Caudillo Petroleum - Keeping Your Hand in the Country's Piggybank

CARACAS, Venezuela — Camimpeg, a new company formed by Venezuela's military, will begin providing state oil producer PDVSA with services including drilling, logistics and security in less than a month, a senior defense official said in an interview.

Deputy Defense Minister Alexander Hernandez said Camimpeg would have a commercial relationship with PDVSA [PDVSA.UL] and work alongside foreign companies.

Hernandez's comments came after speculation among investors and foreign oil partners that Camimpeg could be a means to shield assets from seizure in the event of a debt default.

PDVSA has a heavy repayment schedule this year, and Venezuela's economy is in crisis.

There are also fears that the military already has too much power and influence in Venezuela, where a deep recession, shortages of basic goods and triple-digit inflation are eroding the popularity of President Nicolas Maduro's government.

"Security will be associated because the company is made up of the armed forces," Hernandez said at the Fuerte Tiuna military base in Caracas. "It's an obligation."

Crime is a major problem for the oil industry in Venezuela, which has the world's largest crude reserves. Foreign companies, especially those operating in the vast, isolated fields of the Orinoco Belt, have long been clamoring for more protection..

"Camimpeg's services are broad, from exploitation and drilling of oil wells and distribution of their product to the treatment of raw materials, preparation of the area to be exploited, support, logistics, extraction of minerals, transport of valuables," Hernandez said.

The Fuerte Tiuna base, replete with apartment blocks, a shopping center, lake and parade ground, also houses warehouses where the military works with private companies to manufacture items such as uniforms and bottled water.

"This is an example of what can be achieved when the armed forces work with private companies," said Hernandez.

However, manufacturing across Venezuela is largely paralyzed due to shortages of raw materials, machinery and other items.

Companies from China, India, Russia and other countries had expressed interest in working with Camimpeg, which will begin operating in late March or early April, said Hernandez, without adding further details of specific projects.

"I wouldn't say this is a company in parallel with PDVSA," he said. "Rather a company at the service of PDVSA."