The Venezuelan authority, led by socialist President Hugo Chavez, disclosed plans to nationalize Helmerich & Payne’s (HP) 11 idle rigs in the country last week. This follows a year-long dispute over pending payments by state oil company PDVSA. However, the Venezuelan oil minister Rafael Ramirez said that the government will pay Helmerich & Payne for the fleet of oil rigs that was seized.
 
Helmerich & Payne had engaged 11 rigs to be operational for PDVSA and completed the contract obligations during calendar year 2009. Since then, these conventional land rigs have been idle in Venezuela and have formed a part of the company’s facilities.
 
As of June 14, 2010, Helmerich & Payne’s total amount due from PDVSA is valued at $43 million (U.S. currency equivalent), including approximately $36 million in invoices issued since the company changed its revenue recognition to cash basis for its Venezuelan operation.
 
Helmerich & Payne’s management expressed surprise over the government’s announcement as the company was willing to negotiate and sell the rigs. However, the company maintained the stand that the dues should be cleared off. Over the last twelve years, since 1998, Helmerich & Payne had reduced the number of rigs operating in Venezuela by almost 50%.
 
However, according to the Venezuelan government, Helmerich & Payne was the only company out of 33 other oil services companies that declined to renegotiate rates in 2009, when PDVSA failed to pay the bills due to a plunge in oil prices. Hugo Chavez has been busy nationalizing a significant part of Venezuela’s oil industry, beginning in 2007. The nationalization plan started with the major heavy-crude projects worth billions of dollars, followed by dozens of smaller service companies in 2009. Next in the pipeline for probable nationalization are the five drills of the Chevron Corp. (CVX) venture.
 
Helmerich & Payne is currently rated as Zacks #3 Rank (Hold), implying that the stock will likely perform in line with the broader U.S. equity market over the next one-to-three months. This is supported by our long-term Neutral recommendation. Helmerich & Payne is a major land and offshore drilling contractor in the western hemisphere, having an efficient drilling fleet with major work contracts from well capitalized and large independent oil companies.
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