Venezuela's post-strike oil charge may hurt wells

Reuters, 06.10.03, 4:52 PM ET By Matthew Robinson CARACAS, Venezuela, (Reuters) - The Venezuelan government's desperate scramble to restart oil production after a crippling two-month strike in December and January could damage the OPEC nation's long-term crude output capacity, industry experts said. State oil company Petroleos de Venezuela, also known by its Spanish acronym PDVSA, fired around 18,000 employees for joining the anti-government strike. The company used troops and replacement workers to restore output to around 2.8 million barrels per day (bpd) by April -- just three months after the strike cut production to below 50,000 bpd. But that hurried restoration may cost PDVSA capacity by the end of 2003 or early 2004. Some western heavy oil fields might not be restarted, forcing PDVSA to pump more from reactivated fields and potentially causing well damage, analysts said. "It would not be surprising to see a fall in Venezuelan capacity, given the complex nature of its reservoirs. After every revolutionary change (in oil-producing countries), we've seen a fall in production," said one analyst with a U.S. oil company, who spoke on condition of anonymity. Without the fired PDVSA staff, who sought to force leftist President Hugo Chavez from office, the state company also lacks expertise to counter common wellhead problems like water encroachment, which can cause capacity losses, experts said. "They did what an oil company would have to do. They got the oil pumping again," an oil-service company official said. "But the best-qualified people are gone and they are short of people who do reservoir planning and management. Without incremental (capacity) increases, it will be difficult to maintain output," he added. Analysts said PDVSA would have trouble countering normal oil capacity depletion rates for Venezuela of around 25 percent per year because losses from the strike forced the company to drastically slash its exploration and production budget. PDVSA's 2003 budget has yet to be finalized. PDVSA President Ali Rodriguez last month gave an optimistic assessment of the company's wellhead management and said some wells were producing better than before the strike. But ex-PDVSA managers say wellhead problems could cause a drop in overall capacity by the end of this year, especially in hundreds of smaller, older oil wells in the west.

SQUEEZING WELLS PDVSA may have to compensate for sliding output at mismanaged fields by squeezing other fields harder and so risk eroding capacity of the world's No. 5 oil exporter to maintain output at current levels. "Venezuela has a theoretical sustainable production capacity of 3.9 million bpd. But that number has never been tested. If their real capacity is higher than that, it buys them some time," said an official with a U.S. company, who also spoke on condition of anonymity. Some analysts have said capacity has already fallen under 3.9 million bpd due to under-investment and strike-related damage. They estimate production well below levels claimed by PDVSA. The government claims oil production has been restored to pre-strike levels of 3.1 million bpd. Analysts and local companies say Venezuela briefly touched production of 3 million bpd after the strike before settling around 200,000 bpd lower. PDVSA has also built up a storage cushion of around 27 million barrels this year, which it can draw down to supply customers. Help in stemming capacity declines could come from foreign companies as PDVSA seeks to increase private participation in the oil sector to compensate for lack of internal investment.