Oil, skepticism flow in Venezuela

The Houston Chronicle.com April 4, 2003, 9:36AM By MICHAEL DAVIS Copyright 2003 Houston Chronicle

As Venezuela's oil production slowly returns to normal, the OPEC member is turning its attention to restoring its battered reputation after strikes shut down its national oil company.

The national strikes, aimed at ousting Venezuelan President Hugo Chavez, have left Venezuela's economy in a shambles and its oil company, Petroleos de Venezuela SA, or PDVSA, with a severely depleted work force.

Venezuelan officials say the country's production is back up to 2.9 million barrels per day, but many in Washington, D.C., and elsewhere are skeptical of those numbers.

"It is tough to pin down exactly what they are producing, but even the political opposition in Venezuela says it's about 2.4 million barrels and possibly a bit higher," said George Beranek, manager of market analysis for PFC Energy in Washington. "I think they have recovered a lot faster than was expected."

To counter such widespread skepticism, PDVSA is mounting a public relations campaign aimed at restoring confidence in the country's oil sector. But it will take more than a slide show to convince the industry that things are back to normal.

Venezuela could make a significant step towards restoring confidence in its ability to be a reliable supplier simply by being more candid, said Michelle Foss, director of the University of Houston Energy Institute.

"They could tell everyone what is really going on, for starters," Foss said. "Nobody really believes those production numbers. We don't know how much of the oil they are shipping out may be coming from storage, for example."

Economy still shaking

Oil is the paramount component of Venezuela's economy, providing the majority of revenues to the government. The shutdown of the oil industry is still shaking up the economy.

The Venezuelan Federation of Chambers of Commerce and Industry, the country's largest business organization, estimates about 15 percent of the country's companies closed in the first quarter. An official with the groups described the country's situation as an "economic disaster."

Officials from PDVSA will be meeting with U.S. lawmakers, investors, financial institutions and think tanks to repair the country's reputation as one of the leading suppliers of crude oil to the United States.

The road show will stop in Houston, Dallas and New York, among other U.S. energy centers, to make its case that Venezuela is a reliable oil supplier.

Houston-based ConocoPhillips is a partner with PDVSA in two major heavy-oil projects in Venezuela. Exxon Mobil and ChevronTexaco are also involved in heavy-oil projects there.

PDVSA officials say the company is working to restore production that was shut down during the strike and are making progress.

"We are already back in our production areas," said Fadi Kabboul, minister counselor for energy affairs at the Venezuelan Embassy in Washington. "We have all of our light and medium wells producing at the same levels before the stoppage, and we are recovering about 80 percent of our heavy crude."

Light and medium wells refer to the weight of the oil produced. Lighter oil is easier to produce, transport and refine. Venezuela produces a broad range of oils, including some of the world's heaviest oil.

Terminals for loading oil for export have been visited recently by officials from companies such as Shell and Exxon Mobil to ensure they comply with international standards, Kabboul said.

During the strike, crews refused to dock their tankers at the oil terminals because of insurance concerns.

The Venezuelan ambassador to the United States, Bernardo Alvarez, met last week with Sen. Jeff Bingaman of New Mexico, the ranking Democrat on the Senate Energy Committee, to assure him the country will be able to meet its obligations to its U.S. customers.

"The ambassador told me that the strike is behind them now and that Venezuela has increased production very substantially," Bingaman said. "He also said that the political situation for President Chavez is moving toward a resolution, and that Venezuela is in a position to meet a substantial amount of our energy needs."

Top managers were fired

Compounding the skepticism over production numbers is the fact that many of the white-collar professionals who dealt with the country's oil production and sales day to day were fired during the strike.

"Some say more than half of PDVSA's employees were lost in the strike," Foss said. "What is clear is that all of the experienced managers that people were accustomed to dealing with are out of the picture."

PDVSA says it reduced its work force by 43 percent because of the strike. The biggest reduction came from the ranks of executives and professionals, which were cut by 55 percent and 59 percent, respectively, according to the company.

The loss of many of midlevel managers has thrown logistics at the company into disarray. Tasks such as billing, accounting, payments and tracking production flows are all in doubt now, Foss said.

As part of its marketing campaign, PDVSA projects that its production will be over 3 million barrels a day by year's end.

During March, Venezuela exported an average of 843,000 barrels of crude oil per day and 247,000 barrels of refined products per day to the United States, according to figures provided by PDVSA.

Before the strike, Venezuelan oil imports to the United States were running at 1.4 million barrels per day, the Energy Information Administration said.

Despite the widespread uncertainty over production volumes, there have been recent indications that the country's oil industry is returning to normal.

Gasoline exports from PDVSA's refinery on the Caribbean island of Curacao resumed last week. The country had halted gasoline exports, using all of what little it was producing or had in storage domestically. Now, Venezuela's refineries are able to produce enough to begin exporting gasoline again.

All of the nation's refineries should be back to normal by mid-May, PDVSA President Ali Rodriguez said last week.

Some heavy oil lost

Some of the country's heavy-oil production was lost permanently after being shut in, but estimates vary on how much. The International Energy Agency in Paris estimates 400,000 barrels of Venezuelan production was lost because of the strikes.

U.S. companies with major heavy-oil projects in the country report operations are back to normal for the most part.

Houston's ConocoPhillips is a partner in two of the largest heavy-oil projects, Petrozuata and Hamaca. Before the strike, Petrozuata was producing 120,000 barrels of oil per day, with about half going to ConocoPhillips, company spokeswoman Linsi Crain said.

Petrozuata's production ceased in December. It resumed in mid-March and is back to to its pre-strike levels, she said.

Hamaca was producing 46,000 barrels per day, 18,000 of which went to ConocoPhillips, and it is producing as it was before the strike. Upgrading facilities for the heavy oil, which must be processed so it can be moved via pipeline and then onto a tanker, are also back in operation, Crain said.

"Hamaca was still being ramped up at the time of the strike," Crain said. Hamaca is projected to hit a peak production of 190,000 barrels per day.

Exxon Mobil is partnered with PDVSA in a heavy-oil project called Cerro Negro. Heavy oil is mixed with naptha and moved to the north where it is upgraded and then exported to the companies' refinery in Chalmette, La.

Operations were closed in Cerro Negro after the strike began because of a lack of a reliable natural gas supply to the plant, said Bob Davis, an Exxon Mobil spokesman in Houston. Now production is back to normal at 120,000 barrels of heavy oil per day, Davis said.