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 Orinoco heavy oil belt, nor 32 recently nullified marginal oilfield operating contracts.
The government of Venezuelan President Hugo Chavez has repeatedly claimed since early 2003 that Venezuela's oil production averages 3.3 million bpd. However, Venezuela's crude oil production capacity is plummeting because of poor management at PDVSA and insufficient investment since Chavez seized full control of the company.
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 Venezuela is producing 3.3 million bpd is truthful, oil exports should be averaging at least 2.8 million bpd after netting out some 500,000 bpd of internal consumption. Based on an official average export price of $39.33 per barrel during first quarter 2005, this means Venezuela's oil export earnings during the first quarter should have totaled slightly more than $9.9 billion.
However, Energy and Mines Minister Rafael Ramirez, 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 went "missing" because it was not deposited at the bank.
There are several possible explanations for the discrepancy. Most likely, 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 Venezuela is exporting only about 1.8 million bpd.
Another likely explanation is theft. Many individuals associated with Chavez and the Bolivarian Revolution could have stolen the money. 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 has not yet begun to investigate.
PDVSA's collapsing crude oil production will continue for the foreseeable future. PDVSA does not invest enough in well maintenance and production-capacity development to 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 has launched none of them 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 Venezuela's continued viability as a major oil producer and exporter. However, Chavez's bullyboy tactics against the oil companies are backfiring, and meanwhile, the oil industry -- Venezuela's principal economic support -- is slowly being strangled.
