EI Oil Daily: Venezuela’s oil industry back and kicking

<a href=www.vheadline.com>Venezuela's Electronic News Posted: Friday, May 30, 2003 By: VHeadline.com Reporters

EI Energy Intelligence Oil Daily reports from Washington that Venezuela’s oil industry is practically back to normal and the 5th-largest world crude exporter is currently producing 2.84 million barrels per day, or just 124,000 bpd below its 2.96 million bpd OPEC quota, after a crippling opposition-led strike that halted output in December and January, according to the country’s deputy Energy Minister, Luis Vierma.

At that output level, Venezuela will not need to make cuts if the group of oil exporters decides to lower quotas at their June 11 meeting to prepare for the arrival of Iraqi supplies in the market. “Venezuela is producing below its quota. If there is a cut, our quota might be reduced, but not total output,” Vierma said at a press briefing here.

In an effort to answer strike-induced questions about Venezuela’s reliability as an oil supplier, Vierma met with US government officials — Undersecretary of Energy Robert Card among them — to reassure them of his country’s comeback from the stoppage that had shrunk crude output to 200,000 bpd from pre-strike levels of 3.1 million bpd. A delegation of US energy officials is scheduled to visit Venezuela between June 18 and 21 to oversee oil operations and witness firsthand the country’s recovery from the strike.

Exports to the US, which normally account for 52% of total sales of Venezuela’s oil and products, were down to zero during the strike but have now resumed and are expected to be back to normal soon. “Exports to the US will be back to normal in two or three weeks, I believe Venezuela is, and will be the most reliable source of energy to the US,” Vierma said.

The resumption of exports of reformulated gasoline (RFG) to the US from Venezuela’s giant Paraguana complex has been rescheduled three times. Vierma said he was not aware of RFG shipments to the US that traders say were turned back some weeks ago for lack of the required specifications.

Venezuela normally ships some 1.2 million-1.3 million bpd of crude and around 200,000 bpd of products to the US.

Counting 500,000 bpd from the four Orinoco Belt projects plus liquids from natural gas — none of which are included in the OPEC quota — Venezuela’s total production is currently at 3.34 million bpd, according to Vierma. The official dismissed statements by foes of Venezuelan President Hugo Chavez who say that the country is currently producing at just 2.6 million bpd.

“Maybe they are just talking about state-owned Petroleos de Venezuela (PDV),” explained Vierma. A breakdown of total Venezuelan output includes 500,000 bpd from the four privately operated Orinoco Basin syncrude projects plus 500,000 bpd more from associations between PDV and 51 private operators, said Vierma. The rest is PDV’s own production.

After the strike, Chavez’s friends took over control of Venezuela’s oil industry. Some 18,000 PDV technicians and managers — many of whom had supported the strike — were fired and the company was completely restructured.

Vierma explained that younger oil fields in eastern Venezuela, which are generally 16,000 to 17,000 feet deep, benefited from the strike because closing them down helped to recover pressure in the wells, which in turn boosted output by 10%. Production from eastern Venezuela is typically about 1.68 million bpd. The more mature fields located to the west of the country, are now producing 1.2 million bpd, down from roughly 1.56 million bpd before the strike.

And judging from recently announced oil and gas finds, PDV’s post-strike restructuring seems also to have benefited the country’s oil industry.

During the strike, Venezuela’s international credit ratings plunged, and some analysts had warned that the strike might be the beginning of the end of Chavez. But the successful efforts at bringing back oil operations, which constitute more than 50% of government revenues, have started to reverse those predictions.

Citing the “almost complete return to the level of oil production that was experienced at PDV,” international rating agency Moody’s improved its outlook this week for Venezuela’s ratings to stable from developing.

However, Moody’s cautioned of a “deep and potentially long-lasting damage to the country’s main source of foreign currency earnings as a result of the ongoing restructuring of PDV as well as the domestic opposition to such restructuring efforts.”

After months of negotiations, Chavez and his foes signed an agreement on Thursday that recommends holding a referendum on the president’s ruling after August 19. The agreement was fostered by the Organization of American States (OAS), former US President Jimmy Carter, and a group of six countries that acted as mediators to break the stalemate between the government and the opposition.