VENEZUELA: LOCAL HALLIBURTON OPERATION IN

C O N F I D E N T I A L SECTION 01 OF 03 CARACAS 000827

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E.O. 12958: DECL: 07/01/2019
TAGS: EPET EINV ENRG ECON VE
SUBJECT: VENEZUELA: LOCAL HALLIBURTON OPERATION IN
FINANCIAL CRISIS

REF: A. (A) CARACAS 541

B. (B) CARACAS 440

C. (C) CARACAS 428

D. (D) CARACAS 288

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


1. (C) SUMMARY: Halliburton is concerned that its perceived
historical connection with the previous U.S. administration
and the $300 million it is owed by PDVSA may provide ample
rationale for the GBRV to expropriate the U.S. oil services
company. Venezuelan courts have now ruled twice in favor of
contractors suing the company over outstanding payments.
Senior PDVSA leadership recommended to senior local
Halliburton leadership in a June 19 meeting that it seek to
improve its situation by reaching out to President Chavez
through Washington, DC contacts and through diplomatic
channels in Caracas. Halliburton believes that Schlumberger
(which would be the largest service company left standing in
the event of a Halliburton departure) reached an agreement
with PDVSA for payments by offering a fifteen per cent
discount on its pending arrears. END SUMMARY.


2. (C) Petroleum AttachQ met with Halliburton's Global
Account Manager for PDVSA, Martha Sandia (strictly protect
throughout) on June 29. Per Sandia, PDVSA and PDVSA-managed
joint ventures owe Halliburton $300 million in arrears, of
which it has received payment of only $28 million in 2009.
Halliburton owes $55 million to contractors and has $50
million in loans to Venezuelan banks (on which it pays $1
million per month in interest). Halliburton has received a
total of $9 million in U.S. dollar payments to accounts in
the United States this year. Sandia reported that
Halliburton's corporate leadership has decided that it will
not supply offshore dollars to support Venezuelan operations
or permit Halliburton's local office to exchange the $9
million USD payment on the local parallel market.


3. (C) Sandia indicated Halliburton's financial situation in
Venezuela is critical (REF A). A Venezuelan judge ruled the
week of June 15 in favor of a group of contractors who had
sued Halliburton over outstanding payments and awarded the
plaintiffs a seized Halliburton bank account with roughly
$500,000 as compensation. The week of June 22, another judge
ruled against Halliburton in a similar suit and awarded the
plaintiffs $1.5 million. Halliburton has been notified of
fifteen similar legal proceedings that have been filed
against it. Other contractors have temporarily shutdown
Halliburton operations in Maracaibo and Maturin (septel). In
order to manage this difficult financial situation,
Halliburton is reducing operations and firing staff. Sandia
confirmed that Halliburton refused to renew a mud contract
with PetroBoscan (REF C) since the PDVSA-Chevron joint
venture owes Halliburton over $10 million. She stated that
Halliburton's June 2009 severance packages amounted to $6
million. Of the remaining 1,300 employees, Halliburton's
target was to lay-off an additional 300 employees in July.



4. (C) Halliburton Venezuela President Juan Casteneda met
with PDVSA Vice President Eulogio Del Pino on June 19, in
what was characterized as having been an open and frank
exchange. Del Pino denied that PDVSA has any plans to
expropriate Halliburton, noting that companies like the Wood
Group, Williams, and Exterran represented monopolies in the
natural gas compression and injection sector and that the
Lake Maracaibo launch operators were politically aligned
against President Chavez. He added that he had asked PDVSA

CARACAS 00000827 002.3 OF 003


President and Minister of Energy and Petroleum, Rafael
Ramirez, before the meeting, whether he should advise
Halliburton that it leave the country. Ramirez's reported
response was "Wait." Del Pino advised that Halliburton
needed to change Venezuelan senior leadership's perception of
the U.S. multinational and that Halliburton's CEO might write
Q&an apologetic letterQ8 to President Hugo Chavez as a first
step. Sandia noted Halliburton leadership is concerned how
such a letter might be used by the GBRV and added that Del
Pino hinted that it should offer a break between
Halliburton's past leadership and connections with former USG
officials. Sandia understood from the meeting that Chavez
either (1) does not know Halliburton is still operating in
Venezuela, (2) may have ordered Ramirez to kick Halliburton
out of Venezuela, and/or (3) does not like Halliburton due to
its perceived ties with former U.S. Vice President Dick
Cheney. Sandia stated that Del Pino also advised Halliburton
to work through U.S. Representative Delahunt and Venezuelan
Ambassador Alvarez in Washington, DC and through diplomatic
channels in Caracas to resolve Halliburton's outstanding
payments problem.

Why Halliburton and not Schlumberger?
--------------


5. (C) The departure of Halliburton would leave Schlumberger
as the largest multi-service oil field services company in
Venezuela. According to Sandia, Schlumberger's CEO met with
Ramirez in Vienna on the margins of an OPEC meeting in May
and reached a deal for PDVSA to pay Schlumberger $117 million
by the end of June (REF B). Sandia confirmed that
Schlumberger has received $98 million so far. She added that
according to industry gossip, Schlumberger agreed to a
fifteen per cent discount on its one billion dollar bill with
PDVSA. She noted that one of Schlumberger's recent
Securities and Exchange Commission filings includes a $300
million write down for operations in Latin America. She
stated that Halliburton legally will not need to take an SEC
write-down until the end of the calendar year and would
follow Schlumberger's lead in not naming Venezuela as the
cause of the write-down. Even though payments to
Schlumberger roughly equate to ten percent of its pending
balance (the same as Halliburton and the rest of the
industrial sector),Halliburton perceives itself as being a
good political target. Sandia claimed that Schlumberger is
not facing the same legal suits by contractors. In a June 8
meeting with PetAtt and visiting Washington energy analyst,
Ivan Betancourt, Schlumberger Venezuela's President (strictly
protect throughout),claimed that Schlumberger had not let
its financial situation deteriorate to the point of not
making labor or medical payments. If it did, he claimed, the
oil services giant would be facing a shut-down in Venezuela.
He confirmed, however, that Schlumberger had received a
payment reflecting ten per cent of outstanding arrears back
in March and was receiving regular, weekly payments of $70 to
$80 million. He hinted that Schlumbergers' total outstanding
debt was $600 million.


6. (C) In regards to activity levels in country, Sandia
shared that Halliburton's current internal rig count was 69,
but noted that only 41-45 of those rigs actually operated in
June. Furthermore, she indicated that another four rigs shut
down the week of June 22.


7. (C) COMMENT: It seems likely that Schlumberger has made a
deal with PDVSA that has facilitated regular payments and
that these payments (and possible other government pressure,
i.e. perhaps in the courts) are keeping Schlumberger out of
legal, financial, and political labor trouble. Halliburton

CARACAS 00000827 003 OF 003


does not enjoy the same degree of favoritism with this
government. Just as some believed that Exxon Mobil and
ConocoPhillips would not walk away from their investments in
Venezuela, many here wrongly believe Halliburton is too big
to fail. We believe that senior GBRV policymakers do not
understand the full range of implications for production of
expropriations such as the recent Exterran confiscation and
we doubt that they understand (or care for that matter) about
what the loss of Halliburton would mean to the oil services
sector. END COMMENT.
CAULFIELD