May 17/05 - Article: Stratfor "PDVSA's Collapse"
Petroleos de Venezuela's (PDVSA) net crude oil production has dropped to 1.35 million barrels per day (bpd), says Jose Guerra, a former chief economist for the Venezuelan Central Bank. This estimate does not include about 1 million bpd produced by foreign oil companies under four so-called "strategic associations" in the
The government of Venezuelan President Hugo Chavez has repeatedly claimed since early 2003 that
The government's official numbers on PDVSA simply do not add up when official crude oil production levels are compared with dollar revenues deposited by PDVSA at the Venezuelan Central Bank. Guerra argues that the discrepancy results from the government's failure to tell the truth about PDVSA's true crude oil production levels.
Guerra said May 16 that if the government's assertion that
However, Energy and Mines Minister Rafael Ramirez, who also is PDVSA's president, recently said PDVSA deposited only $6.43 billion at the central bank. This leaves $2.39 billion in oil export earnings unaccounted for -- if the government's official production figures are truthful.
The black hole at PDVSA could be even greater than Guerra estimates. Domingo Maza Zavala, the central bank's director, recently said PDVSA deposited only $4.8 billion at the bank during the first quarter, not $6.43 billion as claimed by Ramirez. Based on Guerra's estimates, this means $4.02 billion in foreign exchange that PDVSA should have earned during the first quarter is "missing" because it was not deposited at the bank.
There are several possible explanations for the discrepancy. The most likely reason is that the Chavez government's official oil production figures are false. Based on official production claims, PDVSA should be exporting 2.8 million bpd in crude oil and refined products. However, Guerra thinks
Another likely explanation is that many individuals associated with Chavez and the Bolivarian Revolution could be stealing. PDVSA has not published audited financial statements since 2002. Moreover, the National Assembly's Energy Commission is investigating 228 cases of alleged corruption in PDVSA. A National Assembly source who works with the commission said May 16 that there are "hundreds more" corruption accusations involving PDVSA the commission is not yet investigating.
PDVSA's collapse will not be slowed in the foreseeable future. The destructive momentum imposed during the past three years by Chavez cannot be reversed. In fact, the government's decision to suspend the 32 oilfield operating contracts and demand retroactive income tax payments totaling perhaps as much as $2 billion from the oil companies likely will make PDVSA's crisis worse. As demonstrated by the remarks of Petrobras' chief financial officer that his company will study conditions in
Sources with several foreign oil companies in
Moreover, Chavez is increasing the pressure against foreign oil companies. On May 15 he said the companies involved in the nullified operating contracts will no longer be granted any dollars to cover their local costs. Venezuelan tax authorities also are investigating these companies on charges of tax evasion made by Chavez, who claims foreign oil companies owe unpaid taxes, as well as related penalties for evasion and late payment.
Chavez's escalating attacks against foreign oil companies contradict his frequent assertions that
PDVSA's collapsing crude oil production will continue for the foreseeable future. PDVSA is not investing enough in well maintenance and development of new production capacity. As a result, PDVSA cannot offset oil reservoir depletion rates that average between 20 percent and 25 percent annually, depending on the age of the oil fields. These natural depletion rates result from the loss of internal reservoir pressure levels as crude oil is extracted and no efforts are made to inject natural gas and steam to maintain pressure levels. As a result, PDVSA is producing fewer barrels of oil per well.
The Chavez government has an official PDVSA expansion plan that calls for investing more than $40 billion in the next five years to raise production capacity to more than 5 million bpd. But that plan exists only on paper. Since Chavez became president in early 1999, PDVSA has announced at least 15 expansion plans, but none of them have been launched to date.
As PDVSA's production capacity collapses, and the Chavez government milks the oil industry for every penny it can get, investment by foreign oil companies is becoming increasingly critical for