Feb. 1 (Bloomberg) -- Petroleos de Venezuela SA, the state oil company known as PDVSA, will begin paying off debts owed to service providers this week after contractors idled drilling rigs, Oil and Energy Minister Rafael Ramirez said.

The oil company is also beginning talks with oil field service providers to lower their rates amid the plunge in oil prices in the second half of 2008, Ramirez told reporters today in Caracas.

“Starting tomorrow, Monday, we’re paying all of the debt that’s accumulated with our contractors,” the energy minister, who is also president of Petroleos de Venezuela, said. “We’re also starting negotiations with them to review tariffs, so that they can be adjusted, of course, to the market situation.”

Oilfield services companies Helmerich & Payne Inc. and Ensco International Inc. said last week that PDVSA’s unpaid debt is mounting, and Helmerich said it was idling drilling and other field work in the oil exporting country. Crude oil prices have collapsed, falling 72 percent since touching a record $147.27 a barrel in July.

The increased debt to contractors “isn’t a problem that’s gone beyond a normal situation,” Ramirez said. “We don’t accept that they maintain the same rates that they had last year. The situation has abruptly changed.”

The Organization of Petroleum Exporting Countries is complying “100 percent” with an agreement reached in December to reduce output by 2.46 million barrels a day, or 9 percent, Ramirez said. Venezuela agreed to reduce its production by 189,000 barrels a day under the agreement.

Market Stability

“This is going to bring stability to the market,” Ramirez said today. “January was the first month that we felt the effects of the cut, and that’s going to continue to normalize the market. Of course, there’s been a contraction in demand that we can’t lose sight of.”

The oil market is still oversupplied, and Venezuela would be willing to comply with additional production cuts, Ramirez said.

Crude oil for March delivery rose 24 cents, or 0.6 percent, to settle at $41.68 in Jan. 30 trading on the New York Mercantile Exchange.

To contact the reporter on this story: Matthew Walter in Caracas at mwalter4@bloomberg.net.