Speech by Rafael Ramirez from Puerto Ordaz

(Energy Analytics Institute, Piero Stewart, 27.Jul.2013) – PDVSA’s and Venezuela’s Oil Minister President Rafael Ramirez spoke at the closing of the Sixth National Production Meetings in Puerto Ordaz, Venezuela.

What follows are excerpts from the speech.

Speech by Rafael Ramirez on Venezuelan petroleum sector:

Ramirez: At the closing event for the 6th National Production Meetings here in Puerto Ordaz, we have many people and companies interested in working with PDVSA in the Faja.

We plan to use our petroleum resources to resolve problems created by capitalism, especially related to exclusion and poverty. Socialism is the alternative for humanity and the Venezuelan petroleum industry participates in the construction of socialism in Venezuela.

PDVSA oil exports for Jan.-Jun.2013 (See Table 1):

Table 1: PDVSA oil exports

—————– Jan-Jun.2013 —- Jan-Jun.2012

Oil (Mb/d) ——– 2,482 ———- 2,515

$/bbl ———— $100.14 ——– $105.41

Rev. ($mm) —— $48,490 ——– $51.092

Source: PDVSA

PDVSA spent $23.8 bln in 2012 on CAPEX and the plan for 2013 is to achieve CAPEX of $25.3 bln, of which $7.0 bln has been spent through the first half of the year. We have all the US dollars we need to execute our capital budget. PDVSA plans to finance 30-40% of required yearly investments.

Loans from China for $5 bln will allow us to continue to develop tremendous projects underway here in Venezuela.

PDVSA/Venezuela to continue to defend a $100/bbl oil price floor but would like prices to move above this level. Venezuela does not produce more because our political policy is to defend prices. We will maintain our 3 MMb/d production quota under OPEC.

Again, the 3 MMb/d production level is our OPEC quota, which represents about 11% of OPEC production volumes.

We are in the process of constructing production capacity that will be able to respond to additional barrels immediately for the market.

The effects of Sowing Oil Plan now allows Venezuelan state to capture 94% of the income per barrel while IOCs capture just 6%. During the 4th Republic PDVSA captured 47% while IOCs captured 53% (See Table 2).

Table 2: Tax Schemes

———————- 4th Republic —- New Gov’t

Royalties ————– 1% ———— 33.3%

Income Tax (ISLR) —— 34% ———– 50%

PDVSA participation —- 30% ———— 60%

Recovery factor ——– <8% ———– >20%

Source: PDVSA

Regarding discounts: We don’t offer discounts to anybody, we sell our petroleum at market prices.

Ramirez: The Old PDVSA sold gasoline with lead to the Venezuelan population and exported unleaded premium gasoline. We have assumed the cost of the gasoline subsidy but we have decided that we would sell to the Venezuelan population clean gasoline, gasoline that doesn’t pollute the environment.

The Faja will be produced with directional drilling platforms, which have an enormous potential and a very powerful effect, but with little effect on environment. For each acre we can achieve 40,000 b/d of production.

We have pilot projects in the Faja with recovery rates of 40%. We should aim for the maximum recovery rates in the Faja.

In the Faja we have to drill 10,200 new wells and build 560 directional drilling platforms in order to produce 4 MMb/d by the end of 2019.

With our resources and actual production levels (3 MMb/d) we have petroleum resources that can last for 300 years. With production of 6 MMb/d we have resources for 150 years.

Actually, we have 15,000 workers in the Faja, but we need to increase this number to 40,000.

The world’s last great oil province is here in the Faja. We are actually producing around 1.2 MMb/d in the Faja. 202 rigs are operating in the Faja each day, of these, 116 are owned by PDVSA.

Changes to existing refineries in Venezuela to assist them in processing more Venezuelan heavy oil.

We plan to convert the Paraguana Refining Complex (CRP) in a petrochemical plant.

We are evaluating a scheme whereby we will convert and increase our existing upgrader. We are looking to have upgraders that could be refineries and/or have upgraders that can upgrade crude to 42 degrees API.

We estimate that for our upgraders/production projects we need at a minimum $42/bbl oil price.

We are looking to produce crudes of better quality for mixing with other crudes.

We want to reduce cost and improve efficiency in production. We have stopped the production declines in Western Venezuela.

The U.S. Geological Service says there are more than 170 Tcf of gas in the Faja. We aim to certify all these reserves.

Perla 3X gas discovery (9.5 Tcf) is high in condensate that will be sent to the CRP. The government expects to extract 30,000-40,000 b/d of condensate from project.

We are consuming a lot of diesel due to increasing usage by electric plants.

We have used 229 MMcf/d of gas to substitute the use of 37,000 b/d of diesel, allowing us to generate 896 MW of new production.

The largest markets for oil outside the USA are the Asian countries, especially China and India. We are sending more than 1 MMb/d to these two countries and volumes are expected to increase in the future. The decision to send oil to China and India is the correct political decision.

We have gained our sovereignty fighting and this is the fight we have engaged in to diversify our export markets.

We expect the JV partners to put up at least 20% of the total investments in the Faja upgraders.

In Venezuela there is not enough supply (goods and services). As such, by the end of 2019, we expect the national petroleum sector to supply at least 80% of the goods/services to all the oil projects.

We are producing about 7,000 MMcf/d of gas but aim to reach 10,511 MMcf/d by the end of 2019.

In the Junin 10 North block, an agreement with Total/Statoil did not work out but PDVSA has been developing the field alone.

Sinovensa is producing 134,000 b/d but the goal is to reach 165,000 b/d by YE:13 and 330,000 b/d from the project over the long-term.

Companies have production targets they should try to hit these targets

We have always paid our bond obligations. Our bonds are one of the best investments out there.

We have around 6 million tons of coke, the amount that Brazil consumes in one year. We want to use this coke here to get around storage and transport issues. Coke is a problem for Venezuela and PDVSA and we hope to resolve this issue by using the coke to generate electricity.

Portable water is also a serious problem for us as we need it for our operations in the Faja.

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