If you thought the seizure and expropriation of private property in Venezuela ended with the death of strongman Hugo Chavez, think again. Oil and gas industry services provider Superior Energy Services (NYSE:SPN) announced yesterday that the government seized two of its hydraulic snubbing units from a facility in Anaco.
The energy services firm was providing live well snubbing services to Petroleos de Venezuela, the government-owned oil giant. Superior was the only company in the country capable of providing those services.
Superior is owed approximately $9 million for the work, but the Venezuelan oil company failed to make two payments so the services provider idled the two hydraulic units. PDVSA, as the Venezuelan oil company is called, then seized the equipment, which Bloomberg reports has a combined value of about $1 million. Superior's total assets in Venezuela have a combined book value of roughly $2 million.
Other foreign companies both in and outside the energy sector have had their property seized by the Venezuelan government over the years. Both ExxonMobil (NYSE:XOM) and ConocoPhillips (NYSE:COP) were driven out of the country by Chavez, while steelmaker Ternium (NYSE:TX) saw its property taken, though it was allowed to negotiate a price for the assets.
From oil to telecommunications, cement to electricity, companies in a range of sectors have seen their assets seized as Chavez followed his dictum, "All that was privatized, let it be nationalized." His successor, Nicolas Maduro, has no qualms about continuing that policy.
Noting its unique position in providing snubbing services to PDVSA, Superior Energy said the work is performed on a live well and requires highly skilled personnel with an experienced management team and reliable equipment. PDVSA now has the equipment and the workforce remains unchanged since Superior was using local workers, no doubt trying to ingratiate itself with the government. Whether they'll perform just as well under different management that may not have the same skill set remains to be seen.
Superior Energy has generated almost $3.5 billion so far in 2013, but less than $10 million has come from Venezuela. The loss, while it still stings, won't disrupt the company's business too much.
As much as you'd think the burned hand learns best, companies keep returning to the country despite the threat of loss. Schlumberger (NYSE:SLB) earlier this year threatened to reduce its exposure there because PDVSA was becoming unreliable with its payments, but ultimately agreed to extend the oil company a $1 billion line of credit instead. Sometimes companies deserve what they get if they let the siren song of Venezuelan riches cloud their judgment.
Since Superior has worked in the country for 15 years, it remains hopeful it will work out the situation with PDVSA, get its equipment back, and receive the outstanding payments. Other companies have received remuneration for their assets, but taking property by force and returning what you think is fair value regardless of its actual market value is still theft.
Superior Energy is finding out that leopards don't change their spots, and if you play with fire you're bound to get burned.