The State of Venezuela's Oil Industry

Published September 20th, 2000 - 02:00 GMT

Most of the information and statistics we give you in this article are public, but not common knowledge. We hope this article will answer many of the questions our readers’ have on our oil industry and give them additional insight on the current expansion plan. We acknowledge our use of information provided by PDVSA at a recent seminar in Houston, Texas.  

 

By statistics on PDVSA Petróleos de Venezuela has been rated the second largest integrated Oil & Gas company by Petroleum Intelligence Weekly. It provides 78 percent of our country’s export revenues, 57 percent of fiscal revenues and represents 26 percent of GDP. Its foreign assets account for 20 percent of the company consolidated total assets.  

 

PDVSA ranks third in refining capacity and fourth in production capacity worldwide. According to Fortune Magazine, it is the tenth most profitable corporation in the world. PDVSA has proven reserves of 74.1 billion barrels of oil and 145 trillion cubic feet of gas. It is estimated that an additional 40 billion barrels are there to be discovered. 

 

The expansion program  

PDVSA’s expansion program is made to increase production capacity from 3.7 MMBD to 6.3 MMBD. The additional 2.6 MMBD of production can be broken down as 1.2 MMBD from "Associations", 600 MBD from "Operating Agreements "and the rest from PDVSA’s own efforts.  

 

Drilling activity is expected to increase from the current 50 rigs/year to a peak of 180 rigs/year in the year 2007. During the year 2007, over 130 wells are expected to be drilled. Throughout this expansion plan, the work force will be optimized. PDVSA production will go up 12 percent whereas the payroll should remain around the same as today (a moderate increase of 1 percent).  

 

Private sector participation will help PDVSA’s activities. From 8 percent participation in Venezuelan production, the private sector will be responsible for 30 percent of total production in the year 2007.  

 

The "cascade" effect on the national economy is expected to increase the activity. Just from construction inan efforts to meet the deficit in homes for eastern Venezuela (200,000), thousands of jobs will be created.  

 

The operating agreements 

The first and second "marginal field" bidding rounds have resulted in 25,000 bpd of production and accumulated investments of $2 billion. By 2006 the figures are projected to increase to 400,000 bpd and $5 billion in investments. The 18 areas let during the third round of operating agreements are expected to produce 350,000 bpd with a require investments of $5 billion. These fields are brougth $2 billion in bonus payments to the country in 1997.  

 

Strategic associations, profit sharing production & outsourcing These entreprises comprise the lion’s share of future production and investment. Over 200 billion barrels of oil remain in the Orinoco oil belt. The Machete, Zuata, Hamaca and Cerro Negro production areas are currently been develop. 

 

The recent technology improvements and tax incentives have turned an unattractive production option into viable projects. The Orinoco crudes will be upgraded in Venezuela to 26 degree API synthetic crude for the market or partially upgraded to 16 degree API crude to be further upgraded in other refineries. 

 

Most projects will use delayed coking for the upgrading process (except for Exxon and BP). production rate for these projects will vary between 80,000 to 200,000 bpd, and a total investment of $18 billion is forecasted. 2000 wells will be drilled for these projects!  

 

The profit sharing production schemes have not showed results for obvious reasons. Other than the $250 million in bonuses the country received as a result of the bids, it takes time to develop new and unexplored areas. However, a great part of our hopes for additional reserves and increased production potential are with the "wildcat" drilling efforts. 

 

The next couple of years will be critical for the future of the Venezuelan oil industry. Let us hope the companies that have opted for these risky ventures do well. Our oil potential is on the line.  

 

The outsourcing programs offer various opportunities in gas operations (injection, compression and processing plants), terminals (docks and storage), pipelines (construction, operation and maintenance), power generation, and E&P services such as drilling and service rigs, seismic measurement, industrial services, and maintenance and transportation.  

 

This is an area where the Venezuelan private sector can participate according to its capacity, and acquire a needed experience for future developments.  

Oil production cutbacks? 

 

As we pointed out in our two previous articles, the recently cutbacks which were agreed to in order to strengthen oil prices should be necessary in the short-term only. The market will stabilize, once again. Obviously, it would be a contradiction to cutback production while embarking on an large expansion plan of this nature. The oil market has been full of surprises lately and, with no doubt, this will continue.  

Note: This article was first published in El Universal on Sunday, March 29 2000 

Alan J. Viergutz is a well known Venezuelan oil expert, is heads the Centec Group and is a former president of the Venezuelan Petroleum Chamber and a Former Venezuela's representative in OPEC. His views are not necessarily those of Petroleumworld.  

( petroleumworld )  

 

 

© 2000 Mena Report (www.menareport.com)

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