Lagniappe

 

 

VenEconomy: PDVSA: A big lie...and a little lie…

OPEC ministers, meeting in Vienna on Sept. 11, decided to increase OPEC-10 production by some 500,000 b/d, from 26,750,000 b/d, to 27,253,000 b/d. OPEC also made a major shift in strategy that opened a Pandora’s Box in Caracas, where the Big Lie about Venezuela’s crude oil production levels finally has been confirmed officially: OPEC re-invented its system of individual production allocations to better reflect the real output of its members – i.e. those who have been producing substantially over quota were assigned larger quotas – and those who have been producing substantially under quota saw their quotas reduced.

The new quotas were posted on OPEC’s website for barely a week. They were since removed, presumably due to intense behind-the-scenes political pressures from Indonesia and Venezuela, the two countries who were shown to be producing substantially under quota. Venezuelan government officials pooh-poohed the announcement, saying it was a mistake and that OPEC had apologized. (The “apology” presumably was for having caused the Venezuelan government embarrassment when it made public what was already an open secret; OPEC has not “re-calculated” the quotas.)

Indonesia was the most affected in percentage terms: its quota was cut 531,000 b/d (38.0%), from 1,396,000 b/d, to 865,000 b/d.

Venezuela’s quota was cut the most in terms of production volume: its quota was slashed by a whopping 558,000 b/d (18.4%), from 3,028,000 b/d, to 2,470,000 b/d.

In a sense, that is only half the story: the administration has been claiming that production has been running at 3.2-3.3 million b/d. Actual production, according to OPEC, averaged just 2,374,000 b/d in the three months, from June through August 2007. That total presumably does not include some 100,000-120,000 b/d of liquefied petroleum gas (LPG). With LPG included, output has been running at around 2.5 million b/d, 700-800,000 b/d (25% approx.) under what the government has been claiming.

The Big Lie

It’s about time that someone put paid to the government’s ridiculous claims that it had restored output to its pre-paro by mid-2003, just a few months after the Dec. 2002-Feb. 2003 stoppage had ended, and despite the government’s having fired over 20,000 industry professionals, technicians and managers.

The government has acknowledged that over 2.5 million b/d of production were shut in during the paro – in part because striking workers had closed down output in certain areas and, in part, because the industry ran out of storage capacity for crude at a time when most port facilities had been closed down.

Getting production back to its pre-paro level over 3.0 million b/d would have been a challenge, even if PDVSA had retained 100% of its professional and technical staff. Without 20,000-plus of its most experienced and knowledgeable staff, there was no way that output could have been restored to its pre-paro level.

Realizing that, but not wanting to admit that it had made an error by firing its best and brightest workers, PDVSA and the government decided to lie. Perhaps they sincerely thought they would be able to ramp up production to the 3.3-3.5 million b/d level by 2004 at the latest. What’s sure is that they simply did not know what they were doing. Production thus recovered to around 2.7 million b/d by 2004 – and has since been falling slowly but due to the natural decline of the oil fields which has not been compensated because of a combination of incompetent management and insufficient investment.

But PDVSA, and the government, continued to lie.

Now the Big Lie has been exposed, but PDVSA and the ministry continue to brazen it out claiming that nothing has changed, that production is running at around 3.3 million b/d – as if nothing has happened.

The Little Lie

PDVSA and the Ministry of Energy also claim that refinery output recovered nicely in the wake of the paro, and that Venezuelan refineries continue to process some 1.0 million b/d – about the same as in 2001, the last year for which accurate figures are available.

Though government officials have not specifically addressed the issue, one can infer from most public announcements that (a) Venezuela produces all the gasoline and diesel that it consumes and (b) that Venezuela exports substantial volumes of gasoline and other refined products.

PDVSA’s own numbers suggest the country is not self-sufficient in gasoline, however. According to PDVSA’s 2006 annual report, Venezuela produced 3,427,000 b/d in 2006. Of this, 2,975,000 b/d were exported, leaving just 452,000 b/d to be sold on the domestic market. PDVSA reports that domestic consumption totaled 548,000 b/d, however, leaving 96,000 b/d to be covered from inventories or via imports.

VenEconomy assumes that most, or all, of these 96,000 b/d were imported, be it as finished gasoline or of any of the various components that go into the production of today’s lead-free gasoline.

One indication that this is so, is that PDVSA’s audited P&L has the company importing $5.0 billion worth of “oil and products” during 2006 – an amount equivalent to some 150-180,000 b/d.

In short, the numbers strongly suggest that PDVSA and the Ministry have been lying about the refineries, as well as general production.

Does it really matter?

Probably not. Insofar as VenEconomy can determine, the discrepancies attributable to these lies, big and little, are offset in the accounts. To illustrate: in its published report, PDVSA claimed that exports represented $52.8 billion last year and that its offshore operations generated $59.1 billion, for a consolidated total of $96.8 billion, net of $15.1 billion of inter-company sales (e.g. exports to Citgo). KPMG Alcaraz Cabrera Vázquez’ published opinion does not certify that break-down or the consolidation process: it certifies only the consolidated total, of $96.8 billion.

Thus, it is entirely possible that PDVSA has “offset” its fictional exports with fictional purchases of oil and product abroad, in its report.

That’s important, because it suggests that the tax and profit totals (which KPMG does certify) are accurate. At least, one hopes so.

Robert Bottome

Robert Bottome is the editor of VenEconomy, a Venezuela's leading specialized publisher in the economic and financial area. VenEconomy's Monthly is a news letter on the main Venezuela's issues. Petroleumworld does not necessarily share these views.

Editor's note: This commentary was originally published by VenEconomy Monthly, on 05/11/2007. Petroleumworld reprint this article in the interest of our readers. Petroleumworld does not necessarily share these views.

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Petroleumworld News 11/07/07

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