bilateral Investment
Treaty with Venezuela.


3. (C) Exterran Vice President Price informed EconCouns June
2 that PDVSA currently owes the company over $120 million.
Another Exterran executive informed PetAttache June 2 that
company representatives had met with PDVSA officials on May
28 who challenged them regarding Exterran's "lack of
performance" and threatened to expropriate Exterran assets.
The Exterran representatives reportedly focused on the
capital intensive nature of their business and explained that
the company could not keep pumping money into its assets if
PDVSA was not going to pay its bills. According to Price,
Exterran told PDVSA that the equipment needs approximately
$150 million in investment. Exterran told PDVSA that it
could either pay Exterran the monies it was owed and Exterran
would invest in the maintenance of the equipment or PDVSA
could expropriate the equipment and do it themselves. PDVSA
asked the Exterran representatives what it could do to keep
Exterran operating and the company responded with a proposal
that PDVSA stay current at $10 million in monthly costs and
pay an additional $10 million a month on the arrears for a
total payment of $20 million a month. This proposal was put
into writing and delivered to PDVSA on May 29.


4. (C) Price informed EconCouns June 2 that 25 units out of a

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national total of 210 were shutdown due to maintenance
problems. He speculated that this number would increase to
50 within the next two weeks. Price said flatly that PDVSA
is not capable of taking over operation of the Exterran
assets in Venezuela.


5. (C) Petroleum Attache (PetAtt) and visiting Washington
energy analyst discussed the situation with two IOC's
currently operating in Venezuela under joint ventures with
PDVSA. Senior executives of both companies were concerned
about the impact of the Exterran seizures on their own
operations. In both cases, Exterran owned and operated power
generation equipment which is critical to continued oil
production. In one case, the joint venture has already moved
to absorb the Exterran technical personnel. However, the
representatives of both IOC's expressed extreme concern about
future maintenance and technical support of the generation
equipment upon which their operations rely.

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OTHER NEWS ABOUT SEIZED ASSETS
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6. (C) In other news about assets seized as a result of the
May 7 law, Price noted that Exterran had heard that one of
eight turbines at the Wilpro PIGAP II facilities was already
out of service. In a televized June 7 ceremony, PDVSA
President Rafael Ramirez announced that some of the 660
vessels seized from oil service companies which previously
offered services in Lake Maracaibo, are being used to
distribute food across the Lake. He added that others will
be used to provide passenger transport services.

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COMMENT
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7. (C) The units seized from Exterran compress gas for
injection or generate electricity required in the oil fields.
Venezuela is unlikely to have the necessary spare parts or
qualified technicians to maintain equipment whose maintenance
standards are already low because of PDVSA's failure to pay
for its upkeep. Any shut down of this equipment is likely
to have an immediate impact on Venezuela's oil production.
CAULFIELD