Venezuela pledges to pay debts to oil contractors

By RACHEL JONES

CARACAS, Venezuela

Venezuela's state oil company said Tuesday it will pay its debts to oil contractors and increase investment despite depressed world crude prices and a wave of costly nationalizations.

State-run Petroleos de Venezuela SA, or PDVSA, has accumulated debts with both foreign and domestic oil contractors that reached $7.6 billion in December. But the company has since paid more than one quarter, or $2 billion, of that amount, and will continue to pay what it owes, Oil Minister Rafael Ramirez said.

"We're going to fulfill all our duties," Ramirez told reporters. PDVSA said it also expects to increase investment in oil exploration, production and other activities by 11 percent this year to $17 billion.

PDVSA has recently clashed with oil contractors as it aims to reduce costs by 40 percent. The company says some of those contracts are overvalued with world crude prices now at 52 percent below July's peak.

In the past month, President Hugo Chavez's government has nationalized more than 74 oil contractors under a new law, seizing natural gas compression facilities belonging to Tulsa, Oklahoma-based Williams Companies Inc. and Houston-based Exterran Holdings Inc., as well as Venezuelan companies that operated boats and docks on western Lake Maracaibo.

Ramirez said PDVSA will not consider joint enterprises with those companies: "We're taking these over for the state -- 100 percent," he said.

But he dismissed suggestions that the nationalizations could extend to oil drillers such as Tulsa, Oklahoma-based Helmerich & Payne -- which has halted seven of its 11 oil rigs in Venezuela over delayed payments. On Monday, Ensco International Inc., based in Dallas, Texas, announced it had terminated its drilling contract with PDVSA for its Ensco 69 rig, saying Venezuela owes it $16.9 million.

PDVSA, which has been operating the Ensco rig since January, can always contract with other drillers if agreements can't be reached, Ramirez said.

PDVSA is likely hoping to assuage the fears of major drilling companies and international creditors by paying off its debts, said economist Pavel Gomez, a professor at the IESA business school in Caracas.

Venezuela, which relies on oil for 93 percent of exports, is also likely being encouraged to make payments on its debts due to the recent rise in oil prices, Gomez said.

Benchmark crude for July delivery rose $1.92 to close at $70.01 a barrel in trading on the New York Mercantile Exchange on Tuesday -- up 44 percent from December.

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Associated Press writer Fabiola Sanchez contributed to this report.