Venezuela Is 'Back on the Agenda' for Oil Equipment Company SBO
The Austrian oil equipment firm says Venezuela is an exciting new market again, but warns that Middle East conflicts are hurting its business.
An Austrian company that makes equipment for oil drilling says Venezuela is 'back on the agenda' as a place to do business. The company, called SBO, recently received an order to send its precision tools to a customer in Venezuela. SBO's chief executive, Klaus Mader, shared this news on Thursday during an interview after the company released its latest earnings report.
Venezuela has been signing new deals for oil and gas projects with big international companies. Large energy firms like Shell have moved quickly to invest in Venezuela's oil resources. This shift happened after U.S. forces captured Venezuelan President Nicolas Maduro in January, which opened the door for more foreign business in the country.
Mader said companies that want to invest in Venezuela are looking for safety guarantees before they commit. SBO does not plan to build a new facility inside Venezuela, because it already has offices nearby in Mexico and Houston, Texas. Those locations are close enough to serve customers in Venezuela without setting up a brand-new base.
Mader also explained that changes in Venezuela will not happen overnight. He said the situation there is a 'medium- and long-term environment,' meaning companies should expect progress to take years, not months. A lot of technology will need to be updated and upgraded before the country's oil industry can fully recover.
The news is not all good for SBO, however. The company also operates three facilities in the Middle East, a region that generates about 15 percent of its total sales. Because of ongoing conflict in that area, some customers are choosing to delay their investments instead of placing new orders.
SBO is still holding on to an order from Iraq that was supposed to be filled back in March. Mader said the Middle East conflict is not good for SBO's business, especially compared to large oil refineries that benefit when oil prices are high. In fact, the company's core earnings fell by nearly half in the first half of this year because of war-related disruptions.
"There is a lot of technology upgrade that needs to happen, but I see this as not as a short-term, but as a medium- and long-term environment."
Comprehension quiz preview
1. What does SBO make or supply?
2. Why did foreign companies start investing more in Venezuela in recent months?
3. About what fraction of SBO's total sales come from the Middle East?