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Venezuela taps obscure driller as oil exports slump

It inks deal with US-based Erepla Services to boost production at the Tia Juana and Rosa Mediano and Ayacucho 5 fields in exchange for half the oil produced

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WITH brand-name drillers unwilling to jump in, Venezuela is resorting to a newly formed US company for help in shoring up production from its crude reserves, the largest in the world.

Schlumberger Ltd and Halliburton Co, the world's biggest oil-service providers, have announced over US$2 billion in combined write-offs for unpaid bills in Venezuela since the second quarter of 2017.

That's left the South American country little choice but to reach out to secondary service companies with its oil exports slumping to a 28-year low. The result: An agreement with US-based Erepla Services LLC, created in 2018, to boost production at the Tia Juana and Rosa Mediano and Ayacucho 5 fields in exchange for half the oil produced, according to documents seen by Bloomberg.

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Erepla will supply rigs and crews in the onshore fields for 25 years, with an option to extend for another 15 years, according to the contract.

"The agreement gives US-based Erepla enhanced managerial participation and an innovative payment structure designed to avoid the shortfalls that have plagued previous projects," Harry Sargeant III, a principal in Erepla, said in a statement on Saturday.

All of the oil produced will initially be bought by Erepla Trading from Petroleos de Venezuela SA (PDVSA), the state energy company. PDVSA will get 50.1 per cent from any subsequent resale while Erepla will get 49.9 per cent. The agreement gives PDVSA oversight but not operational control.

"We believe that the new model created in this agreement is in the national interest of the United States and the interest of the Venezuelan people," Mr Sargeant said in his statement. The company's work "will be carried out in accordance with the economic sanctions enforced by the US Treasury Department, as well as other applicable US and Venezuelan" laws, he added.

The absence of US involvement in Venezuela's oil sector would only "create an opportunity for Russian and Chinese interests to access the Venezuelan oil reserve - an outcome that would be detrimental to US interests", the statement said.

PDVSA declined to comment on the contract.

It's not the first time Venezuela, once Latin America's largest oil exporter, has been forced to turn to lesser lights within the industry for help.

In 2017, closely held Horizontal Well Drillers LLC - a company relatively unknown even in its home town of Purcell, Oklahoma - was hired to explore three areas in the Orinoco Belt. PDVSA and Venezuela ended 2018 with a whimper as overseas sales dropped to the lowest in nearly three decades.

The contract between PDVSA and Erepla was signed in November, but it won't translate into additional barrels just yet. Venezuela has become the target of financial sanctions imposed by the US. In November, Erepla applied for a licence to work in Venezuela with the Treasury Department's Office of Foreign Assets Control, which implements sanctions.

With a government shutdown in the picture and the threat of the US potentially tightening the screws further, it's unclear how long it may take. The department didn't immediately respond to an e-mailed request for comment after normal business hours. BLOOMBERG