Nicolas Maduro was in his element, flanked by an enormous Venezuelan flag, beneath a portrait of Simon Bolivar on horseback, in front of a statue of Hugo Chavez, praising foreign companies wise enough to make deals with what he called “our beloved PDVSA.”
That would be Petroleos de Venezuela SA, the state-owned oil giant struggling to pay its bills and reverse a production decline that sent output to a 14-year low in June. But there’s nothing to worry about, Maduro said, because of the “huge investments” coming in from around the world.
Appearing on stage at Miraflores Palace with Maduro was his Exhibit A, Todd Swanson, chief executive officer at a company called Horizontal Well Drillers LLC. To applause from the audience, Swanson shook the president’s hand and talked about his love of the Latin American country. For an oil man, this isn’t entirely unreasonable. Venezuela may be rocked by political chaos, short on food and medicine and internationally condemned as an authoritarian state, but its proven crude reserves are larger than even Saudi Arabia’s.
The nationally televised performance last month was curious, though, renewing questions about the Maduro regime’s $3.2 billion plan to boost output by 250,000 barrels a day within 30 months, a tall order in the face of rising debt and crumbling infrastructure. The fact that little and little-known Horizontal is one of three main contractors hired to make the ambitious goal underscores the magnitude of the challenge -- and the desperate situation at PDVSA.
“It’s very unorthodox to see a small player like Horizontal Well Drillers pop up on a project this size,” said Luke Lemoine, an energy analyst at Capital One Securities Inc.
Not only is Horizontal an unfamiliar player in the industry, few people seem to know much about it in its own hometown of Purcell, Oklahoma, population 6,442. The head of the local chamber of commerce, who works just down the road, said she’s never heard of the rig contractor. A city councilman who owns an exploration and production company said he wasn’t even aware Horizontal’s founder had sold it about four years ago to new owners. Employees of nearby businesses said they rarely interact with the driller’s workers.
Kevin Montgomery, a mortician at a crematorium across the street, said he was surprised to hear any outfit in town was taking a job in Venezuela. “That’s not good,” he said. “Their economy is horrible.”
It is indeed an interesting time to dive into the Venezuelan oil business, especially considering the threat of expanded U.S. sanctions now that Maduro has convened a constituent assembly to rewrite the constitution and boost his hold on power.
“It’s just screaming of country risk,” said J. David Anderson, an energy analyst at Barclays. “Every company that we witnessed going into Venezuela over the last 10 years has come out bloodied and dragging themselves out by the fingernails. Even the big guys have struggled in recent years. It is a perilous market, to say the least”
Officials at PDVSA declined to comment for this story. Swanson, 42, who has an MBA from Stanford University, didn’t respond to phone calls. He has worked previously as an analyst, including for Dan Loeb’s activist hedge fund Third Point LLC. He served for about 11 months with Loeb on the board of Massey Energy Co. when Third Point was agitating for change at the coal company in 2006 and 2007.
The company’s public relations firm, Schnake Turnbo Frank in Tulsa, declined to comment on the driller’s operations in Venezuela or anywhere else. Closely held, Horizonal has its headquarters in Purcell, where its property includes garages, warehouses and a lot crowded with vehicles and equipment, including a Land Rover, pickup trucks, semi-trailers, forklifts and drilling rigs, some covered by a film of Oklahoma’s red dirt.
In its bid to boost output, PDVSA awarded the contracts late last year to explore three areas in the Orinoco Belt, requiring, in an unusual move, that bidders agree to provide their own initial financing. One tender went to a hometown engineering firm, Caracas-based Y&V Group, and another to Schlumberger Ltd., the world’s largest oil-services company; it has operated in Venezuela for decades and is sticking it out there, though on a smaller scale than in the past, despite being paid recently in promissory notes.
“Schlumberger on the deal makes perfect sense with their balance sheet and history in the country,” Capital One’s Lemoine said.
For its part, Horizontal will be supported by minority partners in the project including Chevron Corp. that have deep experience in the country. Chevron is among the foreign companies that have just pulled some employees out of Venezuela because of deteriorating conditions. Chevron declined to comment for this story. It’s unclear what role it’ll play in working with Horizontal, which has signed on to drill about 200 wells. It’s also not known how many companies bid for the contract that Horizontal won.
At the ceremony at Miraflores Palace, celebrating a new memorandum of agreement between Horizontal and PDVSA to do more work together, Swanson told Maduro he was looking forward to helping Venezuela “become one of the largest oil producers in the world.” Maduro congratulated Swanson for “a win-win association.” He also asked the CEO to share something with President Donald Trump.
“Tell Trump that one day I hope to give him my hand and talk face to face, with respect,” Maduro said. “I want good relations with Trump.”
Whether Swanson has any ties to Trump is unclear, but if he delivered the message, it fell on deaf ears. Weeks later, the Trump administration leveled sanctions against Maduro himself, freezing his assets in the U.S.
© Copyright 2023 Bloomberg News. All rights reserved.