The real PDVSA picture
blogs.salon.com By Miguel Octavio The Devil's Excrement
During the last week, there have been what people abroad consider to be positive news surrounding PDVSA activities, specially in believing taht the fiscal picture has improved dramatically. In particular, crude oil production has increased significantly from the beginning of the month. This has been done by emphasizing younger wells with natural flow, which require no injection. Moreover, these wells are mostly located in the Eastern part of the country, rather than in the more “militant” area of Zulia State where Lake Maracaibo is located. As of yesterday, production was up to 1.044 million barrels a day, of which 692 thousand comes from the East, only 269 thousand from the West and 92 from the South. The Western area has about two thirds of the capacity of the country, but they are mostly older wells.
Gas compression on the other hand, has not increased as much, going from 2.7 billion cubic feet per day in early January to 3.9 billion cubic feet per day now. Total production is normally roughly 9.4 billion cubic feet per day. Where things have change little is in refining capacity. The Puerto La Cruz refinery remains at the same level as the beginning of the month with 75 thousand barrels a day out of a capacity of 120 thousand. Paraguana is barely producing 50 thousand out of a capacity of 800 thousand and El Palito is not producing, due to an accident that took place earlier in the month. Sources in PDVSA suggest that without the return of oil workers, it will be extremely difficult to increase oil production beyond 1.8 million barrels and the likely steady state level will be closer to 1.5 million barrels. Additionally, there is little maintenance going on in any of the areas of business. To understand the implications of the numbers above better, it is interesting to consider what the “true” fiscal contribution of current or prospective oil production may be. Under normal circumstances, Venezuela consumes 230,000 barrels of gasoline a day, which given current conditions is down to roughly 100,000 barrels per day. Of these, only 20,000-30,000 is being produced locally at the Puerto La Cruz refinery, with the balance being imported. However, imported gasoline is purchased at international prices of roughly $38 per barrel and is being sold in the local market at a price of approximately $5 per barrel. Thus, the net 70,000 barrels that need to be imported are paid with the funds obtained from exporting 532,000 barrels of crude. This currently leaves less than 500,000 barrels that have a fiscal contribution. However, those that result from the production of the operating agreements, approximately 250,000 barrels a day, have a much lower contribution given the conditions under which this exploration tracts were sold. Essentially, the fiscal contribution of these exports is much less, since depreciation and amortization costs can be deducted directly from the fiscal contribution. Note that this calculation assumes the current level of gasoline consumption, so that any easing of the general strike, without PDVSA going back to work, actually goes against the Government, since gasoline consumption may actually increase dramatically. Thus, barely a quarter of a million barrels a day has a full fiscal contribution today.
Looking into the future another 400,000 barrels of heavy crudes from the Orinoco Belt joint ventures could come on line, if the natural gas situation is normalized and workers could be found to replace those that refuse to go back to work. Once again, the fiscal contribution from these projects is smaller since they pay only a 1% royalty but they do have the usual tax contribution. Thus, any news on the oil front has to be interpreted with care. The country could quickly move up to 1.5 million barrels of production a day, without having a large impact in terms of fiscal contribution. It is only above 2 million barrels of oil a day that the fiscal constraint would ease, but such a level may not be reached in 2003 if maintenance efforts are not sustained.