Credit crunch, before lunch

--Contract driller Helmerich & Payne said it has begun idling its rigs working in Venezuela because that country's state-owned oil firm, PDVSA, owes H&P $100 million. This may be one of the first signs that what many have long suspected: as the cash is drying up in all oil-producing countries, the investment spigot is going to be turned off. That's happening with private companies too. But what's going to happen is that private companies are going to tighten that spigot to make themselves stronger for the future. Places like Venezuela are going to divert the lesser amount coming out of the spigot into desperately maintaining the social spending that is keeping people like Hugo Chavez in power. This does not bode well for future production.

--The credit crunch has claimed a US refining victim, at least for now. Big West of California said it is stopping operations at its 66,000 b/d refinery at Bakersfield, because it has been unable to find alternative sources of crude. (This announcement actually was made late Wednesday).

Big West's parent company Flying J filed for Chapter 11 bankruptcy on December 22. "Big West has been engaged in diligent efforts to find alternative crude oil supply on normal terms, as well as financing or other business solutions that would help keep the Bakersfield refinery in operation," the company said. "To date, however, the company has been unable to reach an agreement with suppliers or secure other solutions that would allow its Bakersfield refinery to operate normally." Big West idled the refinery December 30 to begin turnaround work, but said in mid-January it was having trouble obtaining crude supplies to restart the refinery. A company executive told Platts they hope the refinery closure will be short-lived.

Key producing countries unable to pay their drillers is a lot scarier than a refinery that can't get crude in the short run. A refinery's value will eventually fall to a level where somebody with better finances will step in and buy it. But if you've deferred your drilling program, as PDVSA appears to be doing, you're cutting off supplies that the market may need in 5 to 10 years. That makes the H&P announcement so discouraging.