petroleumworld

Petroleumworld`s
Opinion Forum:
viewpoints on issues in energy, international politics & civilization.

Saturday
Lagniappe

More Orinoco Heavy Oil Reservoirs Go on Sale :
Good or Bad ?

By Gustavo Coronel

For the last 30 years the heavy oil deposits of the Orinoco river area in Venezuela have been developed at a snail's pace. Although the area has been known to contain over 200 billion barrels of recoverable oil since a study made by Venezuelan geologists J. A. Galavis and H. Velarde was presented at the World Petroleum Congress in Mexico City, in 1967, production from this is still very modest, as compared to reserves. It falls short of one million barrels per day (954,000 barrels per day, according to PDVSA). This production has been generated due to the financial and technical efforts of international companies active in the area during the last 15-20 years. In order to accomplish this result the international companies have invested about $20-25 billion in production drilling, production facilities and oil upgrading special refineries. The main effort started during the 1990's, at the time of the so-called “aperture”, a strategy that opened up several areas of oil activity to private companies in order to expand Venezuelan oil production and reserves. Legal changes imposed by the Hugo Chavez regime during recent years have altered the nature of the contractual relationship between the state and the oil companies, some of which (Exxon Mobil, ConocoPhillips) have found the new regulations unacceptable and are currently in a legal dispute with the Chavez regime. All this is well known in the oil industry sector but it serves as background to this new effort made by the Chavez government to promote foreign investment in the Orinoco area, by auctioning proven heavy oil reservoirs located in the so-called Carabobo Block, where the presence of some 160 billion barrels of oil in place has been “certified” by companies such as the Iranian petroleum company, Petropars, on behalf of PDVSA.

I will not go into the technical details of the proposed auction. In general, they are very straightforward, although some points made by PDVSA in the brochure that contains the proposal sound audacious or simply confusing. For example, PDVSA claim that the recovery factor for the oil in place in the area is of 20% or more. However, they have no technical data to support such a statement. There has been no technical work done in the last ten or more years in these reservoirs that could serve to substantiate this claim. Recovery factors are very hard to predict, especially in heavy oil reservoirs that have not been produced long enough to sufficiently analyze their behavior. This is the case of the Orinoco heavy oils, where compaction, a mechanism that has produced very high recovery factors in the Lagunillas- Bachaquero reservoirs of the Maracaibo Basin is not known to exist. The other item that caught my eye was PDVSA's claims of productions per well of the order of 1500-3000 barrels per day. This sounds very high, especially because they also state that the production of 954,000 barrel per day in the area comes from 2,000 producing wells. This would indicate an average production per well of less than 500 barrels per day. The problem with these inaccurate claims is that the credibility of the company suffers in the eyes of the potential partners.

BY INVITATION ONLY

The brochure adds that 37 companies have been invited to participate in the auction for the development of the area. This is an auction of a national asset. I would expect, therefore, that the invitation go out to those companies that can best fulfill the objectives of the auction and the national interest. This is not my birthday party, for which I can invite my buddies, no matter how disreputable or useless they might be. My friends are my friends, see?

This is a national matter and deserves honest and professional handling. I spent an hour, at cero cost to PDVSA, looking in Internet at the profiles of the companies invited. On the basis of this very cursory examination (and I could be wrong in some cases) I concluded that, of the 37 companies that had been invited, about a dozen have no objective reason for being invited. They would not be able to contribute enough financing, technology or marketing capabilities to this project. Since I am an independent, former oil geologist and have no ties whatsoever with any organization, I can freely say that companies such as Ancap (Uruguay), Enarsa (Argentina), Galp (Portugal), Itochu (Japan), JOGMEC (Japan), Petropars (Iran), PetroSA (South Africa), PetroVietnam (Vietnam), PTT (Thailand), Shaanxi (China), Sinochem (China) y Zenthua (China), have little or nothing to bring to the table, be it money, management, markets, experience with heavy oil production and upgrading or technology. There are others that are, at best, borderline, such as JGC, Mitsui, Mitsubishi, Lukoil and a few small ones already active in Venezuela. There are about 13-14 which could be defined as real companies, world class, with technological know how in the heavy oil sector, such as BP, Chevron, Petronas, Shell, Total, Repsol and a few others. It is remarkable the absence of U.S. companies, although there are at least a dozen of such companies that are financially and technically stronger than most of the companies invited.

I have to ask: Who decided the list? On what criteria? The criterion to choose the companies to be invited has to be very well explained, if the process is to be transparent. PetroVietnam? They don't even have a refinery at home and its activities are very parochial: Algeria, Mongolia, and Cuba?. They lack money even for their own domestic projects. Ancap? No experience, small. Enarsa? Good for carrying moneybags. PetroSA? Mostly gas production, small refinery. Galp? Big, but ten times smaller than the big ones, in real financial problems at this moment. Itochu? A trader, not an integrated operating energy company. Zenhua? Well known in parts of China, owned by a manufacturer of weapons, although it could become an important oil importer). Petropars? They are a failing company at home, why should they be good in Venezuela? PTT? Mostly gasoline stations in Thailand, a very domestic oriented company.

I think the criteria were political. The order came from above: invite our buddies, our friends (our cronies, the members of the gang). No U.S. companies, unless the very few that have been friendly to us.

The invitation being political, the process is automatically invalid, at least in the eyes of decent and honest Venezuelans. We cannot accept that the process becomes contaminated at such an early stage. This invitation was dishonest and unprofessional.

WHAT IF YOU EXTENDED THE INVITATIONS AND NO ONE CAME?

This is the greatest fear of every bride and groom, of every musician and every writer. What if no one comes to the wedding, to the concert, to the baptism of the book? The solution, as clearly seen by PDVSA, is to invite a bunch that includes many that will not fail to show up. The danger for PDVSA lies in the absence of those that really matter. In the case of the Orinoco heavy oil the attraction is great. The oil is there, the geological risk is very low, the economic margins look robust (provided you do not get “nationalized” just after you make all the required investments). As several oilmen have said in connection with this process, is like “shooting fish in a barrel”. I think the auction will be well attended. Ethics play a very small part in the relations between companies and political regimes. Companies cannot afford to be “ethical” about the places and the people they work with. Only those companies with great amounts of money, like Exxon Mobil, stand up to dictators, perhaps not out of ethical convictions but out of arrogance, just because they don't accept being pushed around by anyone. Most companies play ball. In Venezuela they have good arguments to do so. If Chavez stays, they play ball. If Chavez is ousted, they are already there, in the field. The only thing they risk is how the new government that replaces the current one will look at their dealings and at their getting in bed with what will be proven to be the most corrupt and abusive political regime ever seen in our country.

THE DEVELOPMENT OF THE HEAVY OILS OF THE ORINOCO AREA IS ALREADY 30 YEARS LATE BUT: CAREFUL!

Those who are old enough will remember that adecos and copeyanos treated the “Faja” as sacred ground that could not be touched. One of the most influential Venezuelans of the last century, Juan Pablo Perez Alfonzo, spoke almost in religious terms about the inviolability of the “faja”. It should be left for future generations, for our grandchildren, he said. If the development of the Orinoco reservoirs had started then, in an organized and professional manner, today Venezuela would be producing 6 or more million barrels per day. As it turned out, with Chavez in control of that much oil and money, the disaster would have been ten times greater. So, we never know. The problem with alternative futures is that we don't know what would have happened if…

What is important to mention is that 30 years ago the oil industry was still in the hands of professional, honest managers. They would have done the job of developing the Orinoco oil in an orderly manner. Today, the oil industry is in the hands of an inept and corrupt bunch. They are not seeing the auction as the starting point of a well laid out plan to develop the Orinoco heavy oils. They see it as a way to get cash quickly! They need plenty of money now!

This is, in my view, the real objective behind this auction. This is not a plan; this is a rapid liquidation of national assets in order to get badly needed cash. This regime will fall unless it can provide ever fresher amounts of cash to Argentina, to Bolivia, to Nicaragua, to the FARC, to Hizballah, to the Venezuelan armed forces, to the millions of poor Venezuelans who expect a fish every day but who will never be taught by Chavez how to fish.

If Perez Alfonzo were alive today he would oppose this auction very strongly. I did not agree with Perez Alfonzo thirty years ago but I agree with him now. It would be particularly painful for him to realize that those who are now liquidating our resources are the same ones who sat in his garden when he spoke about the need to preserve Venezuelan oil for future generations. They were young and idealistic then, now they are just older, fatter and greedier, without ideals.

Gustavo Coronel is a 28 years oil industry veteran, a member of the first board of directors (1975-1979) of Petroleos de Venezuela (PDVSA), author of several books. At the present Coronel is Petroleumworld associate editor and advisor on the opinion and editorial content of the site. Petroleumworld does not necessarily share these views.

Editor's Note: All comments posted and published on Petroleumworld, do not reflect either for or against the opinion expressed in the comment as an endorsement of Petroleumworld. All comments expressed are private comments and do not necessary reflect the view of this website. All comments are posted and published without liability to Petroleumworld.

Fair use Notice: This site contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of issues of environmental and humanitarian significance. We believe this constitutes a 'fair use' of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107. For more information go to: http://www.law.cornell.edu/uscode/17/107.shtml.

All works published by Petroleumworld are in accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. Petroleumworld has no affiliation whatsoever with the originator of this article nor is Petroleumworld endorsed or sponsored by the originator.

Petroleumworld encourages persons to reproduce, reprint, or broadcast Petroleumworld articles provided that any such reproduction identify the original source, http://www.petroleumworld.com or else and it is done within the fair use as provided for in section 107 of the US Copyright Law. If you wish to use copyrighted material from this site for purposes of your own that go beyond 'fair use', you must obtain permission from the copyright owner.

Internet web links to http://www.petroleumworld.com are appreciated

Petroleumworld welcomes your feedback and comments: editor@petroleumworld.com. By using this link, you agree to allow E&P to publish your comments on our editor's letters page.

Petroleumworld News 11/08/08

Copyright© 2008 respective author or news agency. All rights reserved.

We welcome the use of Petroleumworld™ stories by anyone provided it mentions Petroleumworld.com as the source. Other stories you have to get authorization by its authors.