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PDVSA: the Company that lost its way

By Gustavo Coronel

A recent official report for January-September, 2008, on the Venezuelan state petroleum company, PDVSA, issued by the Ministry of Energy and Petroleum, reveals the extent to which the company has gone astray from its original mission and the heavy price is paying for this. I will not comment on the rather mysterious financial aspects of the report that have been analyzed by Oliver Campbell and Miguel Octavio in this same publication but will comment on its strategic and operational aspects.

• Strategic Orientation.

According to the document the strategic orientation off PDVSA is based on the following guidelines:

• To value our resources of hydrocarbons for the benefit of the nation;

• To contribute to the geopolitical positioning of the country;

• To be a tool of domestic development.

If this is so, how to explain that some 500,000 barrels per day of these resources are essentially being given away, under non-commercial transactions, to Cuba, Nicaragua, some Caribbean countries and south American countries like Bolivia, Ecuador and Argentina? How to explain that some 600,000 barrels per day (official figure, I think is more) are being sold in the domestic market at less than $9 per barrel? More than one million barrels of oil per day are being practically handed out for ideological or populist reasons. These gifts, this prodigality cannot position Venezuela in the world as a responsible country. It cannot promote domestic development, as the main beneficiaries of give-away oil are the rich. These strategic guidelines are no more than political propaganda. Reality indicates that a megalomaniac is using our oil to further his political project in the hemisphere.

• Objectives of the Strategic Plan of PDVSA, “Siembra Petrolera”. .

According to the document PDVSA's plan for the medium and long term includes the following objectives:

• To maintain operational continuity with efficacy and efficiency, according to the best scientific, technical and managerial practices, norms and procedures about hygiene, and protection and remediation of the environment, for a rational use of hydrocarbons.

• To upgrade and expand refining capacity.

• To strengthen and promote technological development

• To expand and diversify our markets… and develop regional integration

• To reinforce territorial equilibrium and satisfy the domestic market of hydrocarbons.

We must say that operational continuity has not been successful, much less efficient. Operations are poorly executed, industrial accidents are on the rise, good management is absent and there is much politicization and corruption in the company. The refineries are poorly maintained and investments are not being made (some gasoline is being imported for domestic consumption). Strengthening of the technological development is impossible in the environment of disarray prevailing in the company. Market expansion cannot be achieved if production does not increase and if marketing is not professionally done. Current management of PDVSA cannot accomplish these objectives due to corruption and ineptness.

• TARGETS

The main target of PDVSA is to develop, by year 2013, a production capacity of 4.936 million barrels per day (note the precision, not 5 million, not 4,9 million, but 4.936 million!). This target is laughable. This was the target Chavez found in 1999, to be attained in 2005. Chavez PDVSA has lost ten years and production levels are still below 3 million barrels per day. With increasing chaos in management this target sounds like science fiction.

• OPERATIONAL RESULTS.

Exploration.

Four exploration wells were drilled during the year: three in Eastern Venezuela and one in Western Venezuela.

Four exploration wells? That is a ridiculously low figure for a country that is talking about such a great increase in production capacity. Some of the exploration “accomplishments' mentioned in the document are grotesque. For example, “the exploration activities included 24 projects to investigate expected volumes of 23.074 million barrels of oil and 52.158 million of cubic feet of gas throughout the country. The “projects” are just office studies. However, the estimates of expected oil and gas are very precise. It is like someone estimating the amount of persons in a march at 245,735.

The report adds that PDVSA is exploring in Ecuador, Cuba, Argentina, Mali, Bolivia, Gambia and Vietnam, countries better known for authoritarian regimes, corrupt leaders and witch hunts than for oil prospects. It seems incredible that PDVSA, facing immense financial problems, would be looking for oil all over the world, seating on billions of barrels in its own territory. Its strategy is clearly ideological, not geological.

Production.

According to the report “crude production was of 3.269 million barrels per day. Of this volume PDVSA's own production is 2.373 million barrels per day”.

These volumes lack credibility. There are no certified production figures. However, if one considers that 90% or more of natural gas production and that an average gas/oil ratio is about 2000 cubic feet per barrel, the production quoted should produce considerable more gas than what is being available in the country, where gas is being imported from Colombia and industry has been suffering a chronic shortage of gas. Today, we cannot be sure of much oil we produce, or export or how much money is coming into the country for this activity. The Chavez regime is an immense black box.

Some of the production “activities” mentioned in the report are simple and minor engineering or computer programs, certainly without the importance to appear listed in the accomplishments of a major oil company. I have quoted some of these activities in the Spanish version of this article, also in PW.

V. SOCIAL DEVELOPMENT.

In an organized and civilized country the state, together with the private sector, would be engaged in social program, while the oil companies would be producing oil. Not in Chavez's Venezuela. To this end the company's mission has been prostituted. Items:

• Money to social programs were $2.2 billion in 2008, down from $3.8 billion in 2007.

• The Barrio Adentro program (urban medical assistance in poor areas) had been given $144 million in 2008, as opposed to $1362 million in 2007. This suggests that this Chavez's main propaganda showcase is moribund.

• Housing received $155 million in 2008, versus $546 million in 2007. No houses are being built.

• PetroCaribe and ALBA, two international programs of handouts, received no money at all from PDVSA during the year.

The problem, of course, is that PDVSA has no business building houses, importing food, and selling chickens. The company now owns about a dozen companies that produce vegetable oil, butter and milk, canned fish and other items that are far removed from the oil industry. These activities are the source of great waste and corruption and seem to be under the control of high-level bureaucrats who own some of the companies that serve as contractors and food suppliers to PDVSA.

• OTHER “ACCOMPLISHMENTS”.

• The number of employees increased from 54762 in 2007 to 70426 in 2008, almost 30 percent. The situation will get much worse since PDVSA has absorbed the transport companies in the Maracaibo Lake, some 8000 new employees.

• The report mentions a volume of some 1.534 million barrel per day being exported to USA. However, U.S. statistics show only an average of 1,3 million barrels a day being imported from Venezuela during the period. Somebody is very wrong.

• Exports of 200,000 barrels per day to China are not being paid since they are payment for a $4 billion loan given to Chavez by China, money no one knows the use of.

• The report mentions an average realization price of the exported barrel of about $100 in 2008. Considering that some 500,000 barrels per day are partially bartered for black bean, bananas, bodyguards and other miscellaneous products, this is a very unlikely figure.

• CONCLUSION AND A CHALLENGE.

Chavez is taking PDVSA and the country to ruin. There are sufficient data to prove this. We are willing to debate publicly with President of PDVSA Rafael Ramirez and his group about the situation of PDVSA and about the chaos prevailing within the company. Chavez refused to debate with Vargas Llosa because he “was not a president”. Ramirez cannot hide behind that pretension. As a public servant he should be receptive to discuss the situation of the company with Venezuelans who, after all, are the real owners of the company and the oil.

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. Petroleumworld not necessarily share these views.

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Petroleumworld News 06/20/09

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