Venezuela Hoping To Steeply Raise Oil Output Next Year

(Reuters, 11.Nov.2018) — Venezuela is hoping to steeply raise oil output next year but will respect any new deal if OPEC agrees to reduce output from December, Oil Minister Manuel Quevedo said on Sunday.

The south American OPEC nation’s current oil output is 1.5 million barrels per day and it aims to increase that by 1 million bpd “soon”, he told reporters in Abu Dhabi.

Quevedo was speaking in Abu Dhabi where an oil market monitoring committee was held on Sunday, attended by top exporters Saudi Arabia and Russia.

A majority of OPEC and allied oil exporters support a cut in the global supply of crude, Oman Oil Minister Mohammed bin Hamad al-Rumhi said earlier in the Emirati capital.

“Many of us share this view,” the minister said when asked about the need for a cut. Asked if it could amount to 500,000 or one million barrels per day, he replied: “I think it is unfair for me to throw numbers now.”

Saudi Arabia is discussing a proposal to cut oil output by up to 1 million barrels per day by OPEC and its allies, two sources close to the discussions told Reuters on Sunday.

Venezuela will comply with its debt obligations and considers itself a partner with Chevron Corp. and other companies, Quevedo said, adding the problem is with the American government.

***

#LatAmNRG

Chevron Stayed In Venezuela Long After Rivals Quit

(Wall Street Journal, Kejal Vyas and Bradley Olson, 8.Nov.2018) — For nearly a century, Chevron Corp. has weathered dictatorships, coups and nationalization drives to keep pumping oil in Venezuela.

But recently, executives at the last U.S. oil major in the country have debated whether it may be time to get out, according to people familiar with their deliberations.

For now, Chevron hopes to hang on and outlast President Nicolás Maduro, as it did with his late mentor Hugo Chávez and other rulers.

“We’re committed to our position in Venezuela,” Clay Neff, Chevron’s president of exploration and production in Africa and Latin America, said in an interview Thursday following initial online publication of this story.

Chevron’s dilemma is both moral and commercial. The California-based giant long enjoyed close relations with the socialist regime that controls the world’s largest oil reserves, and has earned big money in Venezuela—about $2.8 billion between 2004 and 2014, according to cash-flow estimates by analytics firmGlobalData .

The company is aware a pullout could trigger a collapse of the government’s finances, because a significant chunk of its scarce hard currency comes from joint operations with Chevron.

Yet by staying in the country as its economic and humanitarian crises deepen, the company risks damage to its reputation by being seen as supporting an authoritarian regime sanctioned by the U.S. government. It also isn’t making much money here anymore.

Chevron has had to put up with many provocations in Venezuela, including late payments, requests for employees to attend political rallies and bickering over loans Venezuela sought because it couldn’t afford oil-field maintenance. Chevron’s joint ventures with the state oil company are regularly subjected to what Venezuelan prosecutors have labeled corrupt overcharging by vendors. Graft and the risk it will worsen have weighed on executives as they consider Chevron’s position in the country.

It has become harder to stomach since the big money disappeared from the Venezuela operations, say people familiar with the company. Chevron operations in Venezuela lost money from 2015 to 2017, according to GlobalData, then eked out a modest profit this year thanks to higher oil prices. Oil fields are aging, and unless more reserves are opened up, Chevron’s work in Venezuela will run out of steam in less than five years, GlobalData estimates.

A turning point for foreign companies operating in Venezuela came in 2006, when Mr. Chávez began nationalizing oil fields managed by foreign operators and sharply raising taxes.

Rewritten contracts made Petroleos de Venezuela SA, known as PdVSA, the operator and majority owner of most projects. Chevron’s top U.S. competitors, Exxon Mobil Corp. and ConocoPhillips ,balked at the changes, left, and filed suit. Exxon has yet to recover the full value of the billions in equipment and other assets it left behind. ConocoPhillips recently reached a $2 billion settlement.

Some European oil companies, such as Total SA and Equinor AS A (then called Statoil), remained but reduced their holdings.

Chevron decided to stay, and—led by a charismatic Iranian-American executive named Ali Moshiri—formed an array of partnerships with PdVSA. Mr. Moshiri, who was head of Chevron’s business in Latin America and Africa, sometimes appeared in public with Mr. Chávez, who called him a “dear friend” on one occasion.

Joint ventures Mr. Moshiri pioneered became a model for foreign companies doing business in Venezuela. A venture called Petropiar between Chevron and PdVSA is one of four so-called upgrader ventures between the state oil company and foreign operators to blend Venezuela’s tar-like heavy crude with lighter oil or other substances and make it transportable.

Though Chevron’s bet paid off financially for years, an oil-price crash beginning in late 2014 triggered a vicious cycle in which government revenue fell and then oil production did, too, as the country placed priority on debt payments over the heavy reinvestment oil fields need to stay healthy.

Since the end of 2017, Venezuela has defaulted on more than $6 billion in debt payments, according to Fitch Ratings, while its crude-oil industry has been reduced close to ruins by neglect and the departure of experienced engineers.

Oil production has fallen to 1.2 million barrels a day from 3.2 million daily in 2006, according to the Organization of the Petroleum Exporting Countries. A country with vast reserves now produces roughly as much oil as the U.S. state of North Dakota. As output has declined, and thus revenue, the country’s economic crisis has worsened.

With supermarket shelves nearly bare and prices soaring, two-thirds of Venezuelans reported losing 25 pounds of weight in 2017, according to a survey. Violence is rampant, including atrocities by police and soldiers. Hospitals lack medicine and clean water, yet the government rejects most humanitarian aid as a Trojan horse for foreign intervention. More than three million Venezuelans have fled, leaving those who remain to face crushing rates of murder, malnutrition and hyperinflation.

Venezuela’s energy enterprises are under pressure from expanding corruption probes in the U.S. and Europe. A U.S. investigation, centering on allegations that PdVSA officials solicited vendors for bribes, has netted 15 guilty pleas, including from a number of PdVSA honchos.

An investigation in the tiny European nation of Andorra has led to money-laundering charges against 28 people, including former Venezuelan deputy ministers, who allegedly took $2 billion through kickbacks-for-contracts schemes from 2007 through 2012.

Zair Mundaray, a former Venezuelan prosecutor now in exile, said his team uncovered an alleged scheme at the Petropiar joint venture in which PdVSA executives skipped formal contract bidding and handpicked the vendors of a wide range of supplies, from oil equipment to cafeteria coffee, at exorbitant prices. The profits were distributed among certain Petropiar managers, PdVSA higher-ups and the suppliers, the charging documents said.

PdVSA and Venezuela’s Information Ministry didn’t respond to calls and detailed emails seeking comment.

Venezuelan charging documents and purchasing invoices reviewed by The Wall Street Journal allege that contractors pilfered more than $200 million in two years from the joint venture through markups such as $156,000 for printer/copiers and $9,000 for ink-jet cartridges.

Among the accused was Manuel Sosa, a former soap-opera actor who once dated a daughter of Mr. Chávez, whose company supplied the costly printer/copiers. Mr. Sosa pleaded guilty in December and was sentenced to four years’ house arrest in return for his cooperation. He couldn’t be reached for comment.

“Where were the checks? Where was the accounting?” asked Mr. Mundaray. “There’s absolutely no way that [Chevron] did not know what was happening.” He said he has given the evidence he collected to the U.S. Justice Department, which declined to comment.

Pedro Burelli, a former PdVSA board member and a Maduro critic, said Chevron “turned a blind eye to what was going on.”

“When you’ve agreed to work with a majority partner that is derelict, you’re just setting yourself up for a huge risk. You get deeper and deeper, when you should be hitting the red button, to get yourself out,” said Mr. Burelli.

Chevron said it complies with all applicable laws wherever it operates and expects its partners to do so as well. It said it doesn’t control the procurement process in the joint venture, in which Chevron has a 30% nonoperating stake. In oil and gas joint ventures, the operator typically has primary authority over costs, though minority partners are generally consulted and sign off on certain expenses. Chevron said nothing in documents it was shown suggested any wrongdoing by the U.S. company.

Oversight of the investigation changed hands just as it was picking up steam. Mr. Mundaray and his team left Venezuela in August 2017 after their boss, former Attorney General Luisa Ortega, criticized Mr. Maduro for alleged human-rights abuses. The president called the prosecutors traitors.

A new attorney general, Tarek William Saab, provided a list of people accused that lacked some names on Mr. Mundaray’s list.

One missing name was that of former Petropiar chief Francisco Velasquez, who the former prosecutors said splurged on a pink Ferrari and a villa at the exclusive Casa de Campo resort in the Dominican Republic while the oil project suffered backlogs and delays. He couldn’t be reached for comment. Mr. Saab didn’t respond to comment requests.

In April, two Chevron employees working at the Petropiar joint venture were jailed by Venezuelan military intelligence when they refused to sign a contract for oil-processing equipment priced at what they considered well above market value. The employees were released after six weeks of tense negotiations, but not before a thinly veiled threat from Chevron: free them or we will leave, people familiar with the confrontation say.

Chevron confirmed two employees were arrested in April and released in June but said, “We have no further information to share on this matter.”

A dwindling number of foreign companies are still doing business with the Maduro administration, which is facing threats of tougher sanctions by Washington. The U.S. has sanctioned dozens of Venezuelans, including Mr. Maduro, for allegations varying from corruption to human-rights abuses to drug trafficking. The sanctions bar American citizens and companies from doing business with them.

Mr. Maduro has said he wants foreign oil partners to use a cryptocurrency called the petro his government designed to evade U.S. sanctions on Venezuelan debt. The U.S. in March barred Americans from using the petro.

By staying in Venezuela, Chevron risks exposing itself to legal penalties under U.S. anti-corruption laws, some analysts say. Chevron said it “abides by a strict code of business ethics under which the company complies with all applicable international, U.S. and Venezuelan laws.”

Its managers’ meetings with government and PdVSA officials “comply with all applicable laws and regulations, including the U.S. sanctions directed towards Venezuela,” Chevron said.

About 700,000 daily barrels of the country’s oil production comes from joint ventures between PdVSA and foreign companies, consultants say. That includes about 200,000 to 250,000 barrels a day from Chevron ventures.

Joint-venture output has generated far more cash for the government in recent years than oil pumped by PdVSA alone, because the state company’s production has gone to repay debts to allies such as China and Russia or to be processed into gasoline the government provides almost free. That means a Chevron withdrawal would take a big bite out of government’s revenue.

Another foreign company, Royal Dutch Shell PLC, is weighing an exit from most of its remaining operations in Venezuela through a sale of its stake in a joint venture, according to people familiar with its plans. A spokeswoman for Shell said such a deal wouldn’t amount to a total exit, as the company is working to develop Venezuelan gas assets offshore that would supply nearby Trinidad and Tobago.

Some analysts believe other Western companies operating in Venezuela, such as France’s Total or Norway’s Equinor, might feel pressure to follow a departure or partial exit by either Shell or Chevron. At the same time, according to GlobalData, those that stay might be able to gain access to new fields or renegotiate contracts for better terms. Chinese or Russian companies such as PAO Rosneftcould be beneficiaries of any such departures in the long run, analysts say.

Total, Equinor and Rosneft officials either declined to comment or didn’t respond to questions.

Signs of a troubled relationship between Chevron and the Venezuelan government emerged a year ago when Mr. Moshiri’s successor as head of Chevron’s Latin American and African operations, Mr. Neff, sat down for a meeting with Mr. Maduro and other Venezuelan officials.

Venezuelan officials snapped a photo without Chevron’s consent and publicized it. At Chevron headquarters in San Ramon, Calif., concerns grew that the company was being duped into making an appearance in Venezuelan propaganda, people familiar with the matter said.

While such photo ops had occurred before, the country’s worsening economic collapse, plus U.S. sanctions, are making them harder to tolerate, the people said. Chevron declined to discuss the Caracas meeting.

The company’s closeness with the government is generating rancor among PdVSA’s workers, who have been quitting in droves amid hyperinflation that has pummeled their salaries to the equivalent of less than $10 a month.

Jose Bodas, a union leader in eastern Venezuela where Petropiar is located, said photos of sports cars and European vacations posted on social media by managers angers workers who sometimes lack boots and hardhats.

“I’m not opposed to people having Ferraris and mansions, but this is all corruption,” Mr. Bodas said. “I don’t mind saying it—if you’re a multinational working with this government, you’re an accomplice to what’s going on.”

—Ginette Gonzalez and Samuel Rubenfeld contributed to this article.

Write to Kejal Vyas at kejal.vyas@wsj.com and Bradley Olson at Bradley.Olson@wsj.com

Appeared in the November 9, 2018, print edition as ‘Venezuela Tests Chevron Staying Power.’

***

#LatAmNRG

Petrobras Stops Chevron Plan To Drill In Brazil Offshore Block: Sources

(Reuters, Alexandra Alper, Marta Nogueira, 30.Oct.2018) — A decision by Petrobras not to invest in drilling new wells has derailed Chevron Corp’s plan to resume exploration in a Brazilian offshore field, people familiar with the matter said.

Chevron, which operates the field with a 52 percent stake, approved the drilling plan but Petrobras, which holds a 30 percent stake nixed the move, according to two people close to the talks.

Brazil’s state-controlled oil company, officially known as Petroleo Brasileiro, is prioritizing development of pre-salt offshore resources where billions of barrels of oil lie under a thick layer of salt below the ocean floor, the two people said. The Frade field is post salt and has less oil than pre-salt fields.

Petrobras and Schlumberger NV, which planned to drill six wells for some $20 million, could not immediately be reached for comment. Chevron declined to comment.

Brazilian energy company Petro Rio SA said on Monday it bought the remaining 12 percent from Frade Japao. Petro Rio SA CEO Nelson Queiroz told Reuters in an interview on Tuesday the company would be interested in buying Petrobras’ stake.

“We see extending the life of the field as a positive, drilling new wells,” he said.

Chevron and Petrobras halted exploration in the Frade field after a 2011 spill that led to criminal charges and a civil lawsuit.

Petrobras, one of the world’s most indebted oil companies, has slashed outlays and focused its shrunken capital expenditure budget on developing stakes in the world class pre-salt play in Latin America’s top producer. Other oil majors are also spending top dollar to lock in stakes to the area to replenish shrunken reserves amid rising oil prices.

***

#LatAmNRG

Añelo Population Growth Part Of Region’s Shale Boom

(Energy Analytics Institute, Ian Silverman, 20.Oct.2018) — Añelo’s population is expected to reach 25,000 by 2023 compared to nearly 8,000 today and just 2,000 in 2011, reported the media outlet Río Negro.

“80% of the city has basic services such as water, electricity, gas and sewage,” reported the daily, citing Deliberative Council President Milton Morales.

In October 2018, the city will inaugurate its first level 3 hospital with assistance from the YPF Foundation and Chevron’s Baylor Foundation.

***

#LatAmNRG

Mexico’s Lopez Obrador Pushes Big Oil To Hurry, But Offers Little

(Reuters, David Alire Garcia, Marianna Parraga, 16.Oct.2018) — At his first meeting with foreign oil majors, Mexico’s leftist president-elect pushed the companies to prove themselves by quickly pumping oil from recent finds, sources say, but gave no sign of offering up new fields to reverse dwindling output.

President-elect Andres Manuel Lopez Obrador repeated a promise to respect more than 100 existing contracts awarded following a sweeping five-year-old energy overhaul as long as a review by his team finds no corruption. And he added: companies must show results, three executives who attended the meeting said.

For U.S. independent Talos Energy, which is developing a high-profile, big offshore discovery announced last year along with partners Premier Oil and Sierra Oil & Gas, Lopez Obrador’s message was clear: quickly bring new streams of production online.

“We know we have to exceed expectations and we’re trying to make sure we do that,” said Talos Energy CEO Tim Duncan, one of the executives who attended the session.

At the Sept. 27 meeting, the president-elect also criticized the 2013 constitutional reform for failing to stop an extended output slide.

Operators such as Talos and Italy’s Eni, which also announced a major offshore find last year, are on Lopez Obrador’s watch list to pump oil quickly, said Carlos Pascual, a former U.S. ambassador to Mexico who now helps run consultancy IHS Markit’s global energy business.

“The focus on increased barrels is going to create greater pressure for some companies,” he said.

The oil and gas blocks awarded in bidding rounds over the past three years to companies including Royal Dutch Shell and Chevron will result in $160 billion in new investment, the outgoing government estimates.

Lopez Obrador’s pick to be the new oil minister, Rocio Nahle, did not respond to a request for comment about Lopez Obrador’s presentation.

RIG OIL NOT BIG OIL

At the meeting, Lopez Obrador also explained he intends to put some 20 idle drilling rigs belonging to a few Mexican service firms to work for state giant Pemex, according to three executives who attended the meeting.

The executives, who asked not to be named to avoid any ill-will from the incoming government, said they were surprised at the decision to talk up the service contracts for Pemex instead of encouraging much bigger investments the oil companies are capable of making.

A former senior executive with Pemex said the plan could add at most 150,000 barrels per day (bpd) to Mexico’s 1.8 million bpd production in a year, far short of the 40 percent increase to 2.6 million bpd he is targeting during his six year term.

Lopez Obrador is a long-time critic of the energy reform that brought major oil companies to Mexico for the first time in more than 70 years, and has warned he will not offer up more areas for auction.

Oil companies still hope he will soften that position in order to meet his ambitious production goals.

The veteran leftist politician adopted a diplomatic tone at the industry session, said the company executives, and his team even pledged to ease regulatory delays companies face.

“Reality could force pragmatism,” said an oil executive who attended the meeting, arguing it is highly unlikely Mexico could meet Lopez Obrador’s lofty output goal with government spending alone.

As an indicator, firms are closely watching whether oil auctions set for February by Mexico’s independent oil regulator will be canceled or postponed after Lopez Obrador takes office in December.

If that happens, along with the pledge to focus production plans on squeezing more out of Pemex fields with local rigs, outside investment could cool for years in Mexico’s oil patch, home to under-explored shale plays and the country’s potentially lucrative deepwater Gulf of Mexico, according to the executives and sector analysts.

The head of the oil regulator, Juan Carlos Zepeda, has said Pemex would need to dedicate $20 billion each year to exploration and production activities to hit Lopez Obrador’s output goal, about double this year’s budget.

Advisor Rocio Nahle, Lopez Obrador’s pick to be energy minister, said last month Pemex will be allocated about $4 billion for “exploration and drilling” in 2019, without going into detail.

The nearly two hour meeting between Lopez Obrador and oil company executives ended with a promise to maintain “continuous dialogue” going forward

However, there was no question-and-answer period, and following the set speeches, Lopez Obrador and his senior energy aides quickly departed. No new meetings have yet been scheduled.

One attendee bluntly quipped afterwards: “He really doesn’t like us.”

***

#LatAmNRG

Venezuelan Oil Port Repairs Delayed, Crude Exports Fall: Sources

(Reuters, Marianna Parraga, 2.Oct.2018) — Repairs to a dock at Venezuela’s main oil export port will take at least another month to complete following a tanker collision more than a month ago, further restraining the OPEC member nation’s crude exports, according to sources and shipping data.

A minor incident in late August forced state-run oil company PDVSA to shut the Jose port’s South dock, one of three used to ship heavy and upgraded oil to customers including Russia’s Rosneft and U.S.-based Chevron Corp, and to receive diluents needed for the exports.

Jose port typically handles about 70 percent of Venezuela’s total crude exports, which in September declined 14 percent compared with the previous month to 1.105 million barrels per day (bpd), according to Refinitiv Eikon data.

Oil exports are the financial backbone of Venezuela’s economy, which is struggling to overcome hyperinflation, a long-standing recession and scarcity of basic goods.

PDVSA had estimated the berth would reopen by the end of September, but needed parts have not been obtained as PDVSA continues facing problems to pay foreign providers due to financial sanctions imposed by the United States, sources close to its operations said.

PDVSA’s crews completed the removal of the damaged fences last week, but replacements have not arrived in the country.

“The fences were bought, but funds to pay the provider were retained due to the U.S. sanctions. A new deal to buy them through a third party will take at least another month,” one of the people familiar with the matter said.

PDVSA was not immediately available for comment.

U.S. President Donald Trump’s administration last year imposed financial sanctions on Venezuela and PDVSA, affecting their ability to make transfers in dollars and complete payments through the U.S. banking system.

PDVSA has neither resumed shipments from most of its Caribbean terminals, which remain frozen after U.S. producer ConocoPhillips’ legal actions earlier this year to satisfy a $2 billion arbitration award, according to the data.

Conoco and PDVSA in August struck a payment agreement, but the Venezuelan oil firm has yet to complete a $500 million installment due by the end of November to unlock its Caribbean operations.

Venezuela’s crude output fell again in August to 1.448 million bpd according to official figures, putting its annual average at 1.544 million bpd, the lowest in over six decades.

Economic measures recently announced by President Nicolas Maduro’s government, including a steep salary increase, have fallen short for Venezuela to regain access to sufficient foreign credit and reverse the downturn.

***

Unlocking the Potential of Argentina’s Oil and Gas Resources

(Chevron, Clay Neff, 23.Sep.2018) — ‘A stable and predictable business environment is essential to draw the investment capital needed,’ says Chevron Africa and Latin America Exploration and Production Company President Clay Neff.

Argentina is one of the few nations outside North America that has the potential to replicate its neighbour’s shale revolution.

The unconventional oil and gas resources in Argentina’s Vaca Muerta shale formation are world class. As such, their level of productivity can compete with any of the shale formations at the centre of the US oil and gas boom — and that includes the prime US area of the Permian basin in Texas.

The Argentine government has taken important steps toward creating an environment that encourages investment in Vaca Muerta.

We at Chevron believe that, if the right conditions continue, this large resource will bring additional investment, continued employment and economic growth to the country while helping to meet the growing global demand for affordable, reliable energy.

Vaca Muerta’s current production of about 160,000 barrels of oil equivalent a day could grow to almost 900,000 boe/d by 2024 if the country can attract $4bn of investment a year, according to consultancy Wood Mackenzie.

A stable and predictable business environment is essential to draw the investment capital needed to ensure Vaca Muerta reaches its potential. A key task for industry executives is to analyse how a country’s risk-reward calculus matches up against others competing for investment. It will be particularly important for Argentina’s government to adhere to free market principles.

Reducing drilling and production costs by increasing efficiencies is also important to attract more investment to Vaca Muerta. A key reason the shale revolution has seen such success in the US in the past few years is that companies have become highly efficient in their operations through process improvements and new technologies.

In partnership with Argentina’s national oil company, YPF, Chevron has made great strides in improving hydrocarbon recovery and lowering drilling costs at our Loma Campana joint venture in the Vaca Muerta shale. Horizontal wells and advanced completion techniques are leading to recoveries competitive with areas of the Permian basin.

Last year, our unit development cost, the cost per barrel, decreased 25 per cent compared with 2016. Furthermore, we expect costs to go even lower and close to the levels seen in areas such as Permian’s Midland basin.

Sustaining lower production costs will require better infrastructure. The Neuquén basin, where Vaca Muerta is located, has enough infrastructure to support the production levels of old as far as conventional oil and gas resources are concerned. However, more is required to achieve the large-scale development that will fulfil its much greater potential.

Significant steps in the right direction have been taken with the planned construction of new railroads and pipelines. But more is needed to ensure the area is internationally competitive.

Chevron, one of the largest foreign investors in the Vaca Muerta shale, continues to do its share to advance the development of this resource. In partnership with YPF, we have increased drilling from two to three rigs at our Loma Campana project. We are seeing continued improvement in performance thanks in part to the use of best practices from unconventional oil and gas areas in the US.

We are also looking at the Vaca Muerta shale in other parts of the Neuquén basin. In our El Trapial field, for example, we will be executing an eight-well appraisal programme to assess the potential of its unconventional reserves.

Argentina is on the right path to make the large-scale development of Vaca Muerta a reality. The responsible development of the extensive unconventional oil and natural gas resources has the potential to be an once-in-a-lifetime economic engine for the country.

Clay Neff is the president of Chevron Africa and Latin America Exploration and Production Company

***

Argentina’s Conventional Oil and Gas Attract Explorers

(Ft.com, Charles Newberry, 23.Sep.2019) — Fresh discovery indicates life beyond Vaca Muerta.

A few years ago, when the giant shale play of Vaca Muerta was starting to lure oil majors such as Chevron, ExxonMobil and Shell to Argentina’s south-west, a small company called Roch struck oil far away at the country’s southern tip.

The result surprised Ricardo Chacra, the company’s president. Roch had found oil in Tierra del Fuego, traditionally a source of natural gas, in a formation that had not been thought to hold much promise after more than a century of exploration in Argentina.

“We found something new,” Mr Chacra says. The find has fuelled optimism that Argentina’s mature conventional oil and gas reservoirs may have more to give. “When you drill into a mature field, you expect to drill into a squeezed lemon,” Mr Chacra says. “You take out what you can. But sometimes you find a virgin lemon.”

Argentina first struck oil early last century on the mainland of southern Patagonia, about 1,000km north of Tierra del Fuego, and exploration and production spread to the west and north-west. Argentina has the fourth-largest proven oil reserves in South America, trailing Venezuela, Brazil and Ecuador and equal with Colombia. But production and reserves sagged under the populist Peronist governments of 2003-15, as price controls and other regulation deterred exploration.

President Mauricio Macri has been removing such constraints to bring capital back to Argentina and his policies have attracted several oil majors. Most of them, however, are going to exploit Vaca Muerta’s shale, the source of unconventional oil and gas that is promising to make Argentina an energy powerhouse for the Americas as a whole.

While a handful of smaller companies has wanted to invest in Vaca Muerta, “it’s incredibly expensive”, says Fiona MacAulay, chief executive of London-based Echo Energy. Instead her company is exploring three conventional blocks in the south of the country at what she estimates to be a 100th of the cost of Vaca Muerta acreage.

Thanks to Argentina’s long history of oil activity, talent, services and infrastructure are available. Gas is delivered by pipeline to Buenos Aires and there are ports to handle oil storage and deliveries.

“The big conventional finds have already been made in Argentina,” says Hugo Giampaoli of local energy consultants GiGa. Even so, they have more to offer. Luciano Fucello, country manager for Houston-based services company NCS Multistage, estimates that only 20 per cent of Argentina’s oil has been recovered.

Daniel Kokogian, a director of Argentina’s Compañía General de Combustibles, says his company has more than doubled its gas output over the past two years in the south, and expects to find “a lot” of conventional oil to recover.

Such potential may not be enough to attract the big guns away from Vaca Muerta but a number of small independents are still taking a shot at a more conventional oil and gas approach.

Canada-based Madalena Energy, for example, is using the cash flow from conventional output to finance drilling in costly Vaca Muerta, says its chief executive, José Penafiel. He estimates that while it takes five to six years to generate a positive cash flow in Vaca Muerta, conventional projects pay back in two to three years.

For companies such as his, which are on far tighter budgets than the majors, he says, “you have to make sure you have the sufficient cash flow to stay in the game long enough to see the value creation of the bigger shale plays”.

An alternative is to push offshore. Several small UK companies, such as London-based Premier Oil and Rockhopper, of Salisbury, Wiltshire, in the south of England, have explored waters around the Falkland Islands that are claimed by Argentina. While still in the pre-development phase, these companies’ finds could spur bids for acreage in Argentine waters in a bidding round, the first in two decades, proposed for this year. “Pretty much every major I know is looking to bid in that offshore round,” Ms MacAulay says.

“Offshore is the last big question mark for exploration in Argentina,” says Mr Kokogian. Much hope is being pinned on waters about 300km-400km from the coast in depths of more than 1,500m. “We have to go to see what is there,” Mr Kokogian adds. “The prize could be big, or very big.”

***

International Tribunal Rules for Chevron in Ongoing Ecuador Case

(OGJ, Nick Snow, 10.Sep.2018) — An international tribunal administered by the Permanent Court of Arbitration in The Hague found that a $9.5-billion judgment that Ecuador’s government lodged against Chevron Corp. in 2011 violated international treaties, investment agreements, and international law.

Ecuador breached its obligations under a 1995 settlement agreement that released Chevron subsidiary Texaco Petroleum Co. (TexPet) and its affiliates from the same public environmental claims on which the $9.5-billion Ecuadorian judgment was exclusively based, the Sept. 9 decision said.

In a ruling nearly 5 years earlier, the same tribunal said agreements Ecuador’s government signed in 1995 and 1998 released TexPet from environmental liability for land on which it once produced oil (OGJ Online, Sept. 18, 2013). That ruling upheld an important claim Chevron made in its years-long defense against a lawsuit claiming billions of dollars for environmental damage.

In its latest decision, the tribunal found that TexPet “spent approximately $40 million in environmental remediation and community development under the 1995 settlement agreement” carried out by a “well-known engineering firm specializing in environmental remediation” and that Ecuador in 1998 executed a final release agreement “certifying that TexPet had performed all of its obligations under the 1995 settlement agreement.”

The tribunal found “no cogent evidence” supporting Ecuador’s claim that TexPet failed to comply with the terms of the remediation plan approved by the government. To the contrary, the award recites sworn testimony of Ecuadorian officials that TexPet’s “technical work and environmental work was done well,” while Ecuador’s national oil company “during more than 3 decades, had done absolutely nothing” to address its own environmental remediation obligations in the area, even though Ecuador and its national oil company received 97.3% of the project’s oil production revenues.

“An esteemed international tribunal, including an arbitrator appointed by Ecuador, has unanimously confirmed that, following completion of an agreed environmental remediation program, Chevron was released by the Republic of Ecuador from the environmental claims that the fraudulent Ecuadorian judgment purports to address,” R. Hewitt Pate, Chevron vice-president and general counsel, said on Sept. 9.

“Following years of litigation, including visits to the former area of operations by the tribunal, the tribunal found that Ecuador violated the final release agreement that had certified the successful completion of TexPet’s remediation,” he said.

The tribunal also reached the same conclusion as US courts regarding the issue of judicial fraud, Pate said. “The tribunal found extensive evidence of fraud and corruption by members of the Ecuadorian judiciary acting in collusion with American and Ecuadorian lawyers,” he said.

“This award is consistent with rulings by courts in the US, Argentina, Brazil, Canada, and Gibraltar confirming that the Ecuadorian judgment is unenforceable in any country that respects the rule of law,” Pate said. “Indeed, the tribunal explicitly found that it would be contrary to international law for the courts of any other [nation] to recognize or enforce the fraudulent Ecuadorian judgment.”

***

Chevron Wins Ecuador Rainforest ‘Oil Dumping’ Case

(BBC, 8.Sep.2018) — An international tribunal in The Hague has ruled in favour of the US oil company, Chevron, in an environmental dispute with the government of Ecuador.

Chevron had been ordered to pay $9.5bn (£7.4bn) compensation to thousands of residents in Ecuador’s Amazon region.

They accused the company of dumping toxic waste in local lakes and rivers of the Lago Agrio region for decades.

The court said that the 2011 Ecuador Supreme Court ruling had been obtained through fraud, bribery and corruption.

The oil giant now stands to be awarded hundreds of millions of dollars in costs by The Hague’s Permanent Court of Arbitration.

Chevron maintained that it never owned any assets in Ecuador.

The alleged environmental damage was done by Texaco between 1964 and 1992. Texaco was later acquired by Chevron.

Chevron has argued that Texaco spent $40m ($31m) cleaning up the area during the 1990s, and signed an agreement with Ecuador in 1998 absolving it of any further responsibility.

Birth defects

Some 30,000 local residents, including five different Amazonian tribes, began the lawsuit against Texaco in 1993.

The plaintiffs say that the oil company knowingly dumped 18bn gallons (68bn litres) of toxic waste water and spilled 17m gallons of crude oil into the rainforest during its operations in north-east Ecuador.

They say the affected area covers 4,400 sq km (1,700 sq miles) on the border with Colombia.

Local residents believe the pollution has led to health problems such as cancer and birth defects.

In 2011, an Ecuadorean judge ordered Chevron to pay $18.2bn (£14.1bn) for “extensively polluting” the Lago Agrio region.

Ecuador’s highest court last year upheld the verdict against Chevron a year later, but reduced the amount of compensation to $9.5bn.

‘Unpunished forever’

Chevron argued that it only lost the case because the legal team representing the villagers paid nearly $300,000 (£232,000) in bribes in Ecuador.

In 2014, US district judge Lewis Kaplan in New York ruled that “corrupt means” were used by Ecuador’s legal team to win the 2011 case.

After the latest ruling in the Hague, a lawyer for the indigenous communities criticised the Ecuadorean government for accepting taking the case to an arbitration court.

“That is playing Chevron’s game and leaving the crime unpunished forever,” said Pablo Fajardo.

He said he was considering all legal avenues.

***

#LatAmNRG

Venezuela Oil Sales to US Fell in August

(Reuters, 4.Sep.2018) — Venezuela’s crude sales to the United States fell in August for the second month in a row as exports of two of the South American country’s main grades dropped following port interruptions by a tanker collision, according to Thomson Reuters Trade Flows data.

Venezuela’s state-run oil company Petróleos de Venezuela, S.A., known as PDVSA, and its joint ventures last month exported an average of 468,300 barrels per day (bpd) of crude in 30 cargoes to their customers in the United States, the data show. The total was the third smallest monthly figure this year.

PDVSA’s oil shipments have been affected in recent weeks by export limitations at the country’s main oil port, Jose, after a minor tanker collision forced the state-run firm to halt operations at one of its three berths.

The Jose dock problem came as the country was attempting to reverse a series of blows to oil exports, including declining output, a severe lack of investment in its energy infrastructure and asset seizure attempts by creditors.

PDVSA last week started a contingency plan for diverting tankers waiting at Jose to load to the nearby terminal of Puerto la Cruz. It has not said for how long Jose’s loadings would be affected.

The state-run company last month exported to the United States a 500,000-barrel cargo of Merey crude and three 500,000-barrel cargoes of Zuata crude, two of the OPEC-nation’s main grades for exports. Both come from the Orinoco Belt, Venezuela’s largest oil producing region.

Crude upgraders at the Orinoco, essential for turning Venezuela’s extra heavy oil into exportable grades, have been working intermittently in recent months due to planned maintenance and outages, limiting volumes available for export.

U.S. refining firm Valero Energy was the largest receiver of Venezuelan crude last month with 153,000 bpd, followed by PDVSA’s unit Citgo Petroleum and Chevron Corp , according to the data.

Shipments to spot customers in the United States continued falling to some 40,000 bpd in August, the second smallest monthly figure so far this year.

(Reporting by Marianna Parraga; Editing by Richard Chang)

***

Mexico’s New President To Deal Blow To Oil Industry

(Oilprice.com, Nick Cunningham, 26.Aug.2018) — Mexico will likely halt oil auctions for at least two years, dealing a blow to its oil industry.

Mexico’s president-elect Andres Manuel Lopez Obrador (AMLO) will reportedly suspend oil auctions for at least two years, according to the Wall Street Journal, with some experts believing that his administration won’t hold any new oil auctions at all during his six-year term. He has also vowed to review the 107 contracts already awarded to companies through auctions over the last few years to check for corruption, although he has said he would not try to invalidate them so long as they check out.

Also, AMLO wants to revise some of the energy laws that govern the oil and gas sector, which could dramatically alter the landscape for foreign oil and gas companies. He long opposed the historic reforms that ended seven decades of state control over the energy sector, although he moderated his position during this year’s presidential campaign. Rolling back the reforms would be exceedingly difficult, requiring a change to the country’s constitution.

Instead, AMLO wants more modest, though still significant, legislative changes. The WSJ reports that he will pursue legislative tweaks that bolster the power of state-owned Pemex, while weakening the regulatory body that has pursued a technocratic approach and presided over the oil auctions over the last three years.

AMLO’s desired changes include allowing Pemex to choose its own private-sector partners, without needing the approval from regulators. Current rules require Pemex to partner with the highest bidder for blocks put up for a farm-out. He wants the government to be able to award Pemex with oil blocks directly. And he wants to make Pemex the sole marketer of oil produced by private firms, the WSJ reports.

These changes would amount to a partial rollback of the energy reforms, re-empowering Pemex and government control over the oil sector. Moreover, as president, AMLO chooses the head of Pemex, granting him a lot of leverage over the company. “If licensing rounds are canceled and joint ventures are the only vehicle for entry to the country, it reflects a consolidation of power within” Pemex, Maria Cortez, Latin America Upstream Senior Research Manager at Wood Mackenzie, told Bloomberg in an email. ”That could be viewed negatively by outside investors.”

On top of that, the WSJ says AMLO will push to raise local content rules, which would require a higher percentage of domestic involvement in oil projects. That means that if a company like ExxonMobil or Chevron or some other outside entity wants to drill for oil in Mexico, it would need to source a certain percentage of equipment and services from within Mexico. The idea is to capture a greater portion of the benefits of oil and gas development for the country, while also building up expertise for local industries.

However, many of these changes will be loathsome to the international oil companies, who will view them as onerous burdens that inject higher levels of uncertainty into their investments. Oil companies have repeatedly blamed strict local content rules in Brazil for years of cost inflation and delays.

“If all of this is confirmed, it would send a signal that the continuity of the oil opening may be in doubt,” Pablo Medina, an analyst with Welligence Energy Analytics, a research firm based in Houston, told the WSJ in an interview.

Meanwhile, in addition to the legislative changes to the energy reforms, AMLO’s core energy plan consists of pouring billions of dollars back into Pemex for oil exploration, with a particular focus on revitalizing the downstream sector. He wants $2.6 billion to rehabilitate Mexico’s six aging oil refineries, plus more than $8 billion to build a new refinery from scratch. The idea is to cut down or even eliminate gasoline imports from the United States.

Mexico’s oil production has been declining for over a decade, falling to 1.9 million barrels per day recently, down from 3.4 mb/d in the mid-2000s. The IEA sees output falling by another 130,000 bpd this year, due to the aging offshore oil fields, although that is a narrower decline compared to the 235,000 bpd the country lost last year.

AMLO is aiming to boost production by 600,000 bpd over the next two years, which will be a monumental task. If he is to succeed, AMLO is betting that Pemex will lead the way.

***

PdV, Joint Ventures Miss Oil Targets

(Argus, 9.Aug.2018) – Venezuela’s state-owned PdV and its joint ventures fell short of officially targeted crude production by more than 125,000 b/d in July, according to an internal PdV upstream report obtained by Argus.

The steepest shortfalls were registered in the Orinoco heavy oil belt — long touted by the Opec country as the driver of ambitious growth plans — and PdV’s western division around Lake Maracaibo.

The monthly report indicates that July production averaged 1,526,600 b/d, compared with a target of 1,651,700 b/d, with operations by PdV and its joint ventures both explicitly missing their targets.

The report data does not include annual or monthly comparisons. Venezuela’s official June production, according to Opec’s latest Monthly Oil Market Report, was 1.531mn b/d. The average of secondary sources, including Argus, was 1.340mn b/d.

PdV officials tell Argus that the production data in the monthly internal report are systematically inflated, mainly by the company’s eastern and western divisions. “They play with the storage tanks and what they report is not reality,” one senior executive says. Actual July national production was around 1.25mn b/d, the officials say.

Despite its shortcomings, the report sheds light on field-by-field and divisional performance trends, acknowledging that neither PdV nor its joint ventures with foreign companies has been able to check Venezuela’s precipitous decline in output. Among the factors fueling the trend are scant maintenance, reservoir mismanagement, skilled labor flight and a lack of critical naphtha and light crude for transport and blending.

The Orinoco oil belt produced 843,200 b/d of crude in July, compared with a targeted 908,200 b/d, the report indicates. Of the belt’s four producing blocks, Carabobo accounted for 375,000 b/d, 23,500 b/d short of its target. PetroMonagas, a PdV joint venture with Russia’s state-controlled Rosneft, accounted for 119,700 b/d or 32pc of the block’s total reported output. That’s followed by Sinovensa, a PdV joint venture with China’s state-owned CNPC, with 91,800 b/d or 24pc.

In the Orinoco’s Junin block, July output averaged 191,800 b/d, off target by 16,500 b/d. The top producer with 71,600 b/d was PetroCedeno, in which France´s Total and Norway´s Equinor are PdV´s minority partners. The joint venture´s production missed its target by 12,200 b/d, well in excess of any other project in the block, the report indicates. PetroCedeno has an official capacity in excess of 200,000 b/d.

Other Junin block projects, including PetroMiranda with Rosneft and PetroJunin with Italy´s Eni, also missed their July goals. PetroUrica and PetroMacareo, PdV nominal joint ventures with CNPC and PetroVietnam, respectively, showed zero real and targeted output.

In the Ayacucho block, PdV´s PetroPiar joint venture with Chevron produced 123,300 b/d, off target by 12,400 b/d, the report says. The project has official capacity of 190,000 b/d.

In PdV´s eastern division, which hosts the legacy Furrial complex, July production averaged 326,300 b/d, just 9,500 b/d short of its target.

The western division, in contrast, produced 319,200 b/d, missing its target by 44,600 b/d. The shortfall came mainly from shallow-water operations in Lake Maracaibo and on its eastern coast.

The report indicates that 1,191 wells stopped producing in July, accounting for 333,200 b/d of lost output. The western division accounted for more than two-thirds of the number of deactivated wells, but the Orinoco accounted for some 80pc of the lost output, reflecting its higher well productivity.

The western division also accounted for 70pc of 1,114 well reactivations in July. These added a total of 183,300 b/d of production, mostly from the Orinoco.

PdV is reactivating the western division wells on its own and with small contractors, unrelated to the company’s vaunted plan to reactivate more than 23,000 wells nationwide, a PdV official says.

***

Shell Offers 1H:18 LatAm Updates

(Energy Analytics Institute, Jared Yamin, 1.Aug.2018) – Royal Dutch Shell plc announced the following updates during the first half of 2018.

Mexico

In the deep-water bid round in Mexico in January for the Gulf of Mexico, Shell won four exploration blocks on its own, four with its partner Qatar Petroleum and one with its partner Pemex Exploración y Producción. Shell will be the operator of all nine blocks.

Brazil

Shell won four additional deep-water exploration blocks in Brazil, one block on its own, and three in joint bids with Chevron, Petrobras and Galp. Shell will be the operator of two blocks.

Argentina

In April, Shell signed an agreement to sell its Downstream business in Argentina to Raízen. The sale includes the Buenos Aires refinery, around 645 retail stations, the global commercial businesses, as well as supply and distribution activities in the country. The businesses acquired by Raízen will continue the relationship with Shell through various commercial agreements.

***

PetroPiar Ends Preventative Maintenance

Workers at PetroPiar JV in Venezuela. Source: PDVSA

(Energy Analytics Institute, Piero Stewart, 3.Jul.2018) – Work on the upgrader concluded four days ahead of schedule, according to Caracas-based PDVSA.

Operational activities at the upgrader included substitutions in the naphtha and light vacuum gas oil (LVGO) lines, maintenance of interchangers, internal drum replacements (Demister), and replacements related to the value 48 sealing system (Metax System), as well as the repair of atmospheric furnace tubes, announced PDVSA in an official statement.

The PetroPiar mixed company enterprise partners PDVSA, as the Venezuelan state oil company is known, and US-based Chevron Corporation.

***

PdV Restarting PetroPiar Upgrader

(Argus, 26.Jun.2018) – Venezuelan state-owned PdV is restarting its 210,000 b/d PetroPiar upgrader this week after completing month-long repairs, PdV and energy ministry officials said.

Chevron, which has a 30pc stake in Petropiar, is “working closely” with PdV to restart the facility, the PdV executive said.

Chevron regularly declines to comment on its minority-held operations in Venezuela.

PetroPiar is one of four PdV-run upgraders at the Jose industrial complex in Anzoátegui state.

Following the restart of PetroPiar, PdV is also expected to resume operations at its 160,000 b/d Petro San Felix upgrader, the two officials said. But several Petro San Felix processing units are still undergoing repairs, making a full restart unlikely until the second half of July, they added.

Petro San Felix, formerly called PetroAnzoátegui, is 100pc owned and operated by PdV.

PdV’s 200,000 b/d PetroCedeño upgrader remains shut down for major works that likely will not be completed until August, the PdV and ministry officials said. France´s Total and Norway’s Equinor hold a combined 40pc stake in PetroCedeño.

PdV’s 150,000 b/d PetroMonagas upgrader is currently operating at roughly 50pc of nameplate capacity and is scheduled for maintenance starting in July, the officials added. Russian state-controlled Rosneft owns 40pc of PetroMonagas.

The four upgraders, which have a combined synthetic crude production capacity of more than 600,000 b/d, have been mostly off line for repairs since May, when exports started backing up.

The backlog of close to 30mn bl of mostly heavy Merey crude and diluted crude oil (DCO) began after US independent ConocoPhillips imposed debt-related liens on PdV´s Dutch Caribbean assets, prompting the Venezuelan company to pull its tankers into Venezuelan waters and shift exports to an fob basis, a strategy that has so far failed to restore exports to their former rhythm. Among the operational challenges is transshipment, which PdV traditionally carried out in the islands.

ConocoPhillips is seeking to collect $2bn from PdV that it was awarded by an international arbitration tribunal in April for the 2007 expropriation of the US firm´s stakes in two of the upgraders.

The liens on PdV´s assets were partially lifted last month to allow PdV to supply fuel to the islands and start paying the debt through escrow accounts.

***

Rick Perry Wants Argentina be More Like Texas

(Bloomberg, 17.Jun.2018) – The U.S. government is getting in on a shale boom 5,000 mi (8,000 km) from home.

Energy Secretary Rick Perry will help Argentina connect with U.S. companies that have shale oil and gas expertise as President Mauricio Macri — facing a natural gas trade deficit — hurries to replicate the success of the Permian basin, in Perry’s home state of Texas.

Fostering energy production from a regional ally will bolster the geopolitical influence of the U.S., Perry told reporters in Bariloche, Argentina.

“One of the things that I offered Juan Jose is U.S. technology partnerships, to make the introductions with the private sector,” Perry said, referring to Juan Jose Aranguren, Macri’s energy minister. “The technology that has allowed for the shale gas revolution in America we want to make available to Argentina.”

Perry was meeting Aranguren and other G20 counterparts in snow-covered Bariloche to discuss a global transition to cleaner energy — especially gas. Argentina is ramping up production of the fuel in Vaca Muerta, the Patagonian shale play where Chevron Corp. and DowDuPont Inc. were among the first to get drilling going.

Argentina’s state-run YPF SA, the biggest operator in Vaca Muerta, sees the next phase of shale development driven by mid-cap independent companies lured from the Permian. Their arrival will increase competition and, in turn, slash costs, Aranguren told reporters in Bariloche.

Now, Perry wants to add to that, bringing in U.S. pipeline developers to expand the play’s infrastructure and petrochemical companies to process the hydrocarbons once they’ve been moved out of the isolated shale fields.

Boosting output in Vaca Muerta, one of the world’s largest shale plays that remains largely untapped, will help the U.S. to direct geopolitics amid fractious relationships with major oil producers Russia and Venezuela, Perry said.

“Being able to not be held hostage by countries who don’t share our values is really important,” Perry said. “President Macri’s policies are right in line with U.S. values.”

Perry will advise Argentina — already facing transportation bottlenecks as YPF and billionaire Paolo Rocca’s Tecpetrol SA spur gas production — on avoiding pipeline capacity issues that have begun to plague the Permian, he said.

Transportadora de Gas del Sur SA recently announced it will build a $300-million gas pipeline in Vaca Muerta.

Perry will visit Vaca Muerta in the near future, Aranguren said.
***

Venezuela Upgraders Halting Ops Amid Export Crisis

(Reuters, Deisy Buitrago, Marianna Parraga, 12.Jun.2018) – Venezuela’s state-run PDVSA [PDVSA.UL] and partners have halted operations at two upgraders that convert extra-heavy oil into exportable crude and plan to stop work at two others, according to six sources close to the projects, a move aimed at easing the strains from a tanker backlog that is delaying shipments.

Venezuela’s largest upgrader, Petrocedeno – operated by PDVSA, Total and Equinor – was halted this week for repairs and a lack of raw materials. The companies turned the stoppage into an expanded maintenance project.

Petropiar, a venture between PDVSA and Chevron Corp, also halted work this month due to lack of spare parts.

PDVSA and its partners typically produce diluted crude oil (DCO), made with extra-heavy crude and imported naphtha, during maintenance, but production and export levels usually decline compared with regular output.

Most of Venezuela’s upgraded oil is sold on the open market, not through long-term supply contracts.

PDVSA’s U.S. unit Citgo Petroleum has been importing DCO in recent weeks to cover a portion of the upgraded crude it has not been receiving from joint ventures.

The subsidiary is buying more imported crude, including Ecuadorean and Colombian grades, on the open market to supply its Gulf Coast refineries.

Two of PDVSA’s largest customers, India’s Reliance and Nayara Energy, received 14 percent less heavy Venezuelan crude last month, falling to an average of 342,000 bpd.

Reporting by Deisy Buitrago in Caracas and Marianna Parraga in Houston; Editing by Leslie Adler and Tom Brown

***

Venezuela Won’t Have Enough Oil To Export By 2019

(OilPrice.com, Robert Rapier, 12.Jun.2018) – On May 21st President Donald Trump signed a new executive order prohibiting certain oil-related transactions with Venezuela. GlobalData, a leading data and analytics company, argues that the new sanctions are symbolic in comparison to the more targeted sanctions previously considered that would limit exports of Venezuelan crude oil to the U.S.

Adrian Lara, Oil & Gas Analyst at GlobalData stated:

“Crude oil production in Venezuela is practically falling at an average of 10% every quarter and has been since mid-2017. A scenario with oil production in the country losing at least another 500,000 barrels per day by the end of the year is not unrealistic. Having full additional sanctions imposed would certainly send a strong geopolitical message from the U.S. at the risk of generating more instability in the world supply markets.”

GlobalData also forecast that Venezuelan crude oil production would fall to around one million barrels per day by the end of 2018. This is a steep decline from the three million barrels per day that Venezuela produced in 2011.

Venezuelan Crude Oil Production

Platts reported this week that Venezuela has already warned eight international customers that it wouldn’t be able to meet its crude oil commitments to them in June. Venezuela’s state oil company PDVSA is contractually obligated to supply 1.495 million barrels per day to those customers in June, but only has 694,000 barrels per day available for export.

Impacted U.S. oil companies reportedly include Chevron, “Conoco” and Valero. I suspect “Conoco” is really Phillips 66, the refining arm spun out of ConocoPhillips in 2012.

Venezuela also reportedly has a severe backlog of crude deliveries at its main terminals, and this could temporarily halt PDVSA’s supply contracts if they are not cleared soon. The company has told some customers it may declare force majeure if they do not accept new delivery terms, including higher-cost and riskier seaborne transfers. Brent crude prices moved higher on the news.

But if the GlobalData forecast is correct, then the temporary interruption of Venezuela’s exports may be permanent, as they will be plunging toward zero by the end of the year.

***

PDVSA Completes First Ship-to-Ship Transfer

(Kallanish Energy, 11.Jun.2018) -- Venezuela’s PDVSA has reportedly completed its first ship-to-ship (STS) transfer last week, in a move to tackle the severe bottleneck of tankers around its main crude ports.

Reuters reported the inaugural operation was with the Suezmax tanker Sonagol Kalandula for a Thai company’s refinery in Kemaman, Malaysia. The cargo, owned by Tipco Asphalt, is believed to be Venezuelan Boscan heavy crude. The oil tanker had been waiting to load since February.

Shipping data tracked by Kallanish Energy on Friday afternoon showed 13 oil tankers were anchored at one of Venezuela’s main ports, Jose. Reuters estimated 40 tankers were waiting in Venezuelan waters to load crude and refined products for exports.

The delays at the ports have mounted since May, when ConocoPhillips attempted to seize PDVSA’s assets in the Caribbean Ocean. To prevent this, PDVSA stopped using its facilities in the Caribbean islands for storing and loading export cargoes.

To alleviate the congestion, PDVSA is reportedly telling buyers they either accept partial supplies under the STS's new terms or the company will declare force majeure in June. It’s said to have told customers it doesn’t have crude available to fulfill its contractual obligations.

Customers waiting for cargoes include the U.S.’s Chevron and Valero Energy, India’s Nayara Energy and China’s CNPC and PetroChina. The backlog at the ports is estimated at 24 million barrels.

The sea-transfer is expected to increase the purchase cost by $1 per barrel and it’s not clear who will foot the bill – PDVSA or the buyers.
***

Chevron Brazil Chief to Lead Venezuela Ops After Arrests

(Reuters, 9.Jun.2018) — US oil producer Chevron Corp permanently assigned its Brazil country chief to run its Venezuelan operations, three sources said this week, after the months-long detention of two executives escalated tensions between the Opec-member nation and foreign oil firms.

Javier La Rosa, who had been president of Chevron Brazil since 2016 according to his LinkedIn page, this month was named to replace the company’s Venezuela general manager, Christopher Whatley, said the sources, who spoke on Thursday and Friday.

Chevron did not immediately respond to a request for comment.

Mr La Rosa had headed Venezuela operations for the company from 2005 to 2008, his LinkedIn page said. He flew to Caracas shortly after Chevron employees were detained to temporarily lead the Venezuela unit, according to two other people familiar with the matter.

None of the sources could speak for attribution because they were not authorized to speak on the matter.

Mr La Rosa’s appointment comes after a tense showdown between foreign oil companies and the government in recent months as Venezuela’s political and economic meltdown deepened.

Venezuelan authorities this week released the two executives jailed since April as part of an ongoing graft probe into the oil sector, which has spooked other foreign companies operating in partnership with state oil company PDVSA.

The arrests, related to the executives’ refusal to sign a supply contract for furnace parts for a PDVSA joint venture, were made public after some oil-service companies pulled back from Venezuela, writing off billions of dollars in assets.

La Rosa is leaving Brazil just as Chevron begins to flex its muscle in Latin America’s largest crude producer. In a consortium with Petrobras and Royal Dutch Shell Plc , Chevron clinched its first block in Brazil’s coveted offshore pre-salt oil play on Thursday.

It was not immediately clear who will run Chevron’s Brazil operations.

Reuters reported in December that Chevron was in talks with oil services firm Schlumberger NV to resume drilling in an offshore field after a 2011 oil spill there cut production.

Chevron, the world’s seventh-largest publicly traded oil producer, with 2017 revenue of US$135 billion, operates in Venezuela mostly through minority stakes in five projects. Its earnings from Venezuela dropped 18 per cent last year to US$329 million, according to regulatory filings.
***

Brazil Raises $830 Mln in Pre-Salt Auction

(Efe, 7.Jun.2018) – Brazil raised 3.15 billion reais (around $830 million) in fixed signing bonuses on Thursday in its fourth auction of oil blocks in a deepwater region of the Atlantic Ocean known as the pre-salt.

The winner of the largest and most coveted block – known as Uirapuru – was a consortium made up of Brazilian state oil company Petrobras (30 percent stake), Irving, Texas-based supermajor Exxon Mobil (28 percent), Norway’s Statoil (28 percent) and Portugal’s Petrogal (14 percent).

It won the block after offering the government a record 75.48 percent share of so-called profit oil, more than three times the minimum required by the National Petroleum Agency (ANP, Brazil’s oil regulator).

Two other consortiums also were awarded licenses for blocks in the pre-salt region, so-named because its massive reserves are located under water, rocks and a layer of salt at depths thousands of meters below the surface of the Atlantic.

One of them is made up of Royal Dutch Shell (40 percent), San Ramon, California-based Chevron (30 percent) and Petrobras (30 percent), while the other is led by Petrobras (45 percent) and also includes BP Energy (30 percent) and Statoil (25 percent).

Although Petrobras initially only was part of that latter consortium, it exercised its right under pre-salt regulations to be an operating partner in the other two consortiums with at least a 30 percent stake.

The ANP received offers that were well above what had been expected for the three most coveted blocks in the auction. The auction of a fourth smaller block, Itaimbezinho, did not attract any bidders and was declared void.

The bid round was among the most successful in recent years, according to ANP director Decio Oddone.

He said that in addition to the proceeds from the fixed signing bonuses the auction also would guarantee some 40 billion reais (some $10.5 billion) in income for the state over the 30-year lifespan of the contracts in the form of profit-sharing arrangements and taxes and royalties.

The consortium led by Shell and Chevron that won the right to develop a pre-salt block known as Tres Marias offered the government 49.95 percent of the profit oil, more than five times the minimum required.

The third block that attracted interest, Dois Irmaos, was awarded to the Petrobras-BP-Statoil consortium, which offered the government a 16.43 percent share of the profit oil, the minimum proportion required.

“It was a very successful auction because it attracted the attention of the world largest oil companies, which made offers that were higher than what we were expecting; it showed how competitive the pre-salt is,” Oddone said.

He said that all told the Brazilian government would have a nearly 90 percent share of liquid revenues from the development of Uirapuru, adding that such a high level was “not even seen in the Middle East.”

The four blocks on offer on Thursday contain roughly 5 billion barrels of oil and natural gas.

Prior to this latest auction Brazil had only awarded licenses to develop six blocks in the pre-salt region, which contains tens of billions of barrels of hydrocarbon reserves.
***

Venezuela’s Oil Meltdown Defies Belief

(Nick Cunningham, OilPrice.com, 6.Jun.2018) -- Venezuela might have to declare force majeure on its oil exports as production plunges and its ports are unable to ship enough crude. The ongoing meltdown in Venezuela’s oil sector could tighten the oil market more than expected.

Reuters reported Tuesday that Venezuela is considering declaring force majeure, a legal declaration made in extraordinary circumstances to basically get out of contractual obligations. In other words, Venezuela’s PDVSA is essentially prepared to say that it can’t supply the oil that it promised.

The utter collapse of the country’s oil production is obviously a big factor in PDVSA’s inability to ship enough oil. Output is down below 1.5 million barrels per day and falling fast.

But the tanker traffic at a handful of its ports has created unexpected bottlenecks, which have slowed loadings. Clogged ports are the direct result of the seizure of operations on several Caribbean islands by ConocoPhillips last month. The American oil major sought to enforce an arbitration award, laying claim to a series of storage facilities on the islands of Bonaire, Curacao and Aruba.

Those assets were crucial to PDVSA’s operations – in fact, they had become even more important as PDVSA’s facilities in Venezuela deteriorated. They had the ability to service very large crude carriers (VLCCs), and were important for storing and blending PDVSA’s oil, and preparing it for export.

Since ConocoPhillips tried to take over those facilities, PDVSA has tried to shift operations back to its ports in Venezuela. But those terminals are in very bad shape, and cannot make up for the loss of the Caribbean facilities. Reuters reported that there are more than 70 tankers sitting off the Venezuelan coast.

Reuters also says that PDVSA told customers that they need to send ships that are able to handle ship-to-ship loadings, since they can’t service enough ships at the ports. If customers fail to do that, or fail to accept those terms, PDVSA could declare force majeure. Reuters says most customers are balking at the demand since there is no third party supervision, plus the added cost of ship-to-ship transfers is also something customers are not willing to take on.

It is no surprise that Venezuela has fallen short on the shipments it has promised, but the figures are staggering. In April, Venezuela only shipped 1.49 million barrels per day of oil and fuels, or 665,000 bpd below what it had contracted, according to Reuters. That means that some customers are missing out on cargo. For instance, in April, PDVSA shorted its subsidiary Citgo nearly all of what it had promised – 273,000 bpd.

The problems for Venezuela continue to mount, and the news that it is considering force majeure points to a more catastrophic decline in production and exports. PDVSA "in the best case only has about 695,000 b/d of crude supply available for export in June," a marketing division executive within the company told Argus Media.

It seems unlikely that the sudden decline in exports will be resolved in any reasonable timeframe. It isn’t just a matter of easing bottlenecks at the ports. For one, it isn’t clear that PDVSA can handle the necessary volumes from its existing export terminals.

More importantly, upstream oil production continues to plummet, and refining and processing are also in freefall. Venezuela’s heavy oil needs to be upgraded before it can be exported, but at least three PDVSA upgraders are in terrible shape, and the Petropiar upgrader, which PDVSA runs jointly with Chevron, is offline for maintenance. That is also the site overseen by Chevron employees that were detained by Venezuelan security services a few months ago, putting a chill on operations.

“[PDVSA] has a critical structural problem that cannot be fixed in a few weeks or even a few months, because the core problem is that Venezuela's crude production has dropped far beneath the volumes we are contracted to deliver,” a company executive told Argus. “We simply aren't producing enough crude, and we don't have the cash flow to compensate by purchasing crude from third parties to meet our supply commitments. Our greatest operational concern right now is that production continues to fall and our export supply volumes also will continue to decline as a result.”

As a result, the force majeure on shipments seems unavoidable, unless that is, customers simply take a haircut and accept lower volumes. A PDVSA source told Argus Media that companies that don’t accept lower volumes could see all of their shipments suspended. That sounds like a threat, but it is PDVSA that is in the state of crisis, not buyers from China, India or the U.S.

Customers are already reporting problems with shipments. A Japanese trading house told S&P Global Platts this week that it has been unable to load up on Venezuelan oil under a loan-for-oil deal. "There is no cargo made available to lift," said the source.

Several diplomats from China and India told Argus that refiners from their countries are looking elsewhere for oil shipments in the months ahead, on the expectation that cargoes from Venezuela continue to decline. Independent refiners from China are looking at heavy crude sources such as Mexico’s Maya, Colombia’s Castilla, and Canada’s Cold Lake Blend, according to S&P Global Platts.

PDVSA could cite U.S. sanctions as a justification for force majeure, and while that could potentially provide some legal basis for nixing shipments, from the oil market perspective, it makes no difference one way or another why exports are declining, or who is at fault. All that matters is that supply is falling fast, and to the extent that PDVSA can’t keep up with its obligations, it is a worrying sign that even the most pessimistic scenarios for Venezuelan output could turn out to be too hopeful.

***

Chevron, Hess, Kosmos Finalizing 1st Prospect Test in Suriname

(Energy Analytics Institute, Aaron Simonsky, 30.May.2018) ‐- Kosmos Energy, Chevron Corporation and Hess Corporation are close to finalizing prospects tests in Block 42 in Suriname.

The three companies are finalizing the first of up to three independent tests of prospects in Block 42, announced Kosmos in an official statement last week. This includes the Pontoenoe prospect, which is similar to and along trend from discoveries in Guyana. Kosmos expects drilling to commence in the third quarter of 2018.

Kosmos holds rights in the Block 42 contract area under production sharing contracts with Suriname government’s Staatsolie Maatschappij Suriname N.V. Kosmos, the exploration operator of Block 42, holds a 33.33% interest in the block along partners Chevron and Hess, whom each hold a 33.33% interest in the block.
***

Venezuela’s Energy Sectors Remain Attractive, Unattractive

(Energy Analytics Institute, Special from Pietro D. Pitts, 28.May.2018) — Venezuela’s upstream, downstream and midstream sectors remain attractive, yet unattractive to investors.

Why the contradiction?

The three sectors remain highly attractive due to the fact that Venezuela — the country with the world’s largest crude oil reserve base and the eighth largest natural gas reserve base — is arguably one of the most attractive geological locations in the world. Petroleum reservoirs here contain light and medium oil deposits, while the Hugo Chavez Orinoco Heavy Oil Belt, also known as the Faja, contains the largest accumulation of heavy and extra-heavy crude oil (EHCO) in the world. From the prolific Lake Maracaibo in the west to the massive Faja in the east, the opportunity set is second to none. And that’s excluding other natural resources from iron ore to gold that makes this place that much more attractive.

However, above surface issues continue to ruin the energy party due to continued political, economic and financial turmoil as well as an ongoing humanitarian crisis. A look at just some of the micro issues of these crises, in no specific order, including corruption, price and currency controls, five-digit inflation, homicide rates among the highest in the world, kidnappings of foreigners and embassy employees, worthless currency, the Petro, a brain-drain of talent, a FDI drought, Nicolas Maduro, ongoing nationalization threats, gas deficits, black and brown outages, refinery output trending towards nothing, oil production in steady decline, service providers payment backlog, political appointees at PDVSA, drug trafficking, and mismanagement of resources, continue to prove Venezuela is not for the light of heart investors.

Taking these issues, among others, coupled with recent detentions of executives from companies from Houston-based Citgo Petroleum to PDVSA to California-based Chevron Corporation only serve as evidence to the still complicated operating environment that exists in this OPEC nation of around 30 million citizens.

Nowadays, political issues above ground continue to dictate what goes on below ground, even if indirectly. When has that ever been otherwise in Venezuela? There’s no doubt Venezuela — or if you prefer, Cuba with petroleum and the Russians (in contrast or comparison to Cuba and the Soviets in the past) — will remain a country to watch for petroleum investors for many years to come.
***

Venezuela’s Ex-Oil Czar Sees Economic Collapse Accelerating

(AP, 27.May.2018) – Venezuela’s former oil czar said crude production in the OPEC nation will continue to plummet in the aftermath of President Nicolas Maduro’s re-election, as the embattled socialist leader takes the country down an increasingly authoritarian path that scares off private investment and leads to more international sanctions against his Government.

In a rare interview, Rafael Ramirez on Friday blasted Maduro, saying that in the wake of his recent victory he has showed no signs of reversing policies blamed for hyperinflation and widespread shortages.

“The demons have been unleashed,” Ramirez, who went into exile after a bitter split last year with Maduro, said in a phone interview from an undisclosed location. “Maduro keeps insisting on the same rhetoric, taking no responsibility for his own actions.”

Maduro coasted to another six-year term in an election last Sunday that was boycotted by the biggest opposition parties and condemned as rigged in his favour by several foreign governments. The Trump Administration responded by tightening sanctions on the Government, making it tougher for State-run oil giant PDVSA to raise badly-needed cash to pay off creditors and jumpstart production.

Ramirez, who headed the oil industry for a decade until 2014, said a purge that started last year and has led to the arrest of more than 80 PDVSA managers, including its president, as well as the arrest last month of two managers at Chevron, has paralysed oil production.

Since Ramirez was removed from his dual post as energy minister and PDVSA boss in 2014, production has tumbled almost 40 per cent, to 1.4 million barrels of oil per day, the lowest level in seven decades. He predicts that unless Maduro changes course, it could fall soon to 900,000 barrels per day, the bulk of which is already sold at a huge loss domestically or used to pay off debts to China and Russia.

He also pointed to a recent decree signed by Maduro giving PDVSA’s newly installed president, Major General Manuel Quevedo, special powers to rewrite the terms of PDVSA’s joint ventures with foreign oil companies, circumventing the constitutionally-mandated oversight of the Opposition-controlled National Assembly.

“There’s a climate of terror inside the oil industry and everyone is afraid to make decisions,” he said.

PDVSA and Venezuela’s Information Ministry didn’t respond to requests seeking comment.

Ramirez, who was close to the late Hugo Chavez, quit as the country’s ambassador to the United Nations in December amid a public feud with Maduro over the direction of economic policy. Ramirez had been arguing for a more pragmatic course that included unifying Venezuela’s multi-tiered exchange rates while Maduro doubled down on policies to attack criminal “mafias” and going after opposition groups he blamed for waging an “economic war” with the backing of the US.

In January, chief prosecutor Tarek William Saab announced he would seek Ramirez’s arrest for allegedly profiting from illegal oil sales. Several close associates including his nephew have already been arrested in Venezuela and two former deputies were picked up in Spain last year on a US warrant as part of a separate probe led by prosecutors in Houston into corruption at PDVSA under Ramirez’s watch.

Ramirez rejects the accusations and said that his conscience is clear. Since leaving the US last year, he said he’s moved among cities around the world and avoided returning to Venezuela for fear of arrest.

“It hurts me because in the name of pursuing corruption Maduro has destroyed the industry so he can take control of PDVSA,” he said.

He said that none of the people running PDVSA today have experience in the oil industry, and coupled with the departure of thousands of oil engineers, the company that is the source of almost all of Venezuela’s export earnings is on the verge of collapse. A recent display of what he considers the current management’s incompetence was its failure to outmanoeuvre Houston-based ConocoPhillips’ attempts to collect on a US$2 billion arbitration award, which forced PDVSA to scramble and divert oil tankers from its facilities in the Dutch Caribbean for fear of seizure.

Ramirez said that he headed off a similar legal action years ago by Exxon Mobil in the United Kingdom.

“What’s surprising, and concerning, is that PDVSA didn’t anticipate this,” he said. “If the actions of a single company have jeopardised the entire country, imagine what will happen if the US imposes sanctions.”
***

The Insignificance of Venezuela’s 342-Year R/P Ratio

(Energy Analytics Institute, Pietro D. Pitts, 24.May.2018) – Venezuela’s reserves-to-production or R/P ratio was a remarkable 342 times in 2016 based on reserves of 300.9 billion barrels and production of 2.41 million barrels per day (MMb/d), according to BP’s Statistical Review of World Energy.

Today, in a best-case scenario, Venezuela’s R/P ratio could reach 550 times assuming no decline in reserves but a 38% drop in production to 1.5 MMb/d. Stated another way, Venezuela has enough reserves to last for 550 years, up 61% from 2016. In a presumed worst case scenario, if reserves were to declined for numerous reasons by 10% to 271 billion barrels with the same production of 1.5 MMb/d, Venezuela would still have enough reserves to last for 495 years, up 45% from 2016.

When compared to a Reuters’ peer group (comprised of Exxon, BP, Chevron, Total, Eni, Shell, and Equinor, the former Statoil – see chart above) with a combined R/P ratio of 80, Venezuela’s R/P ratio is still a whopping 7x higher than the seven-company peer group.

For what it’s worth, we know reserves are worth nothing in the ground unless they are produced. Maybe it’s correct and better to focus on reserve quality versus quantity but that still doesn’t drive me from my most important point in the case of Venezuela, a country with a lot of potential, but many more wasted opportunities.

Just think what will happen to Venezuela’s R/P ratio as the denominator approaches zero.
***

Vaca Muerta Megaproject – A Fracking Carbon Bomb In Patagonia

(Observatorio Petrolero Sur, 5.Feb.2018) — Vaca Muerta is a leading case for the next generation of fossil fuels. Big Oil and Gas companies are keen to turn it into a success story —which is why we collectively need to put a stop to this if we are serious about restricting oil and gas supply globally, protecting territories and fighting climate change. It is our view that “Killing the Dead Cow”—and thus preventing a further expansion of the fossil fuel industry that would be a door-opener for further projects in the Global South— is necessary to build up pressure for an honest dialogue about “managed decline” and fair transition. The collective success of movements in an emblematic case like this would increase leverage for such a conversation.

Briefing: Vaca Muerta shale play – climate impacts, wealth concentration and human rights abuses.

Argentina ranks in second and fourth place globally in shale gas and shale oil resources. Almost all of this potential is concentrated in “Vaca Muerta” (“Dead Cow”), which has been identified as the biggest shale play outside North America and makes Argentina the third country, after the United States, and Canada, to reach commercial development. Vaca Muerta is presented as a test case for the Global South, and especially for the Latin American region, where several governments are proposing new unconventional projects.

Total estimated resources amount to 19.9 billion barrels of oil and 583 trillion cubic feet of gas. They represent around 50 billion tons of CO2 that are currently locked in the ground which can only be extracted with hydraulic fracturing (or fracking), a highly controversial technique which has been banned in several countries or sub-national entities.

Although it is still at an early stage of development (2 to 4%, 1,500 fracking wells), almost every oil major is present in the region. Ventures include YPF, Chevron, Total, Dow Petrochemical, Petronas, Schlumberger, Shell, Pan American Energy (BP, CNOOC, and Bridas), Wintershall, Statoil, Gazprom, and ExxonMobil.

International involvement is crucial for funding (estimated at tens of billions of dollars), capacity building and governance. Other involved actors include U.S. Department of State, World Bank, Inter-American Development Bank, Citibank, ICBC, and Deutsche Bank.

Regulation and policy enforcement is scarce. Its early development is currently infringing on a range of individual and collective human rights in working-class neighborhoods, indigenous communities, agriculture regions, and protected areas. Fracking is an experimental technique so various accidents have been recorded: radioactive pills have been lost in wells, wells have gone up in flames due to gas leaks, truck accidents have caused spills, pipelines have broken, and five workers lost their lives, among other incidents. Social impacts are also exacerbated.

Vaca Muerta is a complex, multidimensional and global issue. It seems unstoppable, but the venture has shown great structural intrinsic fragility and its real potential has been overhyped. On top of that, its scope and speed have also been reduced by networks of national and international resistance. Across the country, numerous bans on fracking and infrastructure projects have been obtained.

Download the project brief here

***

#LatAmNRG

Shell Made Mistake Pulling Out of Guyana basin

(CaribbeanLife, Bert Wilkinson, 31.Jan.2018) — Now that Guyana’s oil and gas basin has been deemed as one of the hottest and most exciting prospects in the world, Shell Oil has to be regretting its decision to withdraw as an investment partner with United States giant ExxonMobil, which has so far drilled six successful wells offshore Guyana worth about 3.2 billion barrels of oil, officials said Monday, Jan. 29.

Minister of Natural Resources Raphael Trotman said Exxon’s mid 2015 “world class” oil and gas find has clearly taken away all the fears and apprehensions about wasting investor dollars exploring offshore Guyana and Shell is one company which has missed out on the chance to cash in on one of the world’s largest oil finds in more than a decade. Exxon plans to begin producing about 120,000 barrels of oil daily in early 2020. This will make Guyana the largest producer in the Caribbean Community. The others are Trinidad, Suriname and Barbados.

“Shell was with Exxon on the Stabroek block and pulled out. They now maybe rue the day that they ever did that. Now, Shell has signaled that it wants to come back to Guyana,” Trotman noted, saying that all the major oil and gas companies in the world are either vying for their own offshore blocs or buying into smaller companies which have deep water concessions near Exxon’s highly successful offshore fields.

Exxon spokeswoman Kimberly Brasington Monday confirmed that Shell was the original partner with Exxon in the six million acre-plus concession area after Exxon had signed its exploration agreement with Guyana back in 1999 “but chose to pull out. They made the decision not to take the risk. We therefore had to go out there and look for new partners in Hess Oil and Nexen (of China). Yes that was indeed the case,” she said.

Geology and Mines Commissioner Newell Dennison said Shell pulled out about a decade ago and has been sending signals about coming back into the basin but he has seen no paper work regarding this so far.

Exxon and its partners plan to drill 17 wells in the first phase of their offshore venture and up to 40 others ion phase two. The company has already filed paperwork for permission to begin preparations for phase two of its offshore operations and has begun public consultations about this phase.

Spain’s Repsol, Tullow Oil of the United Kingdom, Chevron, Brazil’s Petrobras, Eni of Italy, TOTAL of France and British Petroleum are among big oil players all vying for participation in the country’s fledgling oil and gas sector.

“These companies are only expressing interest because ExxonMobil has de-risked the basin. Zero from zero is nothing. If you have oil and no one is troubling it, then it is worth zero. The oil may be worth a lot, but only if it is produced. We are moving to production, but it took ExxonMobil to find what others have been looking for,” Trotman said.

***

Big Oil Flocks To Argentina As Permian Land Prices Skyrocket

(Oilprice.com, Charles Kennedy, 15.Sep.2016) — The Permian Basin has become so hot that some oil companies are starting to stay away, instead looking at frontiers that are less picked over.

BP is one such company. The British oil giant’s CEO Bob Dudley said that land in the Permian has become too expensive, and instead he is looking to expand operations in Argentina, where the vast Vaca Muerta shale basin offers appetizing opportunity.

In an interview with Bloomberg TV from Buenos Aires, Dudley said BP is planning on acquiring more assets in the Vaca Muerta. And it isn’t just the “enormous potential” from the oil and gas reserves in the shale basin, but also the friendly policy put forth by the new Argentine government led by President Mauricio Macri. “I’m really encouraged by what I see,” Dudley said. “There’s a lot of future here.” BP has a joint venture with Bridas Corp. – BP owns 60 percent of Pan American Energy LLC and Bridas controls the other 40 percent. BP will expand its presence in Argentina through this JV.

Argentina is quickly becoming one of the few countries that has achieved shale development outside of North America. One of the biggest incentives the government has offered is regulated oil prices, set at levels higher than the international price. Several of BP’s peers are already drilling in the Vaca Muerta, including Chevron, ExxonMobil, and Royal Dutch Shell.

The state-owned YPF said that it would need investments totaling about $200 billion to fully exploit the Vaca Muerta.

Exxon said earlier this year that it might spend more than $10 billion in Argentina, building on several pilot projects. The investments would span decades. “I am very encouraged by the changes that have occurred here in Argentina, with the change in government,” Exxon’s CEO Rex Tillerson said in June. More and more companies are starting to build up their presence in Argentina.

Meanwhile, back in Texas, land prices are shooting through the roof. SM Energy recently spent more than $39,000 per acre for land in the Permian, which some are calling the “hottest zip codes in the industry.” That is pricing out some companies and forcing many to look elsewhere. With West Texas saturated with drillers, Argentina stands to benefit.

***

Energy Analytics Institute (EAI): #LatAmNRG

Mange Infested Dog Roams PDVSA’s Paraguana Refining Complex

Amuay refinery in Venezuela. Source: Pietro D. Pitts

(Energy Analytics Institute, Pietro D. Pitts, 14.Sep.2016) – On a brief taxi ride from Punto Fijo’s Josefa Camejo International Airport to the main highway that crosses this city and connects to one of the many refining complex entrances here, a scrawny dog with mange can be seen emerging from an endless pile of discarded trash.

In this small refining town broken beer bottles, dirty diapers, and discarded personal items cling to trees and bushes as far as the eye can see in either direction along the short stretch of highway that separates the two massive refineries here: Amuay and Cardón. The refineries comprise the lion’s share of the processing capacity at PDVSA’s 971,000 barrel-a-day Paraguana Refining Complex, also commonly known as the CRP by its Spanish acronym. The CRP refineries combined with three others spread across this country have produced cumulative financial losses of $53 billion in the last eight years. Definitely not chump change.

Venezuela is home to a wealth of natural resources from gold to iron ore and holds the world’s eighth-largest natural gas reserves and the largest crude oil reserves, according to BP’s Statistical Review of World Energy. Yet, images of the immediate surroundings of the CRP paint a different financial storyboard about the well-being of Venezuela’s all important oil sector – which generates 96 percent of the country’s foreign export earnings.

Despite Venezuela’s claim to fame in terms of the size of its oil reserves, the South American country has been reduced to importing refined products because its refineries can’t meet local demand. The country’s refining sector is in a virtual state of emergency due to low processing rates, numerous unplanned plant stoppages, as well as accidents and injuries that state oil company Petróleos de Venezuela S.A. prefers to not report, according to oil union officials here. All summed up, PDVSA’s refining sector – especially within Venezuela – is a financial drain on the company as operating losses continue to mount year after year.

Venezuela – a founding member of the Organization of Petroleum Exporting Countries or OPEC — is engulfed in an economic crisis that started way before oil prices began their long downward trend. Political uncertainty, an ongoing threat of asset expropriations as well as currency and price controls have only helped to starve the capital-intense oil sector here of necessary foreign investments. PDVSA, as the Caracas-based company is known, continues to lack the necessary cash to properly revive the country’s oil sector in its majority partnership role, while local Venezuelan oil companies are few and in between and often lack the financial firepower of many of their international peers.

Many Venezuelan-based economists from Datanálisis President Luis Vicente León to Ecoanalitica Director Asdrubal Oliveros blame part of the economic crisis on the failure by former populist Venezuelan President Hugo Chávez to divert financial resources to the country’s private sector importers and the all-important upstream, midstream and downstream sectors during his tenure from 1999-2013 amid robust oil prices. In general, PDVSA’s problems mirror Venezuela’s economic crisis. The country’s economy has not fared any better under the presidential tenure of Nicolas Maduro, the man hand-picked by Chávez to succeed him prior to his untimely death in 2013. By most people’s accounts, considering the scarcities here of everything from milk to basic medicines, widespread looting, and runaway crime, things are much worst.

Oil-dependent Venezuela continues to rely heavily on its exploration and production or upstream sector to generate the bulk of its petroleum sector revenues. However, Venezuela’s oil output appears to be on an unstoppable decline, reaching 2,095,000 barrels per day in July of 2016 compared to 2,361,000 barrels per day in 2014, according to Organization of Petroleum Exporting Country’s Monthly Oil Market Report, citing secondary sources. Data from direct communications is just slightly more optimistic. Nevertheless, the downward continues.

FINANCIAL IMPACT

Oil workers in red work overalls can be seen everywhere in the streets of Punto Fijo, either hailing taxis or waiting in the shade of trees for public transportation. Due to the ongoing economic crisis that has also affected Venezuela’s transportation industry – like countless other industries here – many cars and taxis in these parts and others in this resource-rich country don’t have air conditioning and/or visually lack some part or another such as a rearview or side mirror, working locks, a speedometer or a functioning trunk. The market for used tires, or anything used, is booming in Venezuela as new tire imports have come to a virtual halt.

Inside the CRP complex – physically off limits to visitors without permission from PDVSA but very visible through the wired fences — the scene within is arguably not much better, as years of under-investment on maintenance, upgrades and safety protocols by the state oil company have unfortunately left the refineries and the grounds similarly forsaken. Against a backdrop of a country in the midst of an ongoing political crisis, many refinery workers here say a combination of 12-16 hours work days, a lack of employee benefits and arguably the lowest salaries for refinery workers anywhere in the world (in dollar terms) has also taken a toll on them as well as their colleagues.

Whether the refineries or the workers are in worst condition, is a judgment call, but at first glance they both appear to be on their last legs.

In the last eight years, PDVSA’s refining, trade and supply division accumulated net losses in each of the consecutive years since 2008, which was the last time the division reported a positive gain from its combined operations in Venezuela. All tallied, the division accumulated losses of $53 billion during 2008-2015, according to data compiled from PDVSA’s financial reports.

“With a cash crunch they have focused all efforts in the upstream where you make the money,” said Francisco J. Monaldi, Ph.D. and Fellow in Latin American Energy Policy & Lecturer in Energy Economics at Rice University’s Baker Institute for Public Policy in an e-mailed response to questions. “The lack of human resources adds to the lack of investment to generate the operational difficulties.”

Refining sector stoppages and costly repairs are generating large production and economic losses for PDVSA, said oil union representative Larry López during a late afternoon sit down chat at a run-down restaurant just two blocks from the Amuay refinery.

Venezuela doesn’t need refineries to be a major exporting country, former PDVSA President Rafael Ramírez told me in 2014 during a company-sponsored media trip to visit the CRP on the anniversary of the deadly explosion at Amuay that left at least 48 people dead. To this day, it is unclear if those comments justify the lack of attention that has been given to the country’s refining sector even now under the leadership of Stanford-trained Eulogio Del Pino.

Venezuela’s Information Ministry, the clearing house for questions for all of the country’s ministries, and media officials with PDVSA and the Venezuelan Oil Ministry did not reply to emails seeking comment on the company’s refining sector strategy or general comments for this article. Venezuela’s newly elected Petroleum Chamber President was also unavailable to comment on this article.

“Our refineries have always produced products to cover demand in the domestic market as well as the Caribbean. To export to the US and Europe we really don’t need to have refineries,” said Carlos Rossi, president of Caracas-based consulting firm EnergyNomics and formerly an economist with the Venezuelan Hydrocarbons Association or AVHI, in an interview in Caracas.

“Because the refineries have been seen as a low priority, PDVSA has focused more attention on the Faja,” said Rossi referring to the Hugo Chávez Oil Belt, formerly known as the Orinoco Heavy Oil Belt, home to one of the largest non-conventional oil deposits in the world.

PDVSA’s total hydrocarbon workforce mushroomed during 2000-2015 as the company stressed more importance on political affiliation and less on university or technical experience, said Eddie Ramírez, the director of Gente del Petróleo and a former PDVSA employee, in a phone interview from Caracas. At year-end 2015, PDVSA employed 114,259 direct hydrocarbon sector workers, up from just 42,267 when Chávez rose to power in 1999, according to PDVSA data.

PDVSA’s refining sector, which employed 9,391 workers in 2015, represented just 8.2 percent of the company’s total workforce in that year. In 2010, just 3,584 workers were employed in the refining sector, which represented a mere 3.8 percent of PDVSA’s total workforce.

Given PDVSA’s cash problems and its inability to generate positive free cash flow, the company’s plans to build six new multi-billion dollar upgraders, boost oil production and refining capacity to 6,000,000 barrels per day and 1,800,000 barrels per day respectively by 2019 seem to be optimistic and represent a major challenge for the state oil company.

REFINING CAPACITY

PDVSA owns six refineries in Venezuela, which the company reports are strategically located to supply refined products to its major consumers. The refineries – which had a total combined processing capacity of 1,303,000 barrels per day, as of year-end 2015 – produce a product slate including but limited to: 91 and 95 grade gasolines, jet and diesel fuel, light naphtha, liquefied petroleum gas, solvents and residuals.

Due to a combination of problems, the six refineries were just processing a combined 616,000 barrels per day in August 2016, translating into an average utilization for PDVSA’s domestic refineries of 47.3 percent, said Ivan Freites, an oil union official with the United Federation of Venezuelan Oil Workers or FUTPV, which represents a large portion of PDVSA’s workers, during an interview in Punto Fijo.

Two refineries are located in Venezuela’s western Falcon state including: Amuay, with a 645,000 barrel-a-day processing capacity; Cardón, with a 310,000 barrel-a-day capacity; while the smaller Bajo Grande is located in Zulia state, with a 16,000 barrel-a-day capacity. Together, the three refineries make up the CRP, according to PDVSA’s annual report for 2015, with a product slate destined 55 percent for the domestic market and 45 percent for the export market.

More centrally located is the El Palito refinery in Carabobo state with a 140,000 barrel-a-day capacity while the remaining two refineries located in Venezuela’s eastern Anzoátegui state include Puerto La Cruz, with an 187,000 barrel-a-day capacity and the smaller San Roque, with a 5,000 barrel-a-day capacity.

In 2015, Venezuela’s domestic refining sector reported average utilization rates of 66.2 percent, according to PDVSA’s operational and financial data from last year. This compares to an average utilization rate of 70.6 percent in 2014 and an average utilization rate of 72.8 percent during 2011-2014.

The CRP has suffered much more deterioration and lower utilization rates than the other refineries. Average utilization rates at the complex reached just 60.5 percent in 2015, down compared to 72 percent in 2011 and an average 67.7 percent during 2011-2014, according to PDVSA data, which differs to what oil union officials report.

“Average utilization rates at the CRP were just 53 percent in 2015,” said Freites, a stocky, long-time oil union official. “The complex is damaged to the point that it almost makes better sense to build new refineries than to fix the incalculable problems that exist.”

In contrast, average utilization rates at El Palito reached 71.4 percent in 2015, down from 90.7 percent in 2011 and an average 89.5 percent during 2011-2014 while at Puerto La Cruz rates reached 93.2 percent in 2015, up from 88 percent in 2011 and an average 88.6 percent during 2011-2014, according to PDVSA.

Figures reported by PDVSA are always overly positive and extremely optimistic, said Freites, 53, during an early happy hour brunch which included Venezuelan ‘tequeños’, a special mix here of fried cornmeal with cheese on the inside accompanied with another popular import here: whisky.

From oil towns in Midland, Texas to Maracaibo to Monagas and Punto Fijo in Venezuela, oil men have at least one thing in common: their love for food and the typical companions Grants, Chivas, and the rest of the supporting cast. However, the economic crisis here has forced many oilmen to settle for whatever is available at the kitchen table. With bottled water sometimes unavailable, Johnnie Walker becomes a name to trust.

PDVSA data differs significantly from that provided by oil union officials here and other international agencies due to the opaque operating and reporting nature of the state oil company. A quick comparison of Venezuela’s production figures as reported by PDVSA and Venezuela’s Oil Ministry as compared to figures reported by OPEC in its monthly reports or even BP in its yearly statistical review serve to prove the point.

Cash-strapped PDVSA recently reiterated plans to boost its domestic refining capacity to 1,800,000 barrels per day by 2019 but has not detailed plans for its existing refineries – which continue to process at less than optimal levels – and has been quiet about plans to build new refining capacity. Only the Puerto La Cruz refinery is known to be undergoing a deep conversion process aimed at boosting its ability to process heavier Venezuelan crudes, according to PDVSA.

Recent agreements signed by PDVSA with authorities from the governments of Aruba, Venezuela and Citgo Aruba related to the restart of a 209,000 barrel-per-day refinery located in San Nicolas, Aruba point to potential issues PDVSA may have building new refineries or even six planned new upgraders, a special type of refinery, due to financial constraints whereby at first glance it appears easier to buy refining capacity than build it from scratch.

It is not a priority to build refineries since it is much better to invest in upstream activities to maximize your limited resources, said Monaldi, also the founding director and a professor at the Center for Energy and the Environment at IESA in Venezuela. New refineries are not great moneymakers and require low capital cost to make any money, he said.

CRP REALITIES

Just a handful of streets separate the Amuay refinery from the Las Piedras fishing neighborhood. Not far away, rusted out American gas-guzzlers like the Ford Maverick and even the Ford F-1, seemly pulled straight off the set of the 1970’s U.S. television show Sanford and Son, can be seen littering the narrow streets here as well as the ones behind Cardón refinery in the neighborhood that bears its name, Punta Cardón. Residents of the latter neighborhood, basically live under the constant flare of gas and whatever else might come from the refinery that is practically in their backyards.

All of PDVSA’s Venezuelan refineries seem to suffer from some type of operational deficiency. At any given time and sometimes at the same various units from different refineries are down for unplanned repairs ranging from the Amuay flexicoker, alkylation, and catalytic units; the Cardón distillation units; the three Puerto La Cruz atmospheric distillation units to the El Palito FCC unit, thus, drastically reducing domestic processing capacity and output, said Frietes. On a number of occasions in the past two years complete operations at PDVSA’s principal refineries have been halted due to operational issues.

Reduced utilization rates at the CRP have created shortages of oil derivatives including unfinished oils, lubricants, finished motor gasoline and special naphthas. As a result, Venezuela is importing more derivatives such as products for gasoline as well as light oils from the U.S. and even far off countries such as Russia and Algeria to mix with its heavy and extra-heavy crude oils produced in the Faja, even as it continues to offer oil to regional neighbors ranging from Cuba to Nicaragua under attractive financing terms.

Despite the need to import oil and products, Venezuelan oil exports continued to member countries belonging to regional initiatives ranging from the Cuba-Venezuela Cooperation Agreement (CIC) to PetroCaribe but declined 6.6 percent to 185,000 barrels per day in 2015 compared to 198,000 barrels per day in 2014, according to PDVSA data. The volumes in 2015 were down 27.3 percent compared to 255,000 barrels per day supplied to member countries in 2009.

“PDVSA continues to give away oil while in Venezuela inventories of gasoline, gasoil, diesel, LPG and lubricants are insufficient to cover domestic demand,” said Freites, a stern critic of PDVSA.

Operating deficiencies in Venezuela have created export opportunities for refiners along the North American Gulf Coast. U.S. net imports of oil and refined products from Venezuela ranging from distillate fuel oil to MTBE (oxygenate) averaged 751,000 barrels a day in the 12-month period ended June 2016 compared to 711,000 barrels a day in the same year-ago period, according to data posted to the U.S.-based Energy Information Administration’s website. However, U.S. net imports of the same products from Venezuela averaged 1,590,000 barrels-a-day in the 12-month period ended June 2001 in the early years of the Chávez government.

Productivity at the CRP is down due to the increase in workers and the decline in output, said a former PDVSA refinery safety manager who worked for 29-years at the company. He didn’t want to reveal his name since he still does contract work for PDVSA in Punto Fijo and feared retaliation from the company. Oil workers must be oil workers and not politically divided like today as it is affecting the productivity of the employees and the company, he said during an interview at a small building in downtown Punto Fijo which serves as the local office of the FUTPV.

“It is still politically hard to justify massive Imports. But the economics are very clear. In the long run, if you can sustain international market prices in the domestic market you may be able to open the downstream to private investment,” said Monaldi.

REPLACEMENT PARTS

Grade school kids and university students blend into the scenery of an oil town gone bust. Many will never reach PDVSA’s professional ranks unless they have connections within the company and/or support the socialist ideas, or at least those expressed by Maduro and his government. More than anything, PDVSA refinery workers in faded red work overalls dominate the landscape in Punto Fijo and the surrounding towns seemingly unaffected by hot weather, strong wind gusts and refineries constantly emitting gas and other substances into the air. What has affected them is the continued economic crisis and low wages, many say here.

Under the sweltering sun, improvisations are the order of the day at the CRP for many refining workers frequently forced to scramble to solve recurring small problems turned into major ones due to the lack of basic replacement parts. The practice of using emergency stapling techniques to fix routine vapor leaks at processing units, or product leaks along pipelines, is commonplace nowadays, says Freites, who is the spokesperson for many refining and oil union workers not willing to go on record due to fear of retaliation or work dismissal from PDVSA.

Similar scenes are said to resonate at the Puerto La Cruz and El Palito refineries, said José Bodas, another oil union official, in a telephone interview from Carabobo state.

PDVSA is using stapling methods to fix pipeline and unit leaks instead of properly fixing or repairing them due to a lack of funds to procure the necessary replacement parts, said the former PDVSA safety manager. PDVSA is more reactive than preventative and is conducting more corrective maintenance than preventative maintenance due to the lack of financial resources. It’s not necessarily a money thing but just the way PDVSA works today, he said.

Lackluster security measures to protect the PDVSA refineries and workers have allowed crime incidents to edge up within the complexes’ gates. Stolen work bags and purses, missing clothing and other personal items and car break-ins are daily work hazards beyond those related to working in a domestic refining sector where accidents, sadly enough, are more the norm than in many other countries with refining operations. In the country with the highest murder rate in the world, according to the website WorldAtlas.com, not even the confines of the refinery complex are safe enough to shield workers from the realities on the streets in Punto Fijo, Ciudad Ojeda, Anaco and other major oil and gas towns across Venezuela.

Safety is no longer a priority for PDVSA as funds are being spent haphazardly on non-necessary projects, said the former PDVSA safety manager with his salt-and-pepper mustache and Italian surname. He says many current PDVSA bosses only respond to accidents when they are officially reported by the media.

On its part, PDVSA claims there were just 154 total injuries at the CRP, El Palito and Puerto La Cruz refineries in 2015. This compares to 173 in 2014, 276 in 2012, and 298 in 2010, according to PDVSA data in its social and environmental statements on its website. Still, union officials here say the numbers don’t reflect the real case scenario since a lot of accidents and injuries go undocumented.

As the sun falls over the horizon, workers use their mobile phones in some areas of the CRP seemly unaware of the work hazards. Thieves that regularly enter the complex via the various gate openings to rob copper, bronze, nickel as well as other materials and equipment, also rob workers of their mobile phones whenever possible. The resale market for mobile phone parts is big in Venezuela amid an economic crisis that has impacted not just food importers, but the telecommunications and airline industries as well, among others.

MULTIPLIER EFFECT

The multiplier effect on this town and surrounding communities can visibly be seen in the fishing regions of Punto Fijo from Las Piedras to Los Taques where white and blue collar oil workers in the good ole days would be seen almost everywhere eating and taking in the sun with family and coworkers or clients. That’s not the scene here anymore. Local mayors have for years promised money to fishing communities and fishermen in the region but many, like other family members, remain unemployed. Many have turned to crime to rob and steal things they can resell to get basics like food or medicines for their families.

“Whatever was taken over from the transnational companies doesn’t work here,” said Jaime Antonio Diaz, 44, during an interview at a lightless restaurant in Los Taques. “If the Fourth Republic was bad, then the Fifth Republic is the worst,” he said as a stray cat entered the premise through an entrance door kept open to let in fresh air and natural light.

Diaz’s comments refer to the two most recent republics in Venezuela. The Fourth Republic was the period in Venezuelan history marked by the Punto Fijo Pact in 1958 for the acceptance of democratic elections in that year. Nationalization of Venezuela’s oil industry was a point frequently criticized by Chávez as a one of many failures of the Fourth Republic. The Fifth Republic Movement (MVR by its Spanish acronym) was a leftist political party founded in the late 1990s by then-presidential candidate Chávez. It was later dissolved in 2007 to give way to Chávez’s new political party the United Socialist Party of Venezuela (PSUV).

From refinery workers fleeing low pay and increased worksite accidents to unemployed fishermen and engineers driving taxis, Punto Fijo is going through what many say is one of its worst periods in decades.

Within visible distance of the dirt roads of Los Taques nearly 30 or more towering wind power turbines can be seen off the immediate horizon on the return trip from Los Taques to Punto Fijo. Despite the strong winds here, the turbines are not operational and have yet to generate power for commercial or domestic usage, according to Freites, owing to corrupt deals between Venezuelan government officials and the company that supplied the towers. Venezuela – which has long suffered from a natural gas deficit in its industrialized western Zulia state – has plans to use non-associated natural gas production from the Cardón IV offshore project as well as power generated by these turbines to reduce the need to import costly diesel fuel. From the look of things here, it is quite obvious the latter is not something PDVSA officials want to openly talk or brag about. However, it’s safe to assume somebody made a killing on the turbine deal.

While the wind turbine project – like others envisioned in this small country with a population close to 31 million – looks good on paper in the boardroom, the corruption here more often than not turns the project into a financial bonus for some individuals at the costs of local jobs and wasted resources for a country teetering on the brink of financial default.

One thing continues to thrive here: the contraband of fuels. Contraband of cheap Venezuelan gasoline continues to nearby Colombia, Guyana, Trinidad and Tobago and Aruba despite efforts to deter it and a decision by this government to boost gasoline prices in February of 2016 to 6 bolivars a liter from 9.7 centavos. While demand for gasoline has declined in Venezuela due to economic crisis and a higher cost for gasoline, its elevated price is still quite low compared to nearby markets; thus, making it still very attractive for trade internationally.

Large fishing boats – refitted by the Venezuelan military and now under the control of military officers that pose as fishermen – continue to leave the pier near Las Piedras with domestic fuel. These so-called ‘gasoil mafias’ continue to exchange Venezuelan refined products on the high seas in international waters in seemingly another way the military is kept happy and loyal by Maduro and company, according to Rossi, author of the book ‘The Completion of the Oil Era: The Economic Impact (Energy Policies, Politics and Prices).’

DISMAL FUTURE

Barefoot grade school kids with just shorts on, play baseball on the dirt roads and side streets in numerous poor communities in and around Punto Fijo. Using broomsticks and makeshift baseballs, they can be seen enjoying their game despite the extreme poverty they live in and not having gloves. Despite being a Latin American country, baseball, not soccer is the sport of choice here and seen here as the way to rise out of poverty, at least for many males. On the other side, females here dream of being Ms. Venezuela or Ms. World.

“This government only saves itself by changing the model,” said León, referring to what the Maduro government needs to do to stay in power.

Whether the model change comes tomorrow, next year or in 2019, Venezuela’s hydrocarbon sector is in need of drastic changes. However drastic and radical these changes may have to be, investors will continue to keep Venezuela on their radar screens, hoping for a chance to invest in the country with one of the largest resource bases on the planet. However, from the looks of things, with foreign diplomats and oil men continuing to get kidnapped here, Venezuela is not yet ready for the massive return of foreign companies or better yet the foreign companies aren’t ready to return under the existing circumstances.

The recently announced departure of Schlumberger, the world’s largest oilfield services company, should serve as a reminder to potential investors about the condition of the oil sector here which still contends with a massive brain drain of national and international talent from companies from Halliburton to Total, Chevron, Statoil and a host of smaller companies lacking the deep pockets to survive without quarterly or sometimes monthly cash flow.

“The low wages continue to produce brain drain and that makes worse the operational problems,” said Monaldi.

Top Venezuelan officials and PDVSA executives blame the economic and petroleum sector crisis here on an economic war waged they say by opposition leaders with the backing of persons and institutions from Bogotá, Miami, Washington and even Madrid. The open denial of internal problems created by widespread mismanagement, errored financial and economic decisions as well as a number of actions including asset expropriations have handcuffed the country’s private sector and brought the all-important petroleum sector to a near halt. That hasn’t stopped other countries from stepping in to fill the void when and where it is possible. Case in point: Algeria just started to supply oil to Cuba amid mounting issues at PDVSA.

The Amuay explosion on August 25, 2012, as regrettable as it was, was an early wake-up call about what PDVSA had (and has) become after more than a decade of so-called socialism. Amid continued corruption at PDVSA and a hydrocarbon sector where funds mysteriously disappear, the financial and economic dreams of a handful or more have smashed the hopes of many in Punto Fijo and all across this major oil producing South American country.

“A lot of people here are changing sides due to the mismanagement of resources by the Chávez and now the Maduro government,” said Ali, a 50-year old taxi driver of an old Toyota Corolla, who requested his last name not be used in this article for fear of retaliation from PDVSA or government officials.

Ali’s sentiment resonates across all parts of this country from many petroleum engineers and other professionals that have left the industry to drive a taxi, wait tables or do anything where the wages are better.

“The sad part of all this is that we could have another August 25th,” said Freites.
***
(Editing by Peter Wilson)

YPF Announces Plans for 20 Areas in Río Negro, Chubut

(Energy Analytics Institute, Jared Yamin, 7.May.2016) – YPF plans to divest of as many as 20 areas in Argentina where the company has a partial interest or where the areas do not offer important earnings.

YPF has put up on the market 6 areas in Río Negro, including some with good returns, reported the daily newspaper iEco.

In Chubut, the company has already identified 20 areas it plans to divest, according to the daily. The company plans to follow a similar strategy in Neuquén and Santa Cruz, although details about these areas have yet to be revealed publicly.

In Neuquén in the Vaca Muerta there are plans in discussion regarding 20 rigs. According to industry data, activities in the area are estimated to fall by 30 percent and by as much as 50 percent in the reservoir exploited by YPF and Chevron.

***

H5 Settles with Chevron Over Ecuador Lawsuit

(Chevron Corporation, 3.Sep.2015) – Chevron Corporation reached a settlement agreement with H5, a California-based e-discovery and litigation services firm.

In the settlement, H5 has withdrawn its support from the litigation against Chevron in Ecuador and has assigned its 1.25% interest in the $9.5 bln Ecuadorian judgment to Chevron. In 2014, Chevron obtained court-ordered discovery from H5 for the company’s role in supporting and advancing the lawsuit led by Steven Donziger, which a federal judge found to be tainted by fraud.

“Chevron is pleased that H5 has ended its association with this scheme,” said R. Hewitt Pate, Chevron’s vice president and general counsel.

“Chevron is also pleased that H5 has taken the further action of disclaiming any interest in the Ecuadorian judgment and relinquishing its interest to Chevron. It remains Chevron’s intent to hold accountable those responsible for what a federal judge found to be a fraud.”

H5 became involved in the case in 2009, supporting a variety of activities. It helped enlist funding from Burford Capital Limited, a U.K.-based litigation funder, and James Russell DeLeon, a Gibraltar-based businessman. It also played an integral role in bringing the Patton Boggs law firm into the case to provide legal support. Burford, DeLeon and Patton Boggs have all since withdrawn their support from the fraudulent lawsuit and settled with Chevron. H5 also assisted Donziger’s team in responding to Chevron’s discovery related to the Cabrera Report, an Ecuadorian court-ordered damages report that a U.S. federal court later found was secretly authored by Donziger and Stratus Consulting, a Colorado-based environmental consulting firm. Stratus has also subsequently settled with Chevron.

On 4.Mar.2014, Judge Lewis Kaplan of the U.S. District Court for the Southern District of New York ruled that the $9.5 bln judgment against Chevron in Ecuador was the product of fraud and racketeering activity, finding it unenforceable in the United States and holding Steven Donziger liable for RICO violations.

In a public statement released today H5 stated: “Today’s agreement with Chevron resolves all outstanding issues relating to H5 in the Lago Agrio matter. Beginning in 2009, H5 proceeded in good faith to provide a variety of electronic discovery and advisory services in relation to the Lago Agrio case in Ecuador. In this as in other matters, H5 was called on because of our expertise in complex litigation and investigations globally. Last year, Chevron obtained a ruling in its favor from U.S. District Judge Lewis A. Kaplan in New York. Although H5 was not a party to that lawsuit, H5 has reviewed Judge Kaplan’s extensive findings. In view of those findings, among other reasons, H5 has decided it does not want to profit from the Ecuadorian Judgment and is therefore relinquishing any interest in the judgment.”

In settling this matter, H5 is the latest party to disassociate from Donziger and the Lago Agrio Plaintiffs.

In addition to the withdrawal of Woodsford, Burford and DeLeon, who all repudiated the unethical tactics of Donziger and abandoned their financial interest in the fraudulent lawsuit, more than a dozen former insiders and allies testified against Donziger, including his former co-counsel, environmental consultants, funders, employees and Ecuadorian collaborators.

Chevron still has claims pending in Gibraltar against Amazonia Recovery Ltd., a Gibraltar-based company set up to receive and distribute funds resulting from the Ecuadorian judgment, and Pablo Fajardo, Luis Yanza and Ermel Chavez, who are directors of the company. Chevron has alleged that Amazonia is merely a vehicle to perpetuate the ongoing fraud.

***

Q&A with Chevron LatAm’s Susana Brugada

(Energy Analytics Institute, Pietro D. Pitts, 7.Aug.2013) – Chevron Latin America Business Unit Public Affairs and Communications Coordinator Susana Brugada spoke with Energy Analytics Institute in a brief interview from Caracas, Venezuela.

What follows are excerpts from the brief interview.

EAI: Is Chevron continuing to export gas to Venezuela from Colombia?

Brugada: Ecopetrol and Chevron continue to export gas to Venezuela. The gas contract expires in 2014.

EAI: Will PDVSA be able to export gas to Colombia in 2014?

Brugada: It is uncertain whether PDVSA will have the capacity and actual gas to export to Colombia in 2014 as its officials have proclaimed.

EAI: Does Chevron have any issues getting paid by PDVSA for gas exported from Colombia?

Brugada: It has been rumored that Ecopetrol has had issues, but for Chevron this is a “non-issue”.

EAI: Is there a large demand for Venezuelan gas in Colombia?

Brugada: To my knowledge Colombia has no real desire to import gas so it would be interesting to know what PDVSA’s plans are for these projected future gas exports to Colombia. Maybe PDVSA has plans to export this gas to Panama or elsewhere?

***

Journalist Round Table with Rafael Ramirez

(Energy Analytics Institute, Piero Stewart, 31.Jul.2013) – PDVSA President Rafael Ramirez held a small round table with journalist in Caracas, Venezuela.

What follows are excerpts from the discussion.

Rafael Ramirez on the petroleum sector and the current government administration under Venezuelan President Nicolas Maduro:

Rafael Ramirez: We have firmly established our political strategy related to the oil sector.

We are currently entering a stage of production expansion and will concentrate all of our work and energies on reaching our goals and increasing production capacity in Venezuela.

If we look back, we received the petroleum sector (in late 1999) during a phase of privatization in the downstream, midstream, and upstream sectors, especially PDVSA.

But Venezuela has entered a new expansion stage of petroleum sector policies and PDVSA is entering into the Expansion Phase of the Faja development.

In terms of the sabotage that our oil industry has seen, we continue to feel the effects of these actions and damage mostly in Western Venezuela where we have experienced a drastic drop in production.

After the oil sector strike in 2002-2003, we established our petroleum sector plan. We oversaw the migration of operating contracts (of 33 companies with contracts we saw 31 of the companies migrate to the new contracts without problems, only ExxonMobil and ConocoPhillips decided to exit the migration process and eventually exit Venezuela altogether). We also oversaw changes and modifications to laws, fiscal changes such as reestablishing royalties and taxes.

The year 2010 marked the beginning of the new expansion stage for the Venezuelan oil sector. From 2004-2010 we worked on nationalization, migration process to new contracts, and PDVSA regaining control of the oil sector by increasing its participation from an average 49% in JVs to a minimum of 60%. We are now in the stage of increasing the production of oil.

In all, we spent ten years (2000-2010) recuperating PDVSA, under the watch of late-President Hugo Chavez Frias.

Ramirez: We are employing many engineers from public schools here in Venezuela for various jobs, including rig operations.

On the petroleum sector expansion process:

Ramirez: In 2013, we have been concentrating our efforts on recuperating production capacity of 4 MMb/d by year end 2014 and 6 MMb/d by year end 2019 (of which 4 MMb/d will come from the Faja). For this to happen, it is fundamental that we move two elements: development of the Faja and development of an industrial base. [See also information on industrial meetings with private sectors across the country].

We need to construct a production capacity of 3 MMb/d in the Faja. This runs parallel with work we have been conducting in the Faja related to the industrial meetings with the private sector.

The government is working hard with the private sector for the second phase of the Faja development. Hence the Six National Productive Meetings we had to gauge interest in the private sector to participate in projects with the government and PDVSA.

We are working with private (transnationals) companies as well as the Venezuelan Hydrocarbon Association or AVHI but I must reiterate: “The companies that do not want to help PDVSA increase its production capacity can simply leave the country.”

We have received positive feedback from CNPC and Chevron and we are awaiting response from other companies such as Repsol, among others, in terms of new financing deals related to petroleum sector projects.

We plan to create investment funds for all the Faja JVs whereby “the Venezuelan citizens” will participate.

The government will create four investment districts in the Faja. In Sep.2013 the government will announce plans and create development schemes, special fiscal schemes for the four districts that are located in each of the four Faja blocks.

Ciudad Bolivar will be the main city that Venezuela will use for the development of the Faja since it already has an airport and universities.

Development of the Faja will be the most important prospect for Venezuela in this Century.

The government is working with private companies regarding funding and the use of money solely to increase production.

The government realizes that a number of private companies that have converted to JVs have had problems increasing production (operating costs around $12/bbl, including G&A). Regardless, the government wants the companies to maintain operations in Venezuela and increase production. However, private companies that cannot maintain these operating costs should be operated by PDVSA. We are looking to drastically reduce overhead costs. Again, we don’t want small operators to leave, but we want them to merge their operations to reduce overhead so that they can focus on increasing production.

We are starting a push for reduction of costs and more efficiency in our production. In the Western region of the country we have had a lot of success implementing this strategy and we have stopped the production declines in the region.

The government wants companies in Zulia in Falcon state to be more efficient and is trying to help them reduce their overhead.

On the Faja reservoir spanning into Colombia:

Ramirez: The Faja does not extend to Colombia, only to Guarico state in Venezuela in its most western extension. There are individuals in Colombia that are trying to convince investors that Colombia shares the same geology as Venezuela, which is not true. Pacific Rubiales has sold a lot of stock selling this story to investors. The Faja formation in Venezuela is different than the one in Colombia.

On the Chinese Fund and other financing issues:

Ramirez: Close to 94% of foreign income that Venezuela generates comes from the petroleum sector.

Venezuela will sign a $5 bln funding (Fondo Chino or Chinese Fund) in Sep.2013 in the presence of President Nicolas Maduro in China.

The amount of barrels that are sent to China to repay loans varies each month due to changes in oil prices. When oil prices are high, the barrels that need to be sent to China decline, while any excesses are returned to PDVSA.

We sold $21.9 bln to the Venezuelan Central Bank or BCV during 2001-Jun.2013. In 2013, we plan to sell $47 bln to the BCV.

In 2012, PDVSA paid down debt by about $4 bln, this figure stood at $34.4 bln at YE:12

Money on our Balance Sheet as of June 30, 2013 ($12 bln) includes investments (commercial credit) from Rosneft, CNPC, Gazprom, Chevron. Money from new JVs could be used in the SICAD weekly auctions when the companies need access to Bolivars. This will also reduce the companies’ needs to participate in illegal activities to obtain Bolivars.

PDVSA will not issue more debt in USA dollars but instead in Bolivars as it is easier to pay back this debt in the local market than in dollars.

On Venezuelan windfall tax scheme:

Ramirez: The following table (See Table 1) lays out Venezuela’s windfall tax scheme.

Table 1: Venezuela windfall tax payment to Fonden

Price of oil ——- Payment % to FONDEN

$80/bbl ——— 20%

$80-$100/bbl —- 80% of the difference

$100-$110/bbl —- 90% of the difference

>$110/bbl ——– 95% of the difference

Source: PDVSA

FONDEN is a national development fund which is similar to a fund that is run by the Norwegians. “I don’t see anybody criticizing the Norwegians,” but this government is overly criticized.

On oil exports, shale developments worldwide and other issues:

Ramirez: PDVSA is an operational company. We are constantly balancing things out. We have debts but we have revenues. We have financing but we have capitalization.

Increases in interest rates under the Petrocaribe initiative were not called for by PDVSA. The conditions remain unchanged.

Venezuelan oil exports are down due to increased use of diesel in the domestic market to generate electricity.

Shale oil developments do not affect Venezuela. We are not worried about shale oil developments going on worldwide. However, most of the shale resources in Venezuela are located in Maracaibo Lake area where they amount to about 13,000-19,000 MMbbls.

We are evaluating to what depths we have shale in the Urdaneta field. Venezuela has shale resources in Lake Maracaibo which are four times as much as those claimed by Colombia. We need to drive to deeper horizons where there are larger concentrations of oil. Although we have shale resources in Falcon state we will continue to look for convention oil and gas. There is tremendous liquids potential offshore Falcon state.

A $100/bbl oil price does not permit the development of shale oil. So we need a good oil price and $100/bbl is a good price, not just for Venezuela.

Oil price sensitivity: For each $1/bbl decline/rise in oil prices, Venezuela losses/gains $700 mln per year in revenues.

As a result of the Perla 3x offshore gas discovery which also unveiled large condensate potential, we have decided to drill offshore Falcon state in search of additional condensate potential.

Oil production at the Sinovensa JV is around 140,000 b/d but we expect this production to reach 165,300 b/d by year end 2013 and ultimately 330,000 b/d.

During 1992-1999, Venezuela’s 4th Republic reported fiscal revenues of just $23.5 bln, while the Revolutionary Government (under former Venezuelan President Hugo Chavez and now President Nicolas Maduro) has reported fiscal revenues of $448.8 bln during 2000-Aug.2013 (as of 1.Aug.2013), of which $310.3 bln came from changes in new laws (i.e. increasing taxes and royalties and increasing PDVSA’s participation in oil projects).

Venezuela’s oil production declines on average 700,000 b/d a year or around 20-25% per year. However, Venezuela adds an average 700,000 b/d of production to make up for the short fall and maintain production around 3,000 Mb/d.

In the Faja the production declines are not as pronounced since it is a newly developed area, but in Zulia state in Lake Maracaibo the declines are more pronounced.

On gasoline issues:

Ramirez: The government is working to install an automatic chip system and even GPS systems in Tachira state as there are reported cases of cars in Colombia with Venezuelan license plates that are crossing the Colombian/Venezuelan border each day to buy cheap gasoline in Venezuela to later sell it in Colombia.

The government is looking to implement the export of Venezuelan gasoline to Colombia to reduce the demand for gasoline in Colombia.

On refineries:

Ramirez: El Palito refinery will receive heavy oil from the Faja in the future while the Puerto la Cruz refinery will also process oil from the Faja. We will continue to use light oils for mixtures or for export.

Changes/upgrades at existing refineries are being done to increase the heavy oil processing capacity.

Plans to build three new refineries in Venezuela have not changed.

The government has proposed that companies convert upgraders into refineries or upgrade the oils to 42 degrees API so that it can be exported or mixed with other oils and thus avoiding potential bottlenecks in Venezuela.

Our agreements with Eni are to build a refinery and not an upgrader. The majority of the finished products from this refinery will be diesel with specifications established for European markets. The 300,000 b/d capacity refinery with Eni is a move by the Italian company to pay lower taxes.

On Ecuador:

Ramirez: PDVSA has reduced its interest in Ecuador’s Pacific Coast Refinery to 19% from 49% to allow entrance of CNPC with a 30% interest. Petroecuador will continue to hold a 51% interest in the project. Nonetheless, PDVSA still plans to send 100,000 b/d to the refinery for processing.

On the USA and potential divestment of CITGO refineries:

Ramirez: The US market has a large processing capacity for heavy oils. In regards to divesting of our interest in CITGO; it is not viable to sell individual refineries in the USA. It would only be interesting if they (the CITGO refineries) could be sold as a packaged deal.

***