Problems in Venezuela Will Hurt Earnings of Oilfield Service Companies

United States based oilfield services’ companies that are exposed to the problems in Venezuela face earnings hits from the South American country’s continuing turmoil in the economy as well as sanctions by the U.S. on the state-operated oil business PDVSA and the country.

Payment delays to its suppliers, insufficient investment, and the U.S. sanctions imposed by President Donald Trump’s administration have hammered the oil industry in Venezuela and saw the production of crude oil drop 13% during 2017.

Schlumberger disclosed on Friday a write down of $938 million on its assets and receivables in Venezuela, citing economic and political woes that are affecting the nation. It was the first large energy related company to post results for the fourth quarter.

Schlumberger as well as other suppliers took promissory notes or they reclassified the receivables in Venezuela the past few years in order to manage the debts from PDVSA. However, the charge by Schlumberger on Friday signals there are troubles that lie ahead for those that have outstanding bills.

However, that appears like it will be offset by the improving outlook for business elsewhere as crude price increases boost activity in oilfields.

Haliburton as well as Weatherford International, which both report their quarterly earnings during the next two weeks, are owed money as well for their operations in Venezuela, said both companies during filings in 2017.

In October, Halliburton said payment delays were being experienced from its biggest Venezuelan customer. At that time, it had more than $429 million in receivables for operations it has in Venezuela.

At the same time, Weatherford announced during November it would be reclassifying more than $158 million worth of receivables owed from its biggest Venezuelan customer to non-current assets so they could reflect the delays in payments.

Weatherford added at the same time that the sanctions could affect the ability of the company to collect payment on its receivables.

Weatherford declined comment, while a Halliburton representative was not immediately available to speak about the ongoing situation.

Schlumberger said it is remaining in Venezuela and would continue seeking payment for work it performs. One industry analyst said that it was likely Schlumberger would remain in the South American country but would work only if they received payment in advance.

In August, the U.S. placed sanctions on the country in an attempt to punish the actions of Venezuelan President Nicolas Maduro, who has consolidated power that sparked international outrage and political turmoil.

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