Energy Tribune

Robert Bryce & Randy Woods

It was just a year ago that Venezuela’s energy minister, Rafael Ramírez, pledged that his country would be getting billions of new investment dollars from China and that oil production by 2012 will be at 5.8 million barrels per day.

But now in the wake of the Orinoco project nationalizations, it’s clear that PDVSA will be lucky to even hold production steady at less than half the 2012 target levels. The problems: PDVSA lacks funding for exploration and production, and it faces a shortage of qualified personnel. Executives and engineers who supported the 2002 strike and the attempted coup against Venezuela’s president Hugo Chávez are blacklisted from PDVSA, and others have opted for jobs in the higher-paying private sector. The personnel problems extend down to the drilling rig. In July news reports surfaced that some operators of the 46 newly nationalized rigs were reluctant to join PDVSA. The company denied reports of strikes at the rigs, but admitted to labor difficulties. Then there are the problems with getting foreign companies to supply the rigs themselves, which as PDVSA’s Luis Vierma explained to the National Assembly, will cut the country’s rig count by nearly 40 percent to just 120 rigs. This decline would be a major setback for any country but is particularly daunting for Venezuela, where oil production drops roughly 25 percent per year unless new wells are developed.

Add to that the loss of three major investors – ExxonMobil, ConocoPhillips, and PetroCanada, all of whom chose to pull out of Venezuela rather than accept PDVSA’s terms to continue Orinoco operations under state-dominated joint ventures – and it’s increasingly clear that Chávez’s Bolivarian revolution could face a cash crunch very soon. Indeed, although PDVSA was able to raise money this year, thanks to a multi-billion-dollar bond issue, the company cannot continue to rely on debt. As Standard & Poor’s put it in a March report: “PDVSA’s financial performance will weaken during the next couple of years because of higher debt leverage.”

In short, there’s a growing disconnect between the rhetoric and the reality at PDVSA. That was made clear in early July when Venezuela’s ambassador to the U.S., Bernardo Alvarez Herrera, visiting Austin, Texas, boldly stated that PDVSA was producing 3.4 million barrels per day. When told that no one outside of Caracas believes that claim, Alvarez responded that PDVSA is “in good shape and it has problems that are like those of any other company.” Maybe so, but it’s hard to think of one oil company – national or investor-owned – that faces as many problems as PDVSA.