Three years after $1 billion Venezuela deal, U.S. oilfield firm shuts
doors
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[January 11, 2020]
By Liz Hampton and Lawrence Delevingne
(Reuters) - An Oklahoma oilfield company
that played a central role in Venezuela's high profile attempt to
convince the world it could halt production declines at its dilapidated
oilfields has shut its doors, according to three people familiar with
the matter.
In 2016, Horizontal Well Drillers, a closely held U.S. driller, won a
$1.29 billion contract to drill 191 wells in Venezuela's Orinoco Belt,
part of an unusual plan to sharply boost output and halt Venezuela's
economic collapse. It and two other drilling contractors were asked to
finance the work themselves and be paid in future production, according
to documents obtained by Reuters at the time.
But the blockbuster deal did not pan out for the company, its Canadian
lender Callidus Capital Corp, or for Venezuela. Horizontal never
completed the wells, its financial backer took a provision for losses on
the loan, and Venezuela's production continued to fall.
Todd Swanson, Horizontal's former chief executive who attended the
contract signing ceremony in Venezuela, did not respond to a request to
his personal email or a LinkedIn account seeking comment. Jeremy Klein,
its former president, also did not respond to requests for comment.
David Moore, an attorney for Callidus, wrote in response to requests for
comment that "any reporting on the Horizontal matter would necessitate a
meticulous review and understanding of the existing public disclosure,
which is utterly lacking from your inquiries."
Moore did not respond to questions about the size of the loan,
recoveries or other specifics. But he emailed legal documents citing a
previous allegation by Callidus that one of its former executives had
tampered with the Horizontal loan. That litigation centers on claims by
Callidus and its main owner, Catalyst Capital Group Inc, that various
investors, borrowers and journalists had conspired to hurt the two
Toronto companies.
PDVSA did not reply to a request for comment on the agreement.
U.S. SANCTIONS HIT DEAL
Horizontal opened an office in Venezuela, according to an oil industry
executive in Venezuela. U.S. sanctions against state-run oil firm PDVSA
put the project on hold, said another person who answered a call to its
Purcell, Oklahoma, office, but declined to be identified.
The contracts were big news in Venezuela, where cash-strapped PDVSA had
driven away top international suppliers by not paying its bills on time
or making payments with promissory notes.
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Venezuela's President Nicolas Maduro speaks during a pro-government
rally with workers of state-run oil company
PDVSA in Caracas, Venezuela June 22, 2016. REUTERS/Carlos Garcia
Rawlins/File Photo
Swanson, Horizontal's CEO, stood alongside Venezuelan President
Nicolas Maduro during a 2017 televised signing ceremony where Maduro
touted the three drillers' potential to add up to 250,000 barrels
per day to its oil output.
Instead oil output fell. Venezuela pumped 1.01 million barrels per
day of crude from January through November last year, according to
official numbers, near a 75-year low for the country and less than
half the nation's 2.49 million bpd when the deal was announced.
MISADVENTURE HITS FINANCIER
On Tuesday, Horizontal's drilling equipment goes on the auction
block in Oklahoma City in what Superior Energy Auctioneers
advertised as a "complete liquidation."
The Oklahoma company's misadventure in Venezuela was followed by a
sharp drop in U.S. demand for drilling services. The number of
active rigs fell to 781 this year, according to energy services firm
Baker Hughes Co <BRK.N>, down 27% from a year ago as U.S. shale
producers slashed spending.
Horizontal Well Drillers took out a 48-month, $350 million credit
line from Callidus to finance its Venezuelan award, Reuters reported
in 2016 , citing a PDVSA document.
Toronto-based Callidus recorded a loss provision of C$131.9 million
in 2017 to an energy company affected by U.S. sanctions on a South
American country, according to securities filings. The filings did
not identify the borrower.
Callidus' stock price dropped from around C$20 a share in January
2017 to around 75 cents in late 2019, when a large shareholder took
the company private.
(Reporting by Liz Hampton in Denver and Lawrence Delevingne in New
York; Additional reporting by Luc Cohen in Venezuela and Marianna
Parraga in Mexico; Editing by Gary McWilliams and Daniel Wallis)
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