<a href=www.vheadline.com>Venezuela's Electronic News
Posted: Monday, May 26, 2003
By: Oliver L. Campbell
VHeadline commentarist Oliver L. Campbell writes: One of the advantages ... and there are not many ... of growing old is that one is allowed to reminisce.
I remember as a young, trainee oil field accountant in the early 1950s just how credulous I was. What little I knew about the technical aspects of oil field operations was limited to what I had learned at a week’s induction course, subsequently augmented by what I picked up accounting for the operations. I took what the technical experts -- geologists, reservoir engineers, petroleum engineers, production engineers, etc -- wrote and said as gospel.
However, it was not too long before I realized the experts’ opinions were often based on some pretty shaky evidence.
My first doubts were raised when eminent geologists predicted that, at the then current production rates, the world’s oil reserves would run out in 40 years. For some reason, 40 was the magic number agreed ... or at least not contradicted ... by many geologists.
However, this went against my experience because, in the oil fields where I was working, our oil reserves steadily increased i.e. more oil was found than had been extracted. The same was happening elsewhere in the world so ... despite increased oil extraction ... that quoted figure of 40 years did not go down. In fact, at the end of the 1950s and into the 1960s a number of new and substantial oil provinces were discovered including Nigeria, Libya, the North Sea and Alaska (Prudhoe Bay).
After these discoveries, the predictions of how long oil reserves would last were quietly dropped. This was just as well, because many more oil provinces have since been found, and who can say how much more oil exists in deep sea waters and in the Arctic and Antarctic?
So it was with a certain skepticism that I pondered on the experts’ prediction of gloom and doom for PDVSA’s immediate future. The first was an article on February 6 entitled “Venezuela’s PDVSA becomes a shadow of its former self” in which two distinguished economist, both working for well-known organizations, predicted that PDVSA:
a) “would need another year to raise its output to 2.2 million barrels per day”
b) with the year’s limited investment “will barely maintain 1.2 million barrels per day” in crude output
c) “to restore output to 3.2 million barrels per day by end 2004 it will take $6 billion in investment next year alone”
The second occasion was on February 11 when I attended a meeting, sponsored by the Anglo-Venezuelan Society, to discuss the political and economic panorama for Venezuela in 2003 in the light of recent developments, basically the effects of the strike. I suspect several people had read the article because the prognostications were equally pessimistic, particularly as regards restoring oil production. The general consensus was that production would not reach 2,000,000 barrels per day before the end of the year. Much was made of the fact that you cannot turn oil wells on and off as you can a water tap and that some wells would never produce again.
The third time was when I read another article on April 4, entitled “The Venezuelan outlook for 2003.” This referred to a workshop organized by the Venezuelan-American Chamber of Commerce (VenAmCham), and I was surprised to see the same picture of gloom and doom repeated even though oil production had been steadily climbing. The stated forecast for 2003 of a production of 2.3 million bpd has already been surpassed and the estimated fiscal participation of $6-7 billion, as compared with $12 billion in 2002, certainly needs to be updated.
You may ask why I was highly skeptical of these pessimistic views.
Well, I spent 15 years in the oil fields and lived through situations when ... for commercial reasons ... our company had to close wells to reduce production. Of course, opening them up again required considerable effort, but the technology to do so existed. We temporarily redirected rigs from new drilling to well repairs for the most serious cases of damage in the sub-surface, and increased the number of swabbing machines (pulling hoists) to change down-hole pumps, replace damaged rods and pump out accumulated water. The gas-lift wells generally came back on stream without difficulty, and it was the pumping wells that needed particular attention. The only real trouble was from wells with a high water cut where production could be permanently affected.
PDVSA’s problems were on a very much larger scale since so much oil had been shut in. However, they responded with resilience and dedication to get oil production back up, and it is good to know that ... despite the serious problems at the higher echelons ... there are still capable technicians at the oil-field level.
Shutting down refinery plants causes many more technical problems. It is not so much the complication of starting the plants up again, as of ensuring the products, particularly the lighter fractions, are on spec. PDVSA has had problems in this respect and one can only hope they still have the qualified technicians to solve the problems quickly.
As regards the permanent loss of production arising from the shut-down, I lack the technical knowledge to dispute the figure of 400,000 barrels per day that has been mentioned.
I do know, however, that if I ask three experts I am likely to get three different answers as the following anecdote illustrates:
I accompanied a reservoir engineer to a meeting with two other oil companies to decide how much oil was due to each company under a unitization agreement in Lake Maracaibo. For those readers who are unclear on such agreements, they arise because concessions are awarded in neat rectangles, or blocks of terrain but, the oil reservoirs, of course, do not conform to that pattern. When a reservoir stretches over blocks belonging to different companies, it is only fair that no company extracts more oil than its proper share.
This means agreeing on the shape and characteristics of the reservoir ... and this is done on limited data from seismic surveys and wells already drilled. Each company presented its view graphs, flip charts or colored maps showing the form of the reservoir and its oil distribution.
My first doubt was whether we were talking about the same reservoir!
The only common factor was that each company assigned itself more oil than did the other two. The meeting adjourned with the decision to pool all data and arrive at agreed figures.
One cannot blame the reservoir engineers because they are extrapolating from such sparse information ... however, it does show there's plenty of scope for being dubious of the figures the experts present as facts.
Incidentally, I feel the figure of 400,000 bpd lost production is something of a red herring and not so serious as the experts make out. In my life-time, I have seen new secondary recovery methods introduced which substantially increase the recovery of the oil initially in place.
We have seen how successful the oil companies have been in extracting oil from the marginal fields they were awarded under the “apertura” ... the opening up of the industry to foreign oil companies.
In my days, wells were drilled in a grid pattern of nice straight lines and at regular intervals. Now, with the benefit of three-dimensional seismic surveys, they are drilled where the reservoir engineers believe they will best drain the oil. However, with all the new recovery technology, I am told some 50% of the initial oil in place is not currently recovered. I have little doubt that, in the next 50 years, still newer methods ... combined with better knowledge of the reservoirs ... will increase the ultimate oil recovery even further, and that the 400,000 bpd now “lost” will in fact be produced.
The object of this article is, firstly, to congratulate PDVSA on the way they have restored production to 2.6 million bpd in such a short time ... they have confounded many pundits in the process and shown that there are still capable workers in the fields.
I will not be surprised if PDVSA reach the 3.2 million bpd production level by the end of this year.
Secondly, my message is that you should have a healthy skepticism of what the experts tell you when this does not coincide with your own experience. This goes whether they are geologists, reservoir engineers, petroleum engineers, economists or accountants.
Look at the 5-Year Plans of the Nation in the 1970s to see what a mess the economists made of the forecasts. See how the accountants published statements purporting to show the Venezuelan banking system was in good order just before it collapsed ... and how they have given a sound opinion of some companies’ financial results just before they went bankrupt.
In my experience, it's very difficult to give an entirely unbiased and dispassionate opinion.
One’s assessments are so often influenced by politics, external pressures, prejudice, self-interest and even a little wishful thinking.
The advice of an old hand is to take all expert opinion with a pinch of salt.
Oliver L Campbell, MBA, DipM, FCCA, ACMA, MCIM was born in El Callao in 1931 where his father worked in the gold mining industry. He spent the WWII years in England, returning to Venezuela in 1953 to work with Shell de Venezuela (CSV), later as Finance Coordinator at Petroleos de Venezuela (PDVSA). In 1982 he returned to the UK with his family and retired early in 2002. Campbell returns frequently to Venezuela and maintains an active interest in political affairs: "I am most passionate about changing the education system so that those who are not academically inclined can have the chance to learn a useful skill ... the main goal, of course, is to allow many of the poor to get well paid jobs as artisans and technicians." You may contact Oliver L Campbell at email: oliver@lbcampbell.com
Venezuelan economy takes historic nose dive
May 26, 2003
By <a href=www.busrep.co.za>IOL Business Report-Reuters
Caracas - Venezuela's economy had plummeted 29 percent in the first quarter, squeezed by an anti-government strike and tight exchange controls, the Central Bank of Venezuela said on Friday.
Analysts said it was the worst economic collapse ever recorded in Venezuela, the world's fifth-biggest oil exporter, and probably the steepest quarterly contraction seen in Latin America.
"It's unprecedented and reflects a destroyed economy," said independent economist Alexander Guerrero.
The central bank said Venezuela's strategic oil sector, which accounts for half of government revenues, shrank by 46.7 percent in the first quarter while the non-oil sector contracted 20.9 percent.
In December and January President Hugo Chavez toughed out a general strike aimed at forcing him out of office.
Crippling work stoppages temporarily slashed oil output by state oil firm PDVSA, choking off government revenues and triggering heavy capital flight.
This forced the government to impose foreign exchange controls, reducing imports and exports.
"Firstly, it was the effect of the PDVSA strike and secondly, the impact of the exchange controls," said Jose Cerritelli, an economist with Bear Stearns in New York.
He noted, however, that the government had since managed to restore strategic oil production.
The first-quarter gross domestic product (GDP) shrinkage followed a record decline of 16.7 percent in the last quarter of 2002. In the whole of last year, when Venezuela was rocked by months of political turmoil culminating in a short-lived failed coup against Chavez, GDP fell nearly 9 percent .
In its quarterly report, the central bank said the capital portion of the balance of payments registered a deficit of $1.5 billion in the first quarter against a $2.4 billion deficit a year ago.
The current account surplus stood at $1.9 billion compared with a $209 million surplus last year.
Although expected, the GDP collapse is a blow for Chavez, who since his election in late 1998 has struggled to implement his self-styled revolution, an antipoverty programme based on government spending and a bigger role for the state in the economy.
His foes, who include business leaders and dissident military officers, accuse him of squandering the nation's oil riches and trying to implant Cuban-style communism.
Analysts said the crucial oil production recovery could slow the economic nose dive.
The International Monetary Fund has predicted Venezuela's economy would shrink 17 percent in 2003. Finance minister Tobias Nobrega sees a decline similar to last year of around 9 percent.
Importers and exporters say the state's painfully slow allocation of dollars is strangling business activity, disrupting manufacturing and creating shortages.
Nobrega said on Thursday the government would correct faults in the currency regime.
The central bank report said the worst-hit sector in the first quarter was construction, which fell 64 percent. Manufacturing shrank 35.1 percent. - Reuters
America a sweet pill for Indian firms
Posted by click at 9:41 PM
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Health
mid-day.com
By: Amriteshwar Mathur
May 26, 2003
For US pharmaceutical companies this may be a bitter pill to swallow. Indian pharmaceutical companies are giving US multinationals, who dominated global research, a run for their own money.
Indian pharma companies are spreading their wings both in USA and in Latin America. And surprisingly it is the quality of the Indian drugs that is appealing to consumers globally.
During the last five years, the share of Indian applications to United States Food and Drugs Administration (USFDA) for selling bulk actives has risen from 1.8 per cent to 6.2 per cent of all such applications received by the drug regulator. Quality is high and some Indian products have found a place in the WHO lists of essential drugs.
Says Shahina Mukadam, pharma analyst, Motilal Oswal Securities, “with its numerous FDA filings companies like Indian companies have demonstrated their ability to successfully contest and win against giants like Glaxo Plc which is essential to survive in US markets.”
Even in Latin America, Indian pharma exports have climbed to $1400 million in 2002-03 from $980 million in 2001-02. But it is the $16 billion Latin American domestic market, that Indian pharmaceutical companies are targeting through joint ventures and by setting up manufacturing bases.
The rush has started. Alembic Ltd. is planning to join hands with certain US based formulators to expand its bulks drugs business. As a first step in this direction, Alembic has filed four drug master files with the USFDA with more applications for the next two-three years.
Glenmark Pharmaceuticals has set up a wholly owned subsidiary Glenmark Pharmaceuticals USA, Inc, based in Princeton, New Jersey, to make further inroad into the US market. Dr Reddy`s Laboratories has filed an Abbreviated New Drug Application (ANDA) with the USFDA for ondansetron hydrochloride tablets and for fexofenadine HC1 tablets.
Ranbaxy Laboratories Ltd., which is ranked eight in the US market has received a tentative approval from the USFDA to make and sell a variety of drugs.
Says Dipak Chattaraj, president Ranbaxy Pharmaceuticals Incorporation (USA), “this further helps strengthens our expanding product portfolio and our commitment to bring generic alternatives into the US healthcare system. The approval is yet another testimony to our strong intellectual and regulatory expertise.”
Even in Latin American companies like Ranbaxy, Dr Reddy’s, Aurobindo Pharma and Hetero Drugs have set up plants in countries like Venezuela, Chile and Brazil.
The reason Latin Americans perceive Indian drugs as better in quality compared to Chinese drugs, and so they are looking for supply tie-ups with Indian firms.
EXCLUSIVE REPORTS: Terror overseas alerts oil patch--Energy firms reassess foreign operations as bombings elevate risk
Posted by click at 9:37 PM
in
terror
Monica Perin
Houston Business Journal
The terrorist bombings in Saudi Arabia and Morocco that killed 70 people in the past two weeks have upped the ante for U.S. companies that operate in high-risk countries.
And federal officials warn that more such attacks against U.S. interests are highly likely in the near future, which prompted the Bush administration to raise the color-coded threat level to orange, or "high," earlier this week.
Security specialists in the private sector are advising clients who operate in such places to upgrade their emergency preparedness plans.
"They need to assess their physical security and counter-terrorism mechanisms and beef them up," says Jim Francis of Kroll International, a global security firm based in New York.
But oil industry and security experts in Houston doubt that even these latest events will cause major changes in business operations in the oil patch.
"Companies will incur security premiums, but these concerns have been baked in the cake since 9/11," says Greg Barnes, managing partner in the Houston office of Korn Ferry International executive recruiting firm.
"Definitely it's going to get harder to recruit" people to take assignments in places like Saudi Arabia, says Ralph Stevens of Houston-based Preng & Associates, a global energy search firm.
"I would guess that taking family there will be less likely than before, and that only essential personnel will be there," says Stevens.
John Griffin, who heads the Houston-based upstream and oilfields services practice of Korn Ferry, predicts three things will happen:
- Companies will expand their expatriate base to other groups of less targeted people, such as Asians or other foreign nationals, and decrease recruiting of Westerners.
- People who are close to their goals of making a certain amount of money, retiring and getting another job will stay in Saudi Arabia but send their families home.
- Companies will pay more and heighten security to get people to stay there or go there.
"At the end of the day, it will be a matter of money, whether in direct salaries or increased security," Griffin says.
Premium pay
Oil companies have traditionally paid premiums to employees working in difficult or inconvenient places. Executives who have been paid $200,000 to $350,000 a year might now get additional premiums of as much as 75 percent to work there.
But a proposed change in tax laws could offset increases in compensation.
David Preng, president of Preng & Associates, says many expatriates are concerned about a Bush administration proposal to remove the current tax exemption on the first $80,000 earned abroad.
"This, coupled with security concerns, may cause some people to re-evaluate their current posting or alter their current thinking about accepting an overseas posting," Preng says.
His colleague Stevens expresses doubts that companies will try to "throw money" at the problem.
"All the money in the world can't buy your life, "Stevens says. "People will either be willing to do it, or not willing -- premiums aside."
In the past, he says, security wasn't an overriding issue for his clients who did business in Saudi Arabia, although the perceived risk level would vary by company from mid-level to high.
Now, he says, "it'll jump all the way to the top."
Although oil industry companies are tight-lipped about what measures they are taking as a result of the Saudi bombings, Stevens says he knows some people have been taken out and sent to England.
Locally, Baker Hughes Inc., Schlumberger and Shell Oil Co. declined to comment. Exxon Mobil, BP and ChevronTexaco also have remained mum in response to media queries.
A U.S. spokesman for the American Business Council of the Gulf Countries told the Associated Press that he has not heard of any foreign companies planning to "pull the plug" on operations in that region.
And a Philadelphia-based firm that manages travel for companies told AP there has been a spike in departures from Saudi Arabia by family members of Western executives, but not a lot of employees have left.
The U.S. Bureau of Consular Affairs estimates that about 150,000 Americans live in the Middle East.
Other hot spots
In recent months Shell and ChevronTexaco have evacuated employees from Nigeria, while other companies have followed suit in Venezuela and Indonesia because of local uprisings. Companies such as Schlumberger evacuated employees from Kuwait before the start of the Iraq war, but they have since returned.
Houston security expert Kevin Swailes, president of Swailes & Associates, points out that kidnappings and terrorist attacks have been going on for years in counties such as Colombia, Nigeria, the Ivory Coast and elsewhere.
"Companies that operate in these environments understand the risks and they are very proactive," Swailes says. "They have to be out in front of it."
Companies active in Saudi Arabia will be "reassessing what they have in place, the nature of their business operations in-country, and whether they still feel comfortable with those protocols after the recent acts," he says.
In the long run, he says, organizations that are better-equipped for handling the risk will stay put.
"You won't see a huge shift," Swailes says.
mperin@bizjournals.com • 713-960-5910