An interesting shortcut analysis of PDVSA (02-19-03) and Chavez.

Subject: Para contactos internacionales Date: Sat, 22 Feb 2003 22:31:01 -0400

Citgo for Sale Hugo Chavez is once more secretly trying to sell Citgo. However, he has two problems. 1) Citgo has great value to Venezuela, but not to another refiner, because Citgo without Venezuela's heavy crude supply has limited value. 2) There are no apparent foreign buyers with enough capital to buy Citgo. Only a very large corporation (e.g. Star Enterprises) would have the financial ability. However, without available crude supply for the Citgo refineries, a Company would only be interested if it was a fire sale deal. How desperate is Chavez for cash? is a matter of how long he will stay in power.

If Chavez were able to sell Citgo to a foreign competitor, he would not need to export crude or products to the United States, and then he could default on his foreign debt ($35 billion). Chavez would get the revenues he so desperately needs to stay in power from the Citgo sale, and Citgo would be out of reach when he defaults on Venezuela's foreign debt. Furthermore, Citgo would no longer be essential to the operations of the much smaller Petroleos de Chavez.

Reduced Oil Production Venezuelan oil production at this writing in mid-February 2003 is down from 3.1 million b/d (2.7 million b/d, plus 400,000 b/d from the Oil Belt) to a mere 1.3 million b/d. But an even more important problem for the Venezuelan oil industry, and for the U.S. market that has depended on Venezuelan oil imports for 74 years, is the following:

• Of the current 1.3 million b/d production, 500,000 b/d comes from the operating contracts (foreign companies.e.g Chevron and Boscan).

• The four Strategic Association projects in the Oil Belt are shut-in, for they need natural gas, which is not available because of the oil production strike.

• Worse, Petroleos de Chavez in trying to restore oil production, with production in the newer free flowing fields, and they are over producing, i.e., wells that are supposed to produce 1,000 b/d are forced to produce 2,000 b/d. This implies a higher rate of natural decline in these fields. Venezuela has an oil field natural decline rate of 25%/year, requiring large investments in maintenance, which Chavez cut back when he came in to office, in order to squeeze more revenues out of PDVSA.

• What they are producing is not coordinated with what they can export, therefore, millions of barrels are going into storage (e.g. Bonaire and Bahamas).

• Finally, there was a permanent loss of 400,000 b/d in production capacity, resulting from some of the shut-in wells (most of them in the Maracaibo Lake area).

Therefore, when you hear Chavez, or Ali Rodriguez, or Rafael Ramirez, Minister of Energy, inform the public how they have increased exports and oil production to 2 million b/d, or more, it simply is not true.

All of this is of little concern when you intend to create a Cuba style government. In 1998, Chavez campaigned against PDVSA and its president, Luis Giusti, as a "state within a state." He vowed to subordinate PDVSA to the Venezuelan state. His first action after becoming President in February 1999 was to further cut oil production and comply with OPEC quotas. Some 6,000 oil workers lost their jobs because of the production cuts, and many service companies went out of business. PDVSA was also forced to cutback maintenance on the shut-in wells, and they lost production capacity of 500,000 barrels/day. The one area Venezuela was increasing production was in the Orinoco Oil Belt, under the four big joint ventures with foreign oil companies.

Now, Chavez is satisfied that his revolution can be maintained with only 2.0 MMBPD, which his new and only goal. Chavez wants to destroy the economic system in place and built a new country over the ruins of the previous civilization "the old Pdvsa". (any similarity with Julius Caesar and Hitler is mere coincidence!).