Venezuela Agrees to Pay $2 Bln Over Seizure of Oil Projects

(The New York Times, Clifford Krauss, 20.Aug.2018) – More than a decade ago, Venezuela seized several oil projects from the American oil company ConocoPhillips without compensation. Now, under pressure after ConocoPhillips carried out its own seizures, the Venezuelans are going to make amends.

ConocoPhillips announced on Monday that the state oil company, Petróleos de Venezuela, or Pdvsa, had agreed to a $2 billion judgment handed down by an International Chamber of Commerce tribunal that arbitrated the dispute. Pdvsa will be allowed to pay over nearly five years, but as it is nearly bankrupt, even those terms may be hard to meet.

After winning the arbitration ruling in April, ConocoPhillips seized Pdvsa oil inventories, cargoes and terminals on several Dutch Caribbean islands. The move seriously hampered Venezuela’s efforts to export oil to the United States and Asia, and emboldened other creditors to seek financial retribution.

“What they did was choke the exports and made it clear to Pdvsa that the cost of not coming to an agreement would be higher than actually settling on a payment schedule,” said Francisco J. Monaldi, a Venezuelan oil expert at Rice University.

As its oil production has plummeted to the lowest levels in decades, Venezuela has fallen behind on more than $6 billion in bond payments. Pdvsa has already defaulted on more than $2 billion in bonds after failing to make interest payments over the last year, and owes billions of dollars more to service companies.

Adding to Venezuela’s woes, the Trump administration has imposed sanctions that prohibit the purchase and sale of Venezuelan government debt, including bonds issued by the state oil company.

Mr. Monaldi said Pdvsa would be forced to pay ConocoPhillips with money it would have paid other creditors and would probably delay some oil shipments to China it owes in separate loan agreements. He added that “there is not a negligible probability” that at some point it will discontinue payments for lack of money.

Hyperinflation, corruption and growing starvation have crippled the Venezuelan economy, as the socialist government is forced to choose between buying food and medicine and satisfying the demands of creditors. Over the last few days, the government has scrambled to deal with its economic crisis by sharply devaluing its currency, raising wages and promising to shave energy subsidies.

Venezuela has the largest oil reserves in the world. Its crisis has tightened global oil markets at a time when threatened United States oil sanctions against Iran could drive up prices.

The settlement with ConocoPhillips over the 2007 seizure resolves a drawn-out legal struggle, at least for the time being.

“As a result of the settlement, ConocoPhillips has agreed to suspend its legal enforcement actions of the I.C.C. award, including in the Dutch Caribbean,” ConocoPhillips said in a statement.

Pdvsa, which did not comment on the agreement, is to pay the first $500 million within 90 days.

ConocoPhillips is pursuing a separate arbitration case over the same seizure against the government of Venezuela before the World Bank’s International Center for Settlement of Investment Disputes, which could result in another large settlement award, perhaps as high as $6 billion.

That amount would probably be unpayable, experts say, but it could put ConocoPhillips in a strong position to obtain access to Venezuelan oil fields in the future if the current government eventually falls.

Pdvsa’s problems with creditors are far-reaching, putting its American Citgo assets, including three large refineries and a pipeline network, in jeopardy. A federal judge in Delaware recently ruled that Crystallex, a Canadian gold mining company, could seize over $1 billion in shares of Citgo as compensation for a 2008 nationalization of a mining operation in Venezuela.

Citgo is appealing. If it loses, that may open the way for more claims on Citgo assets by companies whose investments have been expropriated in Venezuela, including Exxon Mobil.

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Rafael Ramírez Says Maduro Destroyed PDVSA

(Energy Analytics Institute, Jared Yamin, 19.Aug.2018) – Former PDVSA President Rafael Ramírez says Venezuela produced 3 million barrels per day until December 2013. That figure has dropped by 1.8 million, according to his statements.

“When we were in the revolutionary government of Comandante Chávez, we had fiscal balance and enough income for all social programs, not because the price was 100 dollars a barrel, as the infamous say (we showed that we only had those prices for 4 years, the rest of the years prices were between 22 and 42 dollars a barrel, much less than now), but, precisely, because we charged transnationals and PDVSA all the taxes and royalties without exemptions of any kind. But, in addition, we had oil production of 3 million barrels per day until December 2013,” writes Ramírez in a blog post on Medium.

A PDV petrol station in the once popular Las Mercedes section of Caracas, Venezuela. Prior to its takeover, the station was controlled and run by Chevron Corporation. Source: Energy Analytics Institute (EAI)

“Now, the government has destroyed PDVSA, its production has fallen, in just 4 years (with a dramatic drop since Quevedo entered) to 1.2 million barrels a day due to the inability and irresponsibility of Maduro in the management of oil issues. In PDVSA, we have lost 1.8 million barrels per day, at an average price of 63 dollars per barrel, we are talking about 113.4 million dollars every day, which [is to say] they [have] stopped receiving, 4.139 million dollars a year!,” writes Ramírez, who also served as Venezuela’s Minister of Petroleum, among other posts during the governments of the late President Hugo Chávez and current Venezuelan President Nicolas Maduro, until his departure and rupture with the latter.

“Now, the owners of the petroleum, that’s to say, the Venezuelan citizens, have to pay the international price for gasoline, as if [Venezuela] were not a petroleum country.” — Ramírez

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Cure for Venezuela’s Mercantilism, Rentism Disease

House located in the eastern coastal region of Lake Maracaibo in Venezuela. Source photo: Energy Analytics Institute

(EnergyNomics, Carlos A Rossi, 18.Aug.2018) – Are natural resource endowed countries victims of their own wealth? Is there a richness threshold beyond which the institutions designed to protect a country’s citizens turn against them and become their worst enemy by annihilating their productive apparatus riddling it with the miseries of declining GNP, hyperinflation, unpayable debt, zero investor confidence, poverty, crime, hunger and repression of loss liberty?

This is exactly what has happened to Venezuela, holder of the world’s largest petroleum reserves, and it happened precisely because the oil prices were high. Examination of this paradox renders Rentism its principal culprit.

Rentism is an endemic degenerative fiscal disease that metastasises throughout a nation’s economy because it is a degradation of Rent, a concept first defined by 19th century English Economist David Ricardo to distinguish between “normal profits” produced by the wise employment of capital and labor on land, from “abnormal profits”-or Rents-that are captured due to the bountiful legacy of better fertile land even though this luckier lad is employing the same mix of capital and labor; except at lower costs. Ricardo reckoned that the difference between rent and normal profits, which can be huge, is windfall luck that is captured but never produced.

Rentism occurs when this rent portion is captured by the State, meaning politicians, a common occurrence in institutionally weak-oil rich countries that places politicians too close to unimaginable amounts of money. Rentism produces expensive white elephants projects that are never finished because their sole intent is to pocket its budget in offshore accounts.

By acquiring a life of its own, Rentism at its highest creates crony “state-capitalism”, corruption, bloated invoices, inflated import receipts, vanishing loans, kickbacks, plutocracy, and capital flight. When the commodity price plunges the ill effects of Rentism crystallize in disappearing international reserves, budget deficits, hyperinflation, worthless currencies, unemployment, poverty, commodity dependency, foreign debt, political crisis, etc resulting in a skewed economy within an incapacitated repressive state.

You can think of Rentism as Lupus, a deadly serious autoimmune disease that turns the very defensive mechanisms that your body has designed to protect you (politicians and institutions) into your worst possible enemy.

The following graphs illustrate this.

The first graph demonstrates Venezuela’s Gross Fixed Capital Formation, a measure of capital accumulation, for both the private and state sector between 1950-2012 (Venezuela stopped publishing data in 2015). In the early period 1950-1976, capital accumulation of both Private and State grew in tandem at a vigorous pace of 400% and 900% respectively. During this golden era GNP grew at 6.7% annual average and Inflation never topped 2.5% per annum. Venezuela prospered well.

In mid 1970’s two things happened that forever changed Venezuela’s history for the worst. The 1973 Yom Kippur war quadrupled oil prices showering the State with unprecedented revenues. Then, in 1976 Venezuela’s oil was nationalized passing ownership from Private to the State. To the delight of politicians, this opened the door for explicit rent seeking exigencies from all sectors especially local capitalists and bureaucrats. From then onwards a widening gap between the curves opened favouring State capital accumulation that saw a 210% increase at the expense of Private accumulation, which suffered an 80% decrease lessening to oblivion, close to 1950 levels.

Venezuela’s prosperity turned sour illustrated in the per-capita income behaviour of the second graph, exacerbated ad absurdum by Hugo Chavez’s private property expropriation years of this century. When the Private Sector (national and international) stopped accumulating capital Venezuela’s economy imploded. The political control of Rent is the smoking gun.

We can also say that Rentism pushed Venezuela’s incipient industrial development backward in time to the age of 18th century Mercantilism, the step-stone transition system between Feudalism and Capitalism. Coined by Adam Smith, Mercatilism is State controlled capitalism were the State has the power decision making of which sectors (specifically which companies) get the generous dollar “loans” and to which ends. It was never a formal economic system per se, but rather a set of very adaptable ad-hoc rules which goals was to promote national wealth through strict regulation of private entrepreneurship. Or as Max Webber cleverly defined it: “The Passage of Capitalist Lust into Politics”.

The major difference being that whereas in Adam Smith’s England the State benefited solely from the efficiency of its tax collectors on its crony friends, in Venezuela there is no need for a tax-man because nature’s petrol bounty is already in the hands of the State; meaning that all it has to do is to pick and choose which of its crony clients get the money and what level are the tariff walls to shield them from competition (500% tariffs were common). Kickbacks and crafty graft were and are the price the crony benefactor gracefully paid. This happened in Venezuela during the oil boom of the 1970s and on this millennium’s oil price rack up with the difference that last century graft and distortions lead to some construction whereas in this period graft has meant only destruction of all the productive apparatus, including investor confidence, ethics and PDVSA’s oil machine.

Adam Smith (the finest of the enlightment thinkers), spent many pages debunking mercantilism with his liberalism laissez faire-laissez passer policy; he would have certainly predicted, in both of Venezuela’s experience with rentism the end results to be, in the best of cases: disastrous. Now those French words are to Venezuela as foreign as they sound, and they have been for at least 2 generations and counting.

Solving for Rentism and for Mercantilism is easy: A managing contract with an established multilateral institution with experience in development, like the World Bank and/or the UN´s Food and Agriculture Organization to administer investment of all Rent proceeds under proven criteria.

Problem: Venezuela’s politicians need to make this decision of be forced to make this decision by an international coalition of power that is bent on bringing the opportunity of economic prosperity to its 30+million citizens and of assuring themselves increasing quantities of the Worlds most efficient fossil base energy resource in the planet. Until this happens, Venezuelan citizens will always be victims of their own wealth.

Scrapping Rentism and Mercantilism will not solve all of Venezuela’s problems, which are deep seeded thanks to Chavism; but it will in all certainty go along way into resolving them for good.

Editor’s Note: Carlos Rossi is President of Caracas-based EnergyNomics and a regular contributor to Energy Analytics Institute.

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Former PDVSA Director Detained in Argentina

(Energy Analytics Institute, Ian Silverman, 17.Aug.2018) – A former PDVSA director has been detained and accused of money laundering.

Luis Abraham Bastidas Ramírez, the cousin of former PDVSA President Rafael Ramírez, was detained in Argentina, wrote reporter Dean Rojas in a tweet on his personal twitter account.

Ramírez’s capture was ordered by the Principality of Andorra as it related to the possible laundering of $5 million, wrote Rojas in his tweet.

State oil company PDVSA has yet to emit a statement regarding the developments.

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Jusepin Oil Region in Venezuela: 45 Seconds of Fame

(Energy Analytics Institute, Piero Stewart, 17.Aug.2018) – Venezuelan opposition leader Maria Corina Machado tours the Jusepin petroleum region in Venezuela.

Jusepin is just one of many petroleum-rich areas in Venezuela, the country with the world’s largest oil reserves.

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Venezuelan Oil Assets to be Seized by Creditors

(Express, Simon Osborne, 16.Aug.2018) – Venezuela’s oil assets are being targeted by angry creditors after a US court granted a Canadian mining company permission to send in the bailiffs.

Firms owed billions by the beleaguered South American country and its state-owned oil firm PDVSA are now lining up to make sure they get a pay-out.

The Venezuelan economy is crippled by hyperinflation and the discredited regime of President Nicolás Maduro faces trade sanctions from the US, EU, Canada and Latin America’s biggest countries.

The country is essentially bankrupt and creditors see its oil assets as their best bet with the biggest target being Citgo, a Texas-based oil refiner that processes Venezuelan crude oil and is estimated to be worth roughly £3.15bn.

Oil tankers could also be targeted as US hedge fund Elliott Management did with an Argentine ship in 2012 after it won a US court ruling to collect on unpaid debts.

Venezuela, which is overdue on about £4.5bn in debt payments, is reportedly transferring oil cargoes to safe harbours including Cuba to avoid such risks.

Canadian mining company Crystallex won a key battle in its attempts to force Venezuela to pay £1.1bn in compensation for expropriation of a mining project when a US judge accepted its argument that PDVSA was an “alter ego” of the Venezuelan state and gave it the right to seize PDVSA assets in the US.

Francisco Rodriguez, chief economist of Torino Capital said the ruling could serve as a precedent.

He said: “This judgment is unambiguously negative for Venezuela, given its loss of an asset of significant value. In all likelihood the ruling will spur creditors to attempt to pursue PDVSA assets.”

ConocoPhillips has already won a £1.57bn arbitration award against PDVSA from the International Chamber of Commerce, the US oil major seized the company’s assets in the Caribbean.

The seizures left PDVSA without access to facilities that process almost a quarter of Venezuela’s oil exports.

To avoid the risk of other assets being taken, PDVSA asked its customers to load oil from its anchored vessels acting as floating storage units.

Citgo’s complicated ownership – half the company is security against more than £2.36bn of PDVSA bonds and half is collateral for a £1.18bn loan from Russian oil giant Rosneft – means any immediate plundering of its assets is extremely unlikely.

Robert Kahn, a professor at the American University and a former International Monetary Fund official, said: “The ruling is a win for Crystallex, no doubt. But I’m not convinced that it immediately marks a tipping point.”

Richard Cooper, senior partner at New York law firm Cleary Gottlieb Steen & Hamilton, said: “The Crystallex ruling doesn’t mean that every Republic of Venezuela bondholder can automatically assume that PDVSA assets are available to them.”

Venezuela also owes tens of billions of dollars to China and Russia but its sole foreign-exchange generating industry is in steep decline with oil output dropping below the 1947 levels of 1.3m barrels per day.

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PDVSA Leaves Argentine Gas Station to Fend for Itself

(Reuters, Luc Cohen, 15.Aug.2018) – As Venezuela’s state-owned oil company PDVSA saw its finances devastated by low oil prices and mismanagement, it funneled millions of dollars to Petrolera del Conosur (PSUR.BA), a loss-making Argentine gas station operator it controls.

PDVSA decided to cut off the support payments late last year, according to a person familiar with Petrolera del Conosur’s operations, as the once-proud icon of Venezuelan oil production struggled with declining output aggravated by a worsening economic crisis.

The transfers had totaled $89 million between 2013 and 2017, according to a Reuters review of filings with Argentina’s securities regulator, years that coincided with a frustrated effort by Venezuela to extend the petro-diplomacy it employed in the Caribbean to the southern cone of Latin America.

Profitability was likely never the true goal of Venezuela’s Argentina foray, said David Mares, a political science professor at the University of California, San Diego. In 2006, late President Hugo Chavez unveiled a plan to transform PDVSA from a commercial company to a domestic and international political tool.

Before oil prices crashed in 2014, Venezuela’s government used PDVSA to fund social programs at home and provide countries in the region with cheap fuel to promote its socialist model and push back on United States influence.

The most well-known example is Petrocaribe, a program through which Venezuela sends crude and fuel to Caribbean countries on generous credit terms or through barter deals. But Chavez also signed deals with governments elsewhere in the region, including Argentina and Uruguay, to sell fuel and invest in energy infrastructure.

“The idea of having a series of gasoline stations in Argentina would fit in that context. It’s to show the Bolivarian revolution benefits people at the ground level,” Mares said. “The surprise is that they’ve lasted so long, because PDVSA is broke, the country is broke.”

PDVSA in 2006 purchased a 46 percent stake in Conosur from Uruguay’s ANCAP, which it boosted to a controlling 94 percent in 2010. PDVSA’s website still boasts of a goal to run 600 stations in Argentina to gain a market share of 12 percent in the country.

Conosur’s struggles come as some of PDVSA’s other overseas ventures, most launched through a wave of overseas expansion in the 1980s or as part of Chavez’s attempts to use “oil diplomacy,” have been scaled back or shuttered.

One of the most emblematic is Hovensa, a refinery in the U.S. Virgin Islands operated jointly with Hess Corp (HES.N), that filed for bankruptcy in 2015.

‘STRATEGIC ALLIANCE’

Since 2013, Conosur has posted hundreds of millions of pesos in annual losses. Fuel sales at its PDV Sur and Sol-branded stations have plunged 86 percent, as it struggled to compete with rivals like state-owned YPF (YPFD.BA), which produce their own crude and refine their own fuel.

PDVSA also strove to become an integrated player in Argentina, but efforts to acquire upstream and refining assets never worked out, the person said.

Neither PDVSA nor PDVSA Argentina, the subsidiary that owns the Conosur stake, responded to requests for comment.

And in a sign of how Venezuela’s economic crisis has derailed its ambitions to challenge U.S. diplomatic and financial power through regional energy integration, Conosur has not notified Argentina’s stock watchdog of any payments from PDVSA since Dec. 29, 2017.

The choice to cut off support amounts to a formal abandoning of the upstream goals in favor of strengthening the existing network as part of a restructuring of the company, said the person, speaking on condition of anonymity because they were not authorized to speak publicly.

“The supports were rational when the goal was the whole supply chain,” the person said, adding the company was in talks for a strategic alliance with a fuel supplier to access cheaper refined products, rather than depending on the spot market.

That deal could be necessary to keep the company alive without PDVSA’s support.

The company posted a 177.5 million peso loss in 2017, and warned on Dec. 20 that PDVSA’s transfers had helped it avoid being dissolved in accordance with the requirements of an Argentine corporate law for companies that run out of capital.

Since then, losses have accelerated, to the tune of 226 million pesos in the first half.

Conosur’s struggles have dashed many employees’ hopes that PDVSA’s takeover would signal a new era of prosperity at the chain, which had also struggled under Uruguayan ownership.

“We saw it as a panacea,” said one former employee, laid off earlier this year with around a dozen others. “But it was more or less the same.”

Additional reporting by Alexandra Ulmer in Caracas and Marianna Parraga in Mexico City; Editing by Bernadette Baum

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Venezuela Petrol Prices Need to Rise to Stop Smuggling

(Reuters, Deisy Buitrago and Brian Ellsworth, 14.Aug.2018) – Venezuela’s heavily subsidised domestic gasoline prices should rise to international levels to avoid billions of dollars in annual losses due to fuel smuggling, president Nicolas Maduro has said.

“Gasoline must be sold at an international price to stop smuggling to Colombia and the Caribbean,” Mr Maduro said in a televised address on Monday.

Venezuela, like most oil producing countries, has for decades subsidised fuel as a benefit to citizens.

But the country’s fuel prices have remained practically flat for years despite soaring hyperinflation the International Monetary Fund has projected would reach 1,000,000 per cent this year.

For the price of a cup of coffee, a driver can fill the tank of a small SUV nearly 9,000 times

That means that for the price of a cup of coffee, a driver can now fill the tank of a small SUV nearly 9,000 times.

Smugglers can make considerable profits reselling fuel in neighbouring countries.

Mr Maduro said the government would still provide “direct subsidies” to citizens holding the “fatherland card,” a state-issued identification card that the government uses to provide bonuses and track use of social services.

He said the subsidy was only available to those who registered their cars in a vehicle census being conducted by the state.

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OPEC MOMR Shows Further Oil Declines in Venezuela

(Energy Analytics Institute, Piero Stewart, 14.Aug.2018) – Venezuela’s crude oil production declines seem unstoppable.

OPEC’s August 2018 MOMR.

Venezuela’s crude oil production fell to 1.278 million barrels per day (MMb/d) in July 2018 compared to 1.325 MMb/d in June 2018 based on secondary sources, reported OPEC in its August Monthly Oil Market Report (MOMR).

This compares to 1.911 MMb/d in 2017 and 2.154 MMb/d in 2016, according to OPEC’s data.

“According to secondary sources, total OPEC-15 crude oil production averaged 32.32 mb/d in July, an increase of 41 tb/d over the previous month. Crude oil output increased mostly in Kuwait, Nigeria, UAE and Iraq, while production showed declines in Libya, I.R. Iran, Saudi Arabia and Venezuela,” according to OPEC’s August MOMR.

Editor’s note: OPEC uses the abbreviation mb/d to stand for million barrels per day, while many oil analyst and companies frequently use the abbreviation MMb/d to stand for the same.

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Venezuela’s Citgo Refineries At Risk Of Seizure

BOSTON, MA: People walk through the rain in front of the Citgo sign in Kenmore Square, Boston, July 18, 2016. (Photo by Timothy Tai for The Boston Globe via Getty Images)

(Forbes, Robert Rapie, 12.Aug.2018) – In 2007, following Venezuela’s expropriation of billions of dollars of assets from U.S. companies like ExxonMobil and ConocoPhillips, I suggested a potential remedy.

Since Venezuela’s state-owned oil company, PDVSA (Petróleos de Venezuela, S.A.) owns the Citgo refineries in the U.S., I felt the companies that had lost billions of dollars of assets could target these refineries for seizure as compensation.

These refineries have the same vulnerabilities as the U.S. assets in Venezuela that were seized. They represent infrastructure on the ground that can’t be removed from the country.

Citgo has three major refining complexes in the U.S. with a total refining capacity of 750,000 barrels per day. Recognizing the vulnerability from asset seizure, PDVSA tried to sell these assets in 2014, and valued them at $10 billion. But that value have been grossly overstated, considering that Venezuela subsequently pledged 49.9% of Citgo to Russian oil giant Rosneft as collateral for a $1.5 billion loan.

In recent years, PDVSA has lost a series of arbitration awards related to expropriations, and companies have been looking for opportunities to collect. In May, ConocoPhillips seized some PDVSA assets in the Caribbean to partially enforce a $2 billion arbitration award for Venezuela’s 2007 expropriation.

ConocoPhillips had sought up to $22 billion — the largest claim against PDVSA — for the broken contracts from its Hamaca and Petrozuata oil projects. The company is pursuing a separate arbitration case against Venezuela before the World Bank’s International Centre for Settlement of Investment Disputes (ICSID). The ICSID has already declared Venezuela’s takeover unlawful, opening the way for another multi-billion dollar settlement award that may happen before year-end.

MORE FROM FORBES

Last week, a court ruling opened the door for Citgo assets to be seized to pay for these judgments.

Defunct Canadian gold miner Crystallex had been awarded a $1.4 billion judgment over Venezuela’s 2008 nationalization of a Crystallex gold mining operation in the country. A U.S. federal judge ruled that a creditor could seize Citgo’s assets to enforce this award.

This ruling is sure to set off a feeding frenzy among those that have won arbitration rulings against Venezuela. Until the legal rulings are settled, it’s hard to say which companies will end up with Citgo’s assets. But it’s looking far more likely it won’t be PDVSA.

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Is Venezuelan Oil Output Falling Faster Than Expected?

(OilPrice.com, Nick Cunningham, 12.Aug.2018) – The bad news from Venezuela continues.

In July, Venezuela’s oil production came in lower than PDVSA had targeted, according to Argus Media. While PDVSA had hoped that it, along with its joint venture partners, would produce as much as 1.65 million barrels per day (mb/d) in July, actual production came in at about 1.526 mb/d.

Argus says that production in the Orinoco heavy oil belt, where vast oil reserves are located, was a particular disappointment. The problem for Venezuela is that the Orinoco belt was supposed to hold up better than conventional oil production from elsewhere. The declines are a grave problem for the South American OPEC nation, and they pose an existential threat to the regime of President Nicolas Maduro, who avoided an apparent assassination attempt days ago.

But the production figure that Argus got its hands on, which came from an internal report from PDVSA, seem optimistic, even though they do point to shortfalls. After all, the June OPEC report suggested that output stood at just 1.34 mb/d – data that came from secondary sources, which includes Argus.

Against that backdrop, the 1.526 mb/d figure doesn’t seem credible. Indeed, sources from within PDVSA told Argus that officials from the company’s eastern and western divisions “systematically inflated” the data. “They play with the storage tanks and what they report is not reality,” a senior executive told Argus. In reality, production could have been as low as 1.25 mb/d.

The report is not entirely useless, however, as it does offer some clues into the company’s demise. Argus says that “scant maintenance, reservoir management, skilled labor flight and a lack of critical naptha and light crude for transport and blending” are all contributing to the steep decline in production. An estimated 1,191 wells stopped producing in July.

In a separate report from Argus, it appears that the island of Curacao is “scrambling for a lifeline to resuscitate” the century-old Isla refinery that PDVSA “has nearly abandoned,” due to the fact that ConocoPhillips moved in to seize the facility following an international arbitration decision earlier this year. Curacao says it has the capability to operate the refinery on its own, but it doesn’t have the capital nor the supply of crude oil needed as a feedstock. The refinery can theoretically produce up to 335,000 barrels per day (bpd), but in reality it can probably only produce two-thirds of that amount. For now, it is barely operational with PDVSA no longer supplying the refinery with crude oil.

From PDVSA’s standpoint, the loss of the refinery has only compounded the problems back in Venezuela since the facility was critical to blending and preparing oil for export.

The problems in Venezuela are so bad that even the Trump administration, no stranger to conflict, has decided that it does not want to kick the country while it is down. After having been on the verge of implementing sweeping sanctions – possibility targeted at Venezuela’s oil exports, or perhaps the export of diluent from the U.S. to Venezuela – the Trump administration has scrapped those plans.

In fact, the problems in Venezuela are so acute, that the attempted assassination of President Maduro barely moved the oil market, as the WSJ pointed out. That bears emphasis: There was an attempted coup in a country with the largest oil reserves in the world, a founding OPEC member and still a major oil producer, and the markets basically shrugged it off. And that is not because the oil market is oversupplied – there is a reasonable case to be made that the market could be short on supply at some point this year.

But Venezuela’s oil sector is in shambles, so oil traders are apparently already of the mind that it cannot possibly get any worse. A coup even leaves open the very remote possibility of a rebound, although, as Francisco Monaldi details, growing production by, say, 200,000 bpd per year would require a sustained effort, including investments of around $20 billion per year for a decade. Not to mention a radical change in the political context and a macroeconomic stabilization program. Needless to say, none of that appears to be in the cards anytime soon.

In any event, the coup did not succeed, so the losses are destined to continue. “The permanence of Maduro and his radical circle of collaborators is short-, medium- and long-term bullish for oil prices because the regime will fail to take the steps needed to turn production around,” Raúl Gallegos, a political analysts at Control Risks, and author of Crude Nation, told the Wall Street Journal.

Expect PDVSA to continue to miss its production targets.

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Citgo Petroleum Company Profile

(Energy Analytics Institute, Aaron Simonsky, 11.Aug2018) – Houston-based Citgo Petroleum Corporation is the refining arm of Venezuela’s Petróleos de Venezuela, S.A. (PDVSA). What follows is a brief company profile.

Citgo, a Delaware corporation with headquarters in Houston, refines, markets, and transports gasoline, diesel fuel, jet fuel, lubricants, petrochemicals, and other petroleum-based industrial products. Citgo has 3,500 employees and is owned by Citgo Holding, Inc., an indirect, wholly owned subsidiary of PDVSA, the national oil company of the Bolivarian Republic of Venezuela, according to data posted to the company’s website.

Citgo owns and operates three highly complex crude oil refineries located in the following cities:

— Lake Charles, LA (425,000 barrels-per-day [b/d]),

— Lemont, IL (167,000-b/d), and

— Corpus Christi, TX (157,000-b/d).

These refineries process approximately 200,000 b/d of Venezuelan crudes, including supplies from Orinoco Oil Belt upgraders. The combined aggregate crude oil refining capacity of 749,000-b/d, positions Citgo as one of the largest refiners in the nation. The company owns and/or operates 48 petroleum product terminals, one of the largest networks in the country.

In 2016, Citgo sold approximately 13.6 billion gallons of refined products, including exports. The company markets quality motor fuels to independent marketers who consistently rate Citgo as one of the best-branded supplier companies in the industry. Citgo branded marketers sell motor fuels through more than 5,200 independently owned, branded retail outlets.

Citgo markets jet fuel directly to airlines and produces a variety of agricultural, automotive, industrial and private label lubricants which are sold to independent distributors, mass marketers and industrial customers as well as other clients. In addition, the company sells petrochemicals and industrial products directly to various manufacturers and industrial companies throughout the United States.

Citgo History

From the gasoline that helps your family take vacations to the advanced medical equipment at your community hospital, Citgo is fueling good, the company reported on its website.

It’s amazing the difference petroleum-based products make in our everyday lives. Based in Houston, Texas, Citgo is a refiner and marketer of transportation fuels, lubricants, petrochemicals and other industrial products. In addition to these products, there’s probably a Citgo in your neighborhood, a convenient place to fill up with gas and grab a quick snack.

The story of Citgo Petroleum Corporation as an enduring American success story began back in 1910 when pioneer oilman, Henry L. Doherty, created the Cities Service Company.

When Cities Service determined that it needed to change its marketing brand, it introduced the name CITGO in 1965, retaining the first syllable of its long-standing name and ending with “GO” to imply power, energy and progressiveness. The now familiar and enduring Citgo “trimark” logo was born.

Occidental Petroleum bought Cities Service in 1982, and Citgo was incorporated as a wholly owned refining, marketing and transportation subsidiary in the spring of the following year. Then, in August, 1983, Citgo was sold to The Southland Corporation to provide an assured supply of gasoline to Southland’s 7-Eleven convenience store chain.

In September, 1986, Southland sold a 50 percent interest in Citgo to Petróleos de Venezuela, S.A., (PDVSA), the national oil company of the Bolivarian Republic of Venezuela. PDVSA acquired the remaining half of Citgo in January, 1990 and the company is owned by Citgo Holding, Inc., an indirect, wholly owned subsidiary. With a secure and ample supply of crude oil, Citgo quickly became a major force in the energy arena.

Since 1985, Citgo has sold its various products through independent marketers. Our relationship with these individuals is really what makes CITGO different from other petroleum companies.

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Crystallex Cuts Others In Line for Citgo Assets

(Energy Analytics Institute, Jared Yamin, 11.Aug.2018) – Crystallex seems to have cut in line while there are many others already in line for CITGO assets and value.

What follows are comments published by Venezuelan oil analyst Francisco Monaldi in a series of tweets related to the legal battle over CITGO:

1) The value of CITGO is much higher than the claim by Crystallex, which by the way was an outrageously high amount for that expropriation,

2) This is the beginning of a shark fest of claims and lawsuits. There are many others in line for CITGO assets and value, CITGO bond holders, CITGO creditors, PDVSA 2020 bondholders, Rosneft, Conoco, other PDVSA and Venezuela creditors and ICSID claimants. It seems to me that Crystallex should not be ahead in this line,

3) In the short term this would be a blow for PDVSA making it harder to get diluents from the US and to earn cash from its heavy exports, but it is just the last in a long list of troubles including default and sanctions,

4) In the long term it would be a big blow to Venezuela, losing a strategic asset to access the USGC market in competition with Canadian heavy, particularly after Keystone is completed,

5) Outside of CITGO, Venezuela has only a few much less valuable assets, what claimants will try is to seize or disrupt PDVSA’s flows of oil and receivables, and force them to negotiate something, and

6) This is a tragic story of recklessness and incompetence by the chavismo, increasing the debt without investment, expropriating and destroying value, in the middle of an oil boom. The consequences, collapsed oil production and now the final reckoning with their claimants…

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Crystallex Wins Right To Tap Citgo For Compensation

(OilPrice.com, Irina Slav, 10.Aug.2018) – Canadian gold miner Crystallex was ruled the winner in a long-running case against Venezuela, which it has sued for the forced nationalization of its assets by the Hugo Chavez government. A U.S. federal judge this week awarded the miner the right to approach Venezuela’s U.S. oil unit, Citgo, to seek its compensation of US$1.4 billion.

The Associated Press notes the ruling by Chief Judge Leonard P. Stark is unique: government assets such as Citgo’s parent, PDVSA, are as a rule protected from lawsuits targeting a state. Yet in Stark’s ruling, the judge said that Venezuela had blurred the lines between the government and the state oil firm, with a military official at the helm of PDVSA.

There is no reason to believe Crystallex will not seek to enforce the ruling as soon as possible after a decade-old legal battle. Should this happen, PDVSA, according to AP, might have to liquidate Citgo to get funds for the settlement. The company is worth a lot more than US$1.4 billion—it is valued at around US$8 billion—but cash-strapped Caracas does not have a lot of funding sources at the moment.

The judge has delayed the enforcing of the ruling for a week, possibly to give Crystallex and Caracas time to try and reach a payment agreement.

What could make matters worse for Venezuela is the fact that Crystallex is by far not the only company seeking compensation for the nationalization of its business in the country, and now more of those rulings could follow. ConocoPhillips is another one: the company earlier this year won a court order allowing it to seize PDVSA assets in the Caribbean as a way of getting US$2.04 billion in compensation for the nationalization of two projects by the Chavez government.

AP also quoted a broker from Caracas Capital Markets as saying bondholders could follow suit demanding their money, too. Bondholders are owed US$65 billion in bonds that Caracas stopped servicing a year ago.

“This was the most vulnerable low hanging fruit for debtholders to go after. It looks like Crystallex is the lucky lottery winner because they got there first,” Russ Dallen said.

***

PDVSA President Says Venezuela Production Stabilized

(Energy Analytics Institute, Piero Stewart, 10.Aug.2018) – PDVSA President Manuel Quevedo assured that Venezuelan crude oil production had stabilized.

Quevedo, who also serves as Venezuela’s Petroleum Minister, said last week that “our production is approximately 1.5 million barrels a day for the first half of 2018.” Those remarks were made during a meeting in Caracas, and published in an official statement released by PDVSA, as the state oil entity is known.

Venezuelan oil production. Source: Trading Economics

Venezuela  – reeling in political, economic and humanitarian crises and suffering from the world’s highest inflation – has seen its production of crude oil fall off a cliff amid a near complete collapse in support from foreign partners and an inability by PDVSA to generate sufficient cash flow and/or financing to engage in activities to stop further production declines.

To this end, Quevedo commented: Venezuela plans to implement plans to “reactivate dormant oil wells, mature fields and fields entered into a non-scheduled delayed production due to foreign logistics sabotage.”

***

PDVSA Cut Debt to Rosneft $400 Mln in Q2

(Neftegaz.RU, 10.Aug.2018) – According to Platts, Venezuela’s state oil and gas company PDVSA cut its debt to Russia’s top crude producer Rosneft by $400 million in the 2nd quarter to $3.6 billion as of the end of June, Rosneft’s 2nd-quarter results presentation showed this week.

Rosneft agreed prepayment deals for crude and products deliveries with Venezuela between 2014 and 2016, the last of which is due to expire at the end of 2020. The company gave Venezuela a total of $6.5 billion in pre-payments, a Rosneft official said earlier this year.

Venezuela’s debt to the Russian major thus shrank by $1 billion in the 6 months since the end-2017 figure, according to the presentation.

Rosneft reported in May that Venezuela had paid off $600 million of debt in the Q1. The Russian company also said it reduced crude purchases from the Latin American country in the first 3 months of the year.

With the Venezuelan economy moving downhill and its oil industry crumbling in recent years, PDVSA told customers earlier this year it was not able to fully meet its supply requirements. Due to provide Rosneft with 222,000 b/d of diluted crude oil, or DCO, PDVSA only had 116,000 b/d available in June, a PDVSA source said earlier.

With economic hardship, Russia and Rosneft have provided extensive economic support to Venezuela and PDVSA in recent years. Late last year, Russia’s finance ministry agreed to refinance Venezuela’s $3.15 billion loan, extending the payment period to 2026 and introducing more favorable conditions on servicing the loan.

Rosneft also has stakes in upstream projects in Venezuela, including 5 oil projects: Petromonagas, Petrovictoria, Petroperija, Boqueron and Petromiranda, which together account for around 4% of Venezuela’s overall production, according to the Russian company.

Crude reserves at the projects are estimated at over 20.5 billion mt. Late last year, Rosneft also agreed to develop 2 offshore gas licenses in the country.

***

Venezuela Facing Compounding Oil Woes

(UPI, Daniel J. Graeber, 10.Aug.2018) – Though it holds the largest reserves of oil in the world, production levels put it only in the middle of the pack among OPEC member states.

Venezuelan plans to stabilize crude oil production do little to address bottlenecks and the shortage of investments, an analyst said Friday.

Manuel Quevedo, the head of state-controlled Petróleos de Venezuela, or PDVSA, announced crude oil production has stabilized after a chronic decline and the country was looking to pick up the pace by tapping its mature assets.

Despite its vast reserves, corruption and international isolation have impacted oil production from one of the founding members of the Organization of Petroleum Exporting Countries. Secondary sources reporting to OPEC economists put Venezuelan production at 1.3 million barrels per day on average last month, down 38 percent from the 2016 average.

Adrian Lara, a senior oil and gas analyst at GlobalData, said in comments emailed to UPI that Venezuela has issues building up on issues, from actual production to refinery problems.

“So not only (do) the challenges remain, but they compound on each other on a path that could prolong and increase the decline rate of oil production in the Orinoco Belt,” he said.

The U.S. Geological Survey estimates the Orinoco Belt holds a mean volume of 513 billion barrels of technically recoverable oil reserves. An annual review of global reserves from Italian energy company Eni put Venezuela at the top of the list. While the United States was the top producer last year, its total reserves represented about 10 percent of Venezuela’s.

Lara said focusing on mature assets could be a sound strategy for Venezuela, but that would require significant investments in a country facing profound economic crises.

“Without details on the strategy it is difficult to assess how PDVSA can implement a plan where the loss of production in the Orinoco Belt can be compensated by these fields’ production,” he said.

In an outlook on Latin America, the International Monetary Fund noted real gross domestic product for Venezuela is on pace to drop 18 percent this year, the third year in a row for a double-digit decline in oil revenue was $22 billion last year, compared with about $70 billion in 2011. Total Venezuelan exports are 10 percent lower than 2016 levels.

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PDVSA Appeals Ruling Regarding Citgo Seizure

(AFP, 10.Aug.2018) – Venezuela’s state oil company PDVSA on Friday appealed a US court ruling that would allow a Canadian mining company to seize shares of PDVSA’s US-subsidiary Citgo in payment of a $1.2 billion debt.

The case dates from 2011, when the Venezuelan government seized a mine Crystallex had been awarded and despite a settlement through an arbitration panel Caracas failed to repay the company.

US District Court Judge Leonard Stark ruled Thursday the mining firm could seize Citgo shares from PDVSA, although the order will not be issued until final details are worked out.

He rejected PDVSA’s argument that it is separate from the government in Caracas and should not be held liable, favoring the assertion that the company is an “alter ego” of the government.

It is another blow to the embattled government of President Nicolas Maduro, who has overseen the collapse of the nation’s once-thriving oil-based economy, which is now in default.

Thousands of Venezuelans flee the country daily, malnutrition is rife and the International Monetary Fund said inflation could reach one million percent this year.

PDVSA, once the jewel in the crown of the nation’s economy, has been hamstrung by debt and lack of investment that has shrunk output.

Losing Citgo would dry up one of the last remaining sources of foreign revenue. And even that is already at risk since a nearly 50 percent stake in Citgo was used as collateral for a $1.5 billion loan from Russia’s Rosneft.

PDVSA’s bonds represent 30 percent of Venezuela’s external debt — estimated to be around $150 billion.

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Venezuela’s Oil Sales to U.S. in July Below 500 Mb/d

(Reuters, 10.Aug.2018) – Venezuela’s crude exports to the United States declined to 494,400 barrels per day (bpd) in July after rising the prior three months, showing the impact of asset seizures against state-run oil firm PDVSA, according to Thomson Reuters data.

July was the first month crude exports fell below 500,000 bpd since the months of January through March.

U.S. oil producer ConocoPhillips in May began seizing PDVSA’s overseas assets in an attempt to collect on a $2 billion arbitration award. Its legal actions have left PDVSA with no access to most of its Caribbean terminals, restricting the company’s already dwindling exports.

Most of PDVSA’s customers in the United States, where flows of Venezuelan oil have also been affected in the last year by financial sanctions imposed by U.S. President Donald Trump’s administration, are now receiving fewer barrels.

In July, 30 cargoes of Venezuelan crude arrived at U.S. ports, compared with 33 in June. The volumes in July were 12 percent lower than the prior month and 22.5 percent below the same month a year earlier, according to the data.

Only two cargoes of Venezuelan crude were shipped last month from the Caribbean island of Aruba, where PDVSA’s unit Citgo Petroleum operates an oil terminal. A local court in May temporarily froze inventories and cargoes there at Conoco’s request, but weeks later it allowed the U.S. refining subsidiary to resume normal operations at the facility.

No Venezuelan crude has been shipped to the United States since mid-June from Curacao, Bonaire or St. Eustatius, neighboring Caribbean islands that PDVSA has used to refine, store and ship oil, according to the data.

The largest importer of Venezuelan crude in the United States last month was Valero Energy, which has managed to ramp up imports of Venezuelan oil in recent months amid the country’s export crisis.

The second largest importer was Citgo.

Even amid declining crude exports, shipments to the United States of Diluted Crude Oil (DCO) made with Venezuelan extra heavy oil and imported naphtha continued rising in July, to 252,820 bpd, suggesting limited output of upgraded crude at Venezuela’s main crude producing region, the Orinoco Belt.

PDVSA has limited the damage from the asset seizures by transferring oil between tankers at sea and loading vessels in neighboring Cuba. But the company is fulfilling less than 60 percent of its supply obligations with customers.

(Reporting by Marianna Parraga; editing by Gary McWilliams and Phil Berlowitz )

***

Crystallex Court Win Against Venezuela Aided by Finding

(Reuters, Brian Ellsworth, 10.Aug.2018) – Crystallex’s victory in a legal battle with Venezuela that paves the way for it to collect a $1.4 billion award hinged on a finding that state oil company PDVSA is not separate from the Venezuelan government, court documents showed on Friday.

The U.S. District Court for the District of Delaware granted Crystallex’s request to take ownership of shares in PDVSA subsidiary of PDVH, which owns U.S.-based refiner Citgo, as part of a decade-long dispute over the 2008 nationalization of Crystallex assets.

“Crystallex has met its burden to rebut the presumption of separateness between PDVSA and Venezuela and proven that PDVSA is the alter ego of Venezuela,” wrote Judge Leonard P. Stark in the decision.

The issue has been closely watched by investors holding billions of dollars in Venezuelan bonds, which are almost all in default as the OPEC nation struggles under the collapse of its socialist economy.

Legal experts had generally believed that creditors of Venezuela, which has few foreign assets available to be seized by creditors, would have a difficult time pursuing claims against PDVSA because the two were considered separate.

Venezuela two years ago put up 49.9 percent of Citgo shares as collateral for a $1.5 billion loan from Russian oil major Rosneft. The remaining 50.1 percent was set aside as collateral for PDVSA’s 2020 bond.

Judge Stark said the court had not yet determined when it would issue a writ allowing Crystallex to assume ownership of the shares of PDV Holding Inc, or what mechanism should be used to sell those shares.

“The decision could make it more complicated if other courts ignore the boundary between the government and PDVSA,” said Mark Weidemaier, a professor at the University of North Carolina School of Law. “It expands the pool of creditors that could go after PDVSA and casts a shadow over its ability to keep its oil receivables safe.”

PDVSA did not immediately respond to a request for comment.

Information Minister Jorge Rodriguez, asked by a reporter about the decision during a press conference on Friday, declined to comment on it.

Legal counsel for Crystallex declined to comment.

PDVSA’s 2020 bond dropped 4.500 points in price to 85.500 on Friday

Bonds issued by PDVSA and Venezuela were down slightly, in line with a broad selloff in global markets on Friday.

( Additional reporting by Jonathan Stempel in New York, Editing by Paul Simao and Cynthia Osterman)

***

U.S. Judge Authorizes Seizure of Venezuela’s Citgo

(The Wall Street Journal, Andrew Scurria and Julie Wernau, 9.Aug.2018) – A U.S. federal judge authorized the seizure of Citgo Petroleum Corp. to satisfy a Venezuelan government debt, a ruling that could set off a scramble among Venezuela’s many unpaid creditors to wrest control of its only obviously seizable U.S. asset.

Judge Leonard P. Stark of the U.S. District Court in Wilmington, Del., issued the ruling Thursday. However, his full opinion, which could include conditions or impose further legal hurdles, was sealed. A redacted version is expected to be available at a later date.

The court order raises the likelihood that Venezuela’s state oil company, Petróleos de Venezuela SA, will lose control of a valuable external asset amid the country’s deepening economic and political crisis. The decision could still be appealed to a higher, federal court.

Attorneys for PdVSA weren’t available for comment. Citgo declined to comment.

Crystallex International Corp., a defunct Canadian gold miner that filed the legal action, is trying to collect on a judgment over lost mining rights involving Venezuela’s government. It has targeted Citgo, an oil refiner, because this is the largest U.S. asset of the cash-strapped and crisis-riven country.

Many other creditors of Venezuela are also circling Citgo, but Crystallex is the first to win a judgment authorizing its seizure. Crystallex had argued that Citgo was ultimately owned by PdVSA, which is an “alter ego” of Venezuela that is liable for the South American country’s debts. The judge’s decision in favor of Crystallex allows it to take control of shares of Citgo’s U.S.-based parent company, the first step toward a sale of the company.

Venezuela and its various state-controlled entities together have $62 billion of unsecured bonds outstanding, with approximately $5 billion so far in unpaid interest and principal. Analysts estimate that the government has approximately $150 billion total in debt outstanding to creditors around the world.

Venezuela and its state-controlled entities including PdVSA began missing bond payments last year and have since spiraled into a widespread default. U.S. sanctions bar creditors from engaging the Venezuelan government in any kind of restructuring or buying new debt.

For Venezuela, losing control of Citgo could jeopardize one of its only remaining sources of oil revenue, the U.S. At the same time, investors in Venezuela’s defaulted debt—as well at least 43 companies pursuing legal claims against the government—risk losing one of the few obvious assets in the U.S. that can be seized for repayment.

The only payment made this year by Venezuela was $107 million on its PdVSA bonds, due 2020, for which Citgo is pledged as collateral. That was a clear move by Caracas to protect that asset, analysts have said.

Without ownership of Citgo, investors worry PdVSA would have little incentive to continue to pay on the debt

Any sale of Citgo stock would require U.S. Treasury Department approval, and Crystallex needs to clear other legal hurdles before the shares could be sold.

In trying to lay claim to Citgo, creditors are following a familiar playbook. Hedge funds led by Elliott Management Corp. did something similar when they went after Argentine assets following that country’s 2001 default, the largest sovereign default at the time, on more than $80 billion in sovereign debt.

When Argentina refused to pay settlements arising from the default, the hedge funds sought out Argentine assets to seize and argued that everything from the assets of its central bank to its state-controlled oil company were an “alter ego” of the state.

Elliott in 2012 persuaded a Ghanaian court to impound a training vessel of the Argentine Navy, and in 2014 asked a California court to block Argentina from launching satellites into space. Argentina settled with the hedge funds in 2016, delivering gains of as much as 900% on some of their original principal investments.

***

Crystallex Can Go After Venezuela’s US Refineries

(Associated Press, 9.Aug.2018) – A Canadian gold mining company on Thursday won the right to go after Venezuela’s prized U.S.-based oil refineries and collect $1.4 billion it lost in a decade-old take-over by the late socialist President Hugo Chavez.

Chief Judge Leonard P. Stark of the U.S. Federal District Court in Delaware made the ruling in favor of Crystallex, striking a blow to crisis-wracked Venezuela, which stands to lose its most valuable asset outside of the country – Citgo.

Chavez took over the gold mining firm and many other international companies as part of his Bolivarian revolution that’s left the country spiraling into deepening economic and political turmoil.

Venezuelans struggle to afford scarce food and medicine as masses flee across the border. In a sign of rising political tensions, current President Nicolas Maduro threw an opposition lawmaker in jail this week, charged in a failed assassination plot using two drones loaded with explosives.

The latest order by the U.S. judge could set off a scramble by a long list of creditors owed $65 billion from bonds that cash-strapped Venezuela has stopped paying within the last year, said Russ Dallen, a Miami-based partner at the brokerage firm Caracas Capital Markets.

“This was the most vulnerable low hanging fruit for debtholders to go after,” Dallen said. “It looks like Crystallex is the lucky lottery winner because they got there first.”

Chavez in early 2009 announced Venezuela’s take-over of the Canadian mining operations in Bolivar state, a mineral rich region with one of the continent’s largest gold deposits. He accused mining companies of damaging the environment and violating workers’ rights.

Crystallex spent years trying to negotiate a deal with Venezuela before making its case in 2011 to a World Bank arbitration panel, which sided with the Canadian firm, despite Venezuela’s vigorous fight.

U.S.-based Citgo, part of the state-run oil company PDVSA, has three refineries in Louisiana, Texas and Illinois in addition to a network of pipelines. If the order is carried out, Crystallex won’t get all of Citgo – valued at $8 billion – but Venezuela could be forced to liquidate it to make good on the court order.

Today, the gold mining region once operated by Crystallex is largely lawless and dangerous, run by rogue miners who blast the earth with water and mercury to expose gold nuggets and sell them to government forces, often leading to deadly conflicts.

The judge’s ruling is unique, because government assets, like PDVSA, are normally protected from lawsuits against a sovereign nation. But the judge found that Crystallex can attach Citgo’s parent because Venezuela has erased the lines between the government and its oil firm, now run by a military general.

Upon issuing the order, the judge delayed enforcing it for a week, which Dallen said could be a move to give Crystallex and Venezuela time to reach an agreement, such as returning to payment terms of an earlier resolution, Dallen said.

“This gives Venezuela the chance to honor its settlement agreement,” Dallen said. “Or they’ll lose Citgo.”

***

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.

***

Helmerich & Payne Wins Right to Sue Venezuela

(Energy Analytics Institute, Piero Stewart, 8.Aug2018) – U.S. drilling company Helmerich & Payne won a judgment from the U.S. Court of Appeal to sue Venezuela for the expropriation of the company’s investments in Venezuela.

This was only a preliminary jurisdictional issue, not a money judgment, mind you — just the right to sue Venezuela after almost 7 years of litigation! H&P has not even gotten to present the heart of the case yet, writes Caracas Capital Markets Managing Partner Russ Dallen in an emailed note to clients.

Unless Venezuela asks for an en banc hearing before the whole Court of Appeals (the Court of Appeals denied an en banc hearing on the case’s first trip through in 2015) and/or appeals it to the Supreme Court, the case will now return to the U.S. District Court for the more substantial hearings.

This all began when Venezuela stopped paying H&P and finally on June 30, 2010, when Helmerich and Payne’s Venezuelan subsidiary and all its property and equipment (including 11 drills) were seized by the Venezuelan government, concluded Dallen, also the Editor-in-Chief of Latin America Herald Tribune.

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Unsealing Crystallex/PDVSA Documents

(Energy Analytics Institute, Ian Silverman, 8.Aug.2018) – Chief Judge Stark of the US Federal District Court in Delaware immediately agreed with our arguments calling out the abuse of sealing by Crystallex, Venezuela and PDVSA,  writes Caracas Capital Markets Managing Partner Russ Dallen in an emailed note to clients.

He entered our letter into the Docket and Ordered everything unsealed if Counsel cannot justify (“specifically”) the sealing by 3pm tomorrow:

ORAL ORDER: With reference to the letter received today from the Latin American Herald Tribune, IT IS HEREBY ORDERED that, no later than tomorrow, August 9, at 3:00 p.m. local time, any party (including the intervenor) who wishes for any portion of the record or any filing to remain under seal file a request to that effect and SHOW CAUSE to support the request. Any such request must be specific as to the type of information for which continued sealing is requested and shall provide for filing of redacted versions of any materials that currently remain unredacted as soon as possible. In the absence of cause being shown, the Court will unseal the entirety of the record in this case, including all filings. ORDERED by Judge Leonard P. Stark on 8/8/18. (ntl) (Entered: 08/08/2018)

We have a voracious and insatiable appetite for truth — which is probably what makes us the best at covering Venezuela as well as other issues for our clients, writes Dallen.

“As a result, this morning we spoke with U.S. Federal District Court for Delaware Chief Judge Stark’s chambers and filed this Intervenor Letter (our 2nd in this Crystallex case) calling for the unsealing of documents that Crystallex, PDVSA and hedge fund Tenor Capital were abusively sealing,” concluded Dallen.

***

Venezuela Dodges Oil Asset Seizures

(Reuters, Marianna Parraga, Mircely Guanipa, 7.Aug.2018) – Reuters) – Venezuela’s state-run oil company PDVSA has limited the damage from an unprecedented slump in crude exports by transferring oil between tankers at sea and loading vessels in neighboring Cuba to avoid asset seizures.

But the OPEC member nation is still fulfilling less than 60 percent of its obligations under supply deals with customers.

Venezuela has been pumping oil this year at the lowest rate in three decades after years of underinvestment and a mass exodus of workers. The state-run firm’s collapse has left the country short of cash to fund its embattled socialist government and triggered an economic crisis.

PDVSA’s problems were compounded in May when U.S. oil firm ConocoPhillips began seizing PDVSA assets in the Caribbean as payment for a $2 billion arbitration award. An arbitration panel at the International Chamber of Commerce (ICC) ordered PDVSA to pay the cash to compensate Conoco for expropriating the firm’s Venezuelan assets in 2007.

The seizures left PDVSA without access to facilities such as Isla refinery in Curacao and BOPEC terminal in Bonaire that accounted for almost a quarter of the company’s oil exports.

Conoco’s actions also forced PDVSA to stop shipping oil on its own vessels to terminals in the Caribbean, and then onto refineries worldwide, to avoid the risk the cargoes would be seized in international waters or foreign ports.

Instead, PDVSA asked customers to charter tankers to Venezuelan waters and load from the company’s own terminals or from anchored PDVSA vessels acting as floating storage units.

The state-run company told some clients in early June it might impose force majeure, a temporary suspension of export contracts, unless they agreed to such ship-to-ship transfers.

PDVSA also requested the customers stop sending vessels to its terminals until it could load those that were already clogging Venezuela’s coastline.

Initially, customers were reluctant to undertake the transfers because of costs, safety concerns and the need for specialist equipment and experienced crew.

But PDVSA has managed to export about 1.3 million barrels per day (bpd) of oil since early July, up from just 765,000 bpd in the first half of June, according to Thomson Reuters data and internal PDVSA shipping data seen by Reuters.

That was still 59 percent of the country’s 2.19 million bpd in contractual obligations to customers for that period, and some vessels are still waiting for weeks in Venezuelan waters to load oil.

There were about two dozen tankers waiting this week to load over 22 million barrels of crude and refined products at the country’s largest ports, according to Reuters data.

“We are not tied to one option or a single loading terminal,” PDVSA President Manuel Quevedo said on Tuesday of the company’s exports. “We have several (terminals) in our country and we have some in the Caribbean, which of course facilitate crude shipping to fulfill our supply contracts.”

CUBAN CONNECTION

PDVSA has also used a route through Cuba to ease the impact of the Conoco seizures. That route is for fuel rather than crude.

The Venezuelan company has used a terminal at the port of Matanzas as a conduit mostly for exporting fuel oil, according to two people familiar with the operations and Thomson Reuters shipping data. Venezuela’s fuel oil is burned in some countries to generate electricity.

Two tankers set sail from the Matanzas terminal for Singapore between mid-May and early July, Reuters data showed. Each ship carried around 500,000 barrels of Venezuelan fuel, Reuters data shows.

In recent months, Venezuela has been shipping fuel to Matanzas in small batches, according to the data.

PDVSA and Cuba’s state-run oil firm Cupet have used Matanzas to store Venezuelan crude and fuel in the past but exports from the terminal to Asian destinations are rare.

That is in part because vessels that use Cuban ports cannot subsequently dock in the United States due to the U.S. commercial embargo on Cuba.

Cupet did not respond to requests for comment.

PDVSA has also used ship-to-ship transfers to fulfill an unusual supply contract it has with Cuba’s Cienfuegos refinery.

The refinery dates from the 1980s – when Cuba was a close ally of the Soviet Union during the Cold War – and the facility was built to process Russian crude.

PDVSA typically uses its own or leased tankers to bring Russian crude from storage in the nearby Dutch Caribbean island of Curacao to Cienfuegos. But it is now discharging the imported Russian oil at sea in Cayman Islands’ waters via these seaborne transfers.

ConocoPhillips last month ratcheted up its collection efforts by moving to depose officials from Citgo Petroleum, PDVSA’s U.S. refining arm, arguing it had improperly claimed ownership of some PDVSA cargoes.

Citgo declined to comment.

ConocoPhillips is also preparing new legal actions to get Caribbean courts to recognize its International Chamber of Commerce arbitration award. If it succeeds in those efforts, it would be able to sell the assets to help satisfy the ruling.

Reporting by Marianna Parraga in Houston and Mircely Guanipa in Punto Fijo, Venezuela; additional reporting by Marc Frank in Havana; Editing by Simon Webb and Brian Thevenot

***

Venezuela’s Oil Production Turning a Corner?

(FoxBusinss, Leia Klingel, 7.Aug.2018) – Oil production by Venezuela’s PDVSA may have started to improve, with the state-owned oil and gas producer reporting that production in the country is averaging 1.5 million barrels per day, as reported by Reuters.

As reported by OilPrice.com, according to OPEC secondary sources, Venezuela’s oil output fell to 1.34 million barrels per day in June, which, excluding a strike in 2002-2003, put production at its lowest point in almost seven decades.

As previously reported by FOX Business, the crisis in Venezuela can be attributed to the country’s socialist leaders overspending for years. Then, when oil prices collapsed, the drop in revenue made it impossible to keep the house of cards standing.

Now, oil prices have recovered and the country’s economic collapse has left it unable to capitalize.

Further, PDVSA President Manuel Quevedo confirmed to Reuters on Tuesday that it is in talks with ConocoPhillips following its efforts to seize some PDVSA assets in the Caribbean.

Conoco won court orders allowing it to seize certain PDVSA assets in in the Caribbean to collect on a $2 billion arbitral award linked to Hugo Chavez’s 2007 nationalization of Conoco assets. Lack of investment in Venezuela’s oil industry is also being attributed to the production collapse.

If Conoco were to seize the assets, it could disrupt Venezuela’s oil export chain.

According to data from the U.S. Energy Information Administration, Venezuela’s oil production has been on a steady decline since 1997 and the pace of the decline has recently accelerated. In 1997, Venezuela was producing about 3.2 million barrels of oil per day. Production hovered around 2.5 million barrels per day from 2002 to 2015, and then slumped, hitting 1.6 million barrels per day in January 2017.

Even if Venezuela’s oil production is starting to see signs of life, it will take a lot to rescue. The International Monetary Fund in late July said that as the country’s economic crisis worsens, inflation in the nation could swell to 1 million percent by the end of 2018.

***

Venezuela Is Oil Market’s Bizarro World

(S&P Global Platts, Nastassia Astrasheuskaya, 7.Aug.2018) – Venezuela’s state oil and gas company PDVSA cut its debt to Russia’s top crude producer Rosneft by $400 million in the second quarter to $3.6 billion as of the end of June, Rosneft’s second-quarter results presentation showed Tuesday.

Rosneft agreed prepayment deals for crude and products deliveries with Venezuela between 2014 and 2016, the last of which is due to expire at the end of 2020. The company gave Venezuela a total of $6.5 billion in pre-payments, a Rosneft official said earlier this year.

Venezuela’s debt to the Russian major thus shrank by $1 billion in the six months since the end-2017 figure, according to the presentation.

Rosneft reported in May that Venezuela had paid off $600 million of debt in the first quarter. The Russian company also said it reduced crude purchases from the Latin American country in the first three months of the year.

With the Venezuelan economy moving downhill and its oil industry crumbling in recent years, PDVSA told customers earlier this year it was not able to fully meet its supply requirements. Due to provide Rosneft with 222,000 b/d of diluted crude oil, or DCO, PDVSA only had 116,000 b/d available in June, a PDVSA source said earlier.

In the face of crushing debt, crumbling infrastructure, worker unrest, hyperinflation and US sanctions, Venezuelan oil output dropped by 670,000 b/d in a year to 1.24 million b/d in July, according to S&P Global Platts OPEC survey. This is the lowest level in the 30-year history of the Platts OPEC survey, except a debilitating worker strike in late 2002 and early 2003.

With economic hardship, Russia and Rosneft have provided extensive economic support to Venezuela and PDVSA in recent years.

Late last year, Russia’s finance ministry agreed to refinance Venezuela’s $3.15 billion loan, extending the payment period to 2026 and introducing more favorable conditions on servicing the loan.

Rosneft also has stakes in upstream projects in Venezuela, including five oil projects: Petromonagas, Petrovictoria, Petroperija, Boqueron and Petromiranda, which together account for around 4% of Venezuela’s overall production, according to the Russian company.

Crude reserves at the projects are estimated at over 20.5 billion mt. Late last year, Rosneft also agreed to develop two offshore gas licenses in the country.

***

US Abandons Sanctions to Avoid Owning Venezuela Collapse

(S&P Global Platts, Brian Shield, 7.Aug.2018) – Just more than a year ago, it was not a question of ‘if’, but ‘when.’

As Venezuela’s leftist leader Nicolas Maduro consolidated power in an election derided as a fraud by the international community, the Trump administration readied exacting sanctions on the South American nation’s oil sector.

“All options are on the table,” said a senior administration official during a July 2017 briefing with reporters, adding that sanctions could be imposed in a matter of days. “All options are being discussed and debated.”

Analysts widely expected sanctions on diluent the US was exporting to Venezuelan refineries first, followed by a prohibition, perhaps phased in over a matter of months, on imports of Venezuelan crude into the US. It was unclear if US refiners, who had long imported Venezuelan crude, would be allowed to continue under an interim “grandfathered” arrangement, but analysts mostly agreed that sanctions were coming.

At the time, the US was importing about 800,000 b/d of Venezuelan crude and the administration was mostly concerned about the impact an import embargo would have on US Gulf Coast refineries, which would need to look for new sources of heavy crude.

Oil sector sanctions from the US seemed so likely that then-US Secretary of State Rex Tillerson told reporters that the administration was looking at ways to soften the impact of the sanctions once they were imposed.

“We’re going to undertake a very quick study to see: Are there some things that the US could easily do with our rich energy endowment, with the infrastructure that we already have available – what could we do to perhaps soften any impact of that?” Tillerson, the former CEO of ExxonMobil, said.

A year later, the US is importing less crude from Venezuela (about 530,300 b/d in July, according to preliminary US Customs data), but Gulf Coast refiners, particularly Valero, continue to rely on these imports.

In fact, US refiners may be importing even more, if Venezuela’s oil sector was not seemingly in a death spiral. Roughly one if every five barrels of oil imported by US Gulf Coast refiners comes from Venezuela.

The EIA forecasts Venezuelan oil production to fall below 1 million b/d by the end of this year, down from 2.3 million b/d in January 2016 as joint ventures fall apart and PDVSA, the state-owned oil company, struggles to feed, let alone pay, its workers. PDVSA has notified international customers than it cannot fully meet crude supply commitments and the country’s active rig count has fallen below 30, according to Baker Hughes International Rig Counts.

By the end of 2019, Venezuelan crude oil output is expected to plummet to 700,000 b/d, making it likely that it will produce less than the US state of New Mexico.

“We’ve never seen an industry or a country collapse this fast and this hard,” said EIA analyst Lejla Villar in a recent interview with the S&P Global Platts Capitol Crude podcast. “We’ve never seen anything like this.”

Industry collapse

The downfall of Venezuela’s chief industry, coupled with International Monetary Fund predictions that inflation in the country will skyrocket to 1 million percent by the end of this year, have created an unusual scenario, in which Maduro may even welcome US sanctions on its oil sector. As Venezuela’s economy continues to unravel, leading to surging prices and rampant hunger, Maduro could try to pin the blame on sanctions.

“If you break it, you buy it,” said George David Banks, a former international energy and environment adviser to President Trump. “The White House doesn’t want to own this crisis.”

The US has sanctioned individuals in Venezuela, including Maduro; prohibited the purchase and sale of any Venezuelan government debt, including any bonds issued by PDVSA; and banned the use of the Venezuela-issued digital currency known as the petro. But oil sector sanctions are viewed as the most powerful penalty remaining and one the Trump administration is more hesitant than ever to use.

“There’s already a humanitarian crisis, but we don’t own that, the Maduro government owns that,” Banks said. “We don’t want to lose the people of Venezuela and you don’t want to pursue a policy that jeopardizes that.”

David Goldwyn, president of Goldwyn Global Strategies and a former special envoy and coordinator for international energy affairs at the US State Department, speculated that it would take extreme action, such as a military assault on a civilian rebellion, for the US to now impose oil sector sanctions. “The system is collapsing and this administration does not want to own the collapse,” Goldwyn said.

The path ahead for Venezuela’s oil sector has, likely, never been less certain. And it remains to be seen what a full collapse of an economy looks like. It is clear, however, that the US wants to avoid blame for accelerating that collapse and has abandoned, at least for now, consideration of oil sanctions.

When Venezuela’s oil sector hits rock bottom, the US does not want to be accused of dragging it there.

***

Venezuela Waiving All Taxes on Profits from PDVSA

(Energy Analytics Institute, Piero Stewart, 7.Aug2018) – Aside from wasting paper, more importantly, the recent Gaceta Oficial in Venezuela also has a decree from President Nicolas Maduro waiving all taxes on profits from state oil company PDVSA and the joint ventures for all of 2018.

Interestingly, the decree seeks to boost foreign investment in the oil sector and to “restore hydrocarbon production levels,” writes Caracas Capital Markets Managing Partner Russ Dallen in an emailed note to clients. This is not the first admission of failure to be revealed in the Gaceta Oficial you hold in your hands, he added.

“For those still entertaining thoughts that Venezuela was actually paying its debts and U.S. sanctions were holding the money up, we got this subdued understatement of Venezuela’s “decreased capacity to pay its international commitments” in the preambular material of the Constituent Assembly decree attempting to mind-meld the bolivar, petro and oil barrel price (relevant portion underlined in red),” wrote Dallen.

***

How Venezuela Gets Plundered

Refinery in Venezuela. Source: DW

(DW.com, Andreas Knobloch, 6.Aug.2018) – A money-laundering scandal involving Venezuela’s state oil company PDVSA could turn into a problem for a Swiss bank. A German banker recently affiliated with the lender has been arrested in Miami.

When it comes to the causes behind the severe economic and supply crisis in oil-rich Venezuela, government policies along with corruption and capital outflows worth billions of dollars play an important role.

In recent days, the US Department of Justice has opened up publicly about a huge money-laundering scandal surrounding Venezuela’s state oil company Petroleos de Venezuela (PDVSA).

A group of Venezuelan ex-officials with the assistance of foreign businesses are reported to have laundered $1.2 billion (€1 billion) of PDVSA funds in Florida. The case is a prime example of how the Venezuelan state is being methodically plundered.

The international “money-laundering plot” began about four years ago, according to American authorities. Through bribery and fraud, around $600 million in PDVSA funds were siphoned off. Later that estimate was doubled — the millions were systematically taken out of the country and laundered through property purchases in Miami with the help of European and US banks.

Hydrocarbon field in Venezuela. Source: DW

100 million for 10 million

The whole scam was only possible because of the contradictory and confusing exchange rate regime of Venezuela. For example, the state allows certain officials to exchange dollars at a preferential rate set by the government, above that amount there is a fixed exchange rate and a black market rate.

The US investigators point out that the difference between the black market and the official rate in 2014 was around 10 to 1. “Essentially, in two transactions, someone could buy $100 million for $10 million.”

At the heart of the allegations is Derwick Associates, a Venezuelan company specializing in the construction of power plants. Venezuelan Attorney General Tarek William Saab mentioned Derwick Associates last year in connection with corruption investigations into contracting in the Orinoco Delta.

Two investment firms, Global Security Advisors and Global Strategic Investments, are accused of using fictional investment funds and real estate purchases in Miami — the final phase in the laundering scam.

A German in Panama

The investigation began two years ago, when one of the participants in the money-laundering plan made himself available to the US authorities as an informant. There were two arrests in the past week related to the case; arrest warrants were issued by US authorities for a further four Venezuelans, a man from Portugal and one from Uruguay.

Some of these are former Venezuelan government officials or employees of PDVSA. They are referred to by the US judiciary as “Bolibourgeoisie,” members of the Venezuelan elite who have enriched themselves through political or business ties to Chavism, which refers to the political ideology of former Venezuelan President Hugo Chavez, who died in 2013 and combined elements of socialism, feminism and patriotism.

On July 24, the US authorities in Miami arrested Matthias Krull, who formerly held a leadership position at Swiss private bank Julius Bär in Panama. He is accused of being involved in the case. Sabine Jaenecke, a spokeswoman for Julius Bär, told DW that they had taken note of the allegations against him. “Mr. Krull no longer works for Julius Bär. We are fully cooperating with the authorities, but cannot comment on ongoing investigations.”

Born in Germany, 44-year-old Krull, previously worked at Credit Suisse and UBS and lived for a long time in Caracas, where he had excellent relationships with the very highest levels, including many politically exposed persons or “PEPs.”

Not the first scandal for Julius Bär

Later, for security reasons Krull moved to Panama but he was still able to continue serving Venezuelan clients and ensured high cash flows at Julius Bär. But recently, Krull left the bank and was due to move to Gonet & Cie’s branch in the Bahamas later this year.

According to Pascal Pupet, head of human resources and corporate communications for the Geneva-based private bank, “given the facts that are a priori proven, this is no longer relevant,” adding in a statement that Gonet has nothing to do with the PDVSA case.

But at Julius Bär, the Swiss Financial Market Supervisory Authority, Finma, opened an enforcement probe earlier this year. Such a procedure is opened in case of abnormalities or indications of breaches of supervisory laws. In regard to the PDVSA affair, the bank is accused of not exercising due diligence while taking on and supervising clients.

The Zurich-based bank is now linked to several corruption cases and possible money-laundering matters — from football association FIFA to Brazilian companies Petrobras and Odebrecht, and now PDVSA. If the allegations against Krull are confirmed, it could be a serious problem for the Swiss financial institution.

***

How Far Can Venezuela Go In Raising Gas Price?

(AFP, Esteban Rojas, 5.Aug.2018) – In Venezuela’s inflation-hit economy, a single US dollar can buy 3.5 million liters of gasoline — an absurdity that the government says it will tackle with a hike in the cost of state-subsidized fuel.

But just how far can President Nicolas Maduro go without getting his fingers burned?

Subsidized gas

Maduro announced on July 29 plans to adjust the price of gasoline and regulate sales based on the so-called “fatherland card,” an electronic card that provides access to subsidies. As a first step the government began a census of motor vehicles, set to end on Sunday.

A liter of 91-octane gasoline currently costs one bolivar, while 95-octane gas costs six. By contrast, a single egg in Venezuela’s hyperinflation ravaged economy — estimated by the IMF at one million percent in 2018 — costs 200,000 bolivars.

A dollar on the country’s black market is currently trading at 3.5 million bolivars.

Experts say the retail price of gasoline covers just between two and four percent of its cost of production.

Maduro has kept details of the fuel price adjustment under wraps, but he said that “we are paying to throw it away … we need to move to a rational usage.”

Yet talking openly about cutting the gasoline subsidy has been a taboo since the 1989 riots known as the “Caracazo,” which were triggered by a rise in fuel prices and left 300 people dead in Caracas and towns surrounding the capital.

Even though the iconic late leader Hugo Chavez questioned the rock-bottom prices of state-subsidized fuel during his term in office between 1999 and his death in 2013, even he never touched them.

In 2016, Maduro authorized the first price hike in 20 years, but only by between 1.328 percent and 6.566 percent, which made no impact on the derisory prices.

The new adjustment will come at a time of profound stagnation, in an economy that has not stopped shrinking since 2014.

Inflationary subsidies

Fuel subsidies have cost the Venezuelan government $10 billion a year since 2012, petroleum expert Luis Oliveros told AFP.

That has created a such a gaping hole in the budget that the government has tried to fill by printing more money, which in turn has created even higher inflation, Oliveros said.

“It is a lie that increasing the price of fuel is an inflationary measure,” he said. “The subsidies are hyperinflationary.”

The situation has only been made worsen by the drop off in oil production from 3.2 million barrels a day in 2008 to 1.5 million in 2018.

That is why the operating capacity of refineries has fallen and gasoline imports have risen.

In a perverse twist, there has been a decrease in the demand for fuel because 90 percent of Venezuela’s public transport vehicles are out of operation because there cannot buy spare parts to keep them on the road, according to unions.

Venezuela imports 33,600 barrels of gasoline and 36,000 barrels of diesel a day from the United States, according to the US Energy Information Agency.

Maduro has yet to explain what happens to consumers who do not have a state-issued “fatherland card.”

With wages ravaged by hyper-inflation, it is unlikely prices will get anywhere near international levels. If they did, however, filling a gas tank would cost a Venezuelan two years of their minimum-wage income.

“Prices are so far behind that no matter how big the increase in terms of percentage, they will still remain low,” said Henkel Garcia, director of the Econometrica consultancy group.

Social ‘blackmail’

Economist Luis Vicente Leon said the government will use greater subsidies in the “fatherland card” system to ensure that fuel is affordable for all cardholders.

According to the opposition, this card is designed for the Socialist government to broaden its support base, which has been weakened by the economic crisis and longstanding shortages of food, medicine and basic goods.

The 12 million Venezuelans with the cards — a third of the population — systematically receive food vouchers.

“If they are already using food and medicine as a form of blackmail, then why not gasoline?” said Oliveros.

***

Citgo Raises $$750,000 for Muscular Dystrophy Association

The Plasman family with MDA and Jim Cristman, CITGO Vice President of Refining, thank Diamond Sponsor Midwest Tankermen for their dedication to the golf outing and the MDA. Source: Citgo

(Citgo Petroleum Corporation, 31.Jul.2018) – The Muscular Dystrophy Association (MDA) depends on partnerships to fulfill their mission, and as their largest corporate sponsor, Citgo Petroleum Corporation hosts the annual MDA Driving for a Cure golf outing for employees and contractors from the Citgo Lemont Refinery.

This year, on June 26, 2018, more than 450 golfers raised a record-breaking $755,542 for the MDA. Held at the Cog Hill Golf and Country Club in Lemont, Illinois, the event included 18 holes of golf and a special dinner reception where an MDA family is traditionally asked to share their story and talk about the role the MDA plays in their fight against the effects of muscle-debilitating diseases.

“The Driving for a Cure Golf Outing is truly a special event because of the MDA family represented. They are what this is all about and it’s an honor and a privilege for Citgo to contribute to the cause for a cure through this fundraiser,” said Jim Cristman, Citgo Vice President, Refining.

One important and unique characteristic of the MDA is its policy requiring all locally-raised dollars be spent locally. As a result, life-saving research programs at Lurie Children’s Hospital, Northwestern University and the University of Illinois will benefit. One example of the impact of this policy is former MDA Goodwill Ambassador for Illinois Lizzie Chamberlain who annually kicks off the golf outing by singing the national anthem.

“This was the first year that Liz was not able to attend and sing at the outing because she is receiving a new treatment that the FDA recently approved for her form of muscular dystrophy. It was the MDA that helped fund the beginning stages of the research that brought this treatment to fruition,” said Amanda Konopka, MDA Director of Distinguished Events.

About the Citgo Lemont Refinery

For more than 90 years, Citgo Lemont Refinery has employed more than 750 Chicago area residents on a full-time and contract basis in support of the local economy. In addition to producing high quality fuels for a large portion of the network of more than 5,200 locally-owned Citgo stations across the country, Lemont Refinery employees also make a major positive impact on the community. Each year, more than 2,500 volunteer hours and thousands of dollars are given in support of community programs such as Muscular Dystrophy Association, United Way and a variety of environmental and preservation programs. Operations at the Lemont Refinery began in 1925 with a major expansion, doubling the facility, in 1933. Over the years, new units were added to meet the demand for a better quality of gas for automobiles, aviation fuel for WWII, and the production of asphalt. Petróleos de Venezuela,S.A., PDVSA, acquired 100% ownership of the refinery in 1997 and began operations as Citgo Lemont Refinery. For more information, visit www.citgorefining.com/Lemont

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Venezuela the Clear Leader in Oil Reserves

(UPI, Daniel J. Graeber, 31.Jul.2018) – An annual review of energy trends from Italian energy company Eni found the United States is a “game changer,” though its Venezuela with the largest reserves.

In a report running nearly 90 pages, the Italian company’s 17th annual review found total oil reserves declined 0.2 percent last year in part because of declines in some members of the Organization of Petroleum Exporting Countries.

Total production last year was relatively unchanged from 2016, though the United States and Canada were among the largest producers outside of OPEC. Last year marked the start of an OPEC policy to balance the market with coordinated production control measures.

“On the supply side, the United States continues to be the main game-changer,” Eni’s CEO Claudio Descalzi stated in the report. “While world production remains nearly flat with respect to last year, the United States delivered one of the biggest increased in non-OPEC area production and confirms its leadership among producers.”

The four-week moving average for total U.S. production for the week ending July 20 was 10.95 million barrels per day, a 16.6 percent increase from the same period last year. That beats Saudi Arabia by about a half million barrels per day, based on the kingdom’s June average.

For total reserves, however, the United States was not in the top 10. Those honors went to Venezuela, Saudi Arabia and Canada, respectively. While the United States was the top producer last year, its total reserves represented about 10 percent of Venezuela’s 302 billion barrels of oil.

Venezuela is facing growing isolation following the May election victory for Venezuelan President Nicolas Maduro. The International Monetary Fund in an outlook on Latin America said the country’s economy is in a “profound” crisis and inflation is on pace to surge to 1 million percent by the end of the year.

Real gross domestic product for Venezuela is on pace to drop 18 percent this year, the third year in a row for a double-digit decline. For the rest of Latin America, the IMF said it expected GDP to grow by 1.6 percent this year and then accelerate to 2.6 percent in 2019.

For the United States, the economy expanded at 4 percent in the second quarter, one of its fastest rates in years, though much of that gain was supported by temporary factors.

For demand, Eni found relatively low crude oil prices in 2017 contributed to a 1.7 gain globally, beating the five-year average of 1.5 percent for the period ending in 2016.

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Once Oil Wealthy, Maracaibo Struggles to Keep Lights On

(Reuters, Mayela Armas, 31.Jul.2018) – Across Maracaibo, the capital of Venezuela’s largest state, residents unplug refrigerators to guard against power surges. Many only buy food they will consume the same day. Others regularly sleep outside.

The rolling power blackouts in the state of Zulia pile more misery on Venezuelans living under a fifth year of an economic crisis that has sparked malnutrition, hyperinflation and mass emigration. OPEC member Venezuela’s once-thriving socialist economy has collapsed since the 2014 fall of oil prices.

“I never thought I would have to go through this,” said bakery worker Cindy Morales, 36, her eyes welling with tears. “I don’t have food, I don’t have power, I don’t have money.”

Electrical posts and power lines are seen at sunset during a blackout in Maracaibo, Venezuela July 26, 2018. Reuters/Marco Bello

Zulia, the historic heart of Venezuela’s energy industry that was for decades known for opulent oil wealth, has been plunged into darkness for several hours a day since March, sometimes leaving its 3.7 million residents with no electricity for up to 24 hours.

In the past, Zulians considered themselves living in a “Venezuelan Texas”, rich from oil and with an identity proudly distinct from the rest of the country. Oil workers could often be seen driving new cars and flew by private jet to the Dutch Caribbean territory of Curacao to gamble their earnings in casinos.

Once famous for its all-night parties, now Maracaibo is often a sea of darkness at night due to blackouts.

The six state-owned power stations throughout Zulia have plenty of oil to generate electricity but a lack of maintenance and spare parts causes frequent breakdowns, leaving the plants running at 20 percent capacity, said Angel Navas, the president of the national Federation of Electrical Workers.

Energy Minister Luis Motta said this month that power cuts of up to eight hours a day would be the norm in Zulia while authorities developed a “stabilization” plan. He did not provide additional details and the Information Ministry did not respond to a request for comment.

The Zulia state government did not respond to a request to comment.

Although Caracas has fared far better than Maracaibo, a major outage hit the capital city on Tuesday morning for around two hours due to a fault at a substation. The energy minister said “heavy rains” had been reported near the substation.

Venezuelans were forced to walk or cram into buses as much of the subway was shut. Long lines formed in front of banks and stores in the hopes power would flick back on. The fault also affected some phone lines and the main Maiquetia airport just outside the capital.

“This is terrible. I feel helpless because I want to go to work but I am in this queue instead,” said domestic worker Nassari Parra, 50, as she waited in a line of 20 people in front of a closed bank.

MARACAIBO “GHOST TOWN”

Retiree Judith Palmar, 56, took advantage of having power to cook one afternoon last week in Maracaibo.

When the lights do go out, Palmar wheels her paralyzed mother outside because the house becomes intolerably hot. One power cut damaged an air conditioning unit, which Palmar cannot afford to replace on her pension of about $1.50 a month due to inflation, estimated by the opposition-run Congress in June at 46,000 percent a year.

Outages are taking a toll on businesses in Zulia.

Zulia used to produce 70 percent of Venezuela’s milk and meat but without power to milk cows and keep meat from spoiling, the state’s production has fallen nearly in half, according to Venezuela’s National Federation of Ranchers.

Zulia’s proportion of Venezuela’s total oil production has also slipped over the past 10 years from 38 percent to 25 percent, figures from state oil company PDVSA show.

Maracaibo, Venezuela’s second largest city, seems like a “ghost town,” said Fergus Walshe, head of a local business organization. He said businesses had shortened their operating hours due to the lack of power.

“Before, business activity here was booming,” he said.

Small businesses are also affected. In an industrial park in Maracaibo’s outskirts, 80 percent of the 1,000 companies based there are affected by the power cuts, according to another business association in Zulia.

Sales at Americo Fernandez’ spare parts store are down 50 percent because card readers, which are crucial because even the cheapest goods require unwieldy piles of banknotes, cannot be used during power cuts.

“I have had to improvise to stay afloat. I connect the car battery to the store so that the card readers can work,” Fernandez said during a power outage at his home, surrounded by candles.

Reporting by Mayela Armas in Maracaibo, additional reporting by Andreina Aponte and Shaylim Castro in Caracas; Writing by Alexandra Ulmer; Editing by Lisa Shumaker and Alistair Bell

***

US Charges Point to Rampant Corruption at PDVSA

US Charges Point to Rampant Corruption at Venezuela State Oil Company

(InSight Crime, 30.Jul.2018) – US authorities are charging a network of Venezuelan elites and international financial actors with laundering over a billion dollars stolen from the state-owned oil company, illustrating once again how corruption has ransacked the South American country, and why it can be considered a mafia state.

Businessmen who have been given the moniker “boliburgués” along with several Venezuelan officials allegedly embezzled more than $1.2 billion from Venezuela’s state-owned oil company Petróleos de Venezuela S.A. (PdVSA) between 2014 and 2015, and later attempted to launder the funds through US and European banks, according to a July 23 criminal complaint filed in a federal court in Florida.

The PdVSA officials and businesspeople involved allegedly exploited Venezuela’s foreign currency exchange system to increase the value of company funds obtained from the oil company through bribery and fraud. Because of differences between the actual exchange rate and a government-set rate, connected individuals in Venezuela could steal huge amounts of money from the PdVSA.

“Essentially, in two transactions, [a] person could buy 100 million U.S. Dollars for 10 million U.S. Dollars,” the complaint states.

This is all possible thanks to the inconsistencies and complexities of Venezuela’s currency exchange system.

After allegedly obtaining $1.2 billion from PdVSA, the defendants laundered the money through a series of sophisticated schemes, including the purchase of real estate in Florida, fake bonds and false investment funds, in order to pay kickbacks to Venezuelan officials and elites.

Most of the defendants named in the complaint remain at large, and a number of them are presumably in Venezuela where there is little chance the government will cooperate with the US prosecution. However, the US Justice Department announced in a statement that two arrests had been made in connection with the case.

One was Matthias Krull, a Panama-based German national living in Venezuela who worked for a Swiss bank managing the accounts of Venezuelan elites. He allegedly conspired to launder part of the money embezzled from PdVSA, and was arrested in Miami on July 24.

Gustavo Adolfo Hernández Frieri, a Colombian national and naturalized US citizen who allegedly laundered part of the embezzled funds with false mutual fund investments, was arrested in Italy on July 25.

Venezuelan elite Francisco Convit Guruceaga, former legal counsel for Venezuela’s mining ministry Carmelo Urdaneta Aqui, Venezuelan “professional money launderer” José Vicente Amparan Croquer, former PdVSA finance director Abraham Eduardo Ortega, Portuguese banker Hugo Andre Ramalho Gois and Uruguayan banker Marcelo Federico Gutierrez Acosta y Lara have also been charged in the case.

In the criminal complaint, US authorities also describe several unnamed conspirators who are part of a Venezuelan elite class known as the “bolichicos” or “boliburgués”, a name Venezuelans have given to the social class that has rapidly grown rich due to its political ties or the business it does with the Chavista government.

The list also includes a television network owner who could be Raúl Gorrín of Globovisión according to the Miami Herald, and the stepsons of an important Venezuelan official, who according to the same source could be President Nicolás Maduro himself and the children of his wife Cilia Flores. Members of the boliburgués have been implicated in a wide range of other corruption schemes throughout government institutions.

InSight Crime Analysis

The billion-dollar scheme to embezzle funds from Venezuela’s state-owned oil company and launder them through a sophisticated series of false investments abroad is the latest example of the pervasive corruption that has pillaged not only PdVSA, but much of the Venezuelan government’s coffers in recent years.

“It happens because this economic model was created precisely so that organized crime would have control of Venezuela,” Venezuelan lawyer and organized crime expert Alejandro Rebolledo told InSight Crime.

In Rebolledo’s opinion, the economic model led to certain people having the control to give authorization for the currency to leave the coffers of the PdVSA and the nation in general, justified by alleged purchases and payments to suppliers. This explains the sudden “enrichment” of the Boliburgueses to the tune of $600 million or more.

Interestingly, the PdVSA negotiations that led to the US investigations into alleged money laundering began on December 23, 2014, just seven days before President Nicolás Maduro appointed former Treasurer of the Nation Carlos Erick Malpica Flores as vice president of finance for PdVSA. Malpica is also first lady Cilia Flores’ nephew. The Bolichicos’ transactions with the oil company continued into 2015, when Malpica ran the office where the transactions were made.

But the recently revealed money laundering case is not the first time PdVSA officials have been accused of involvement in billion-dollar kickback schemes. In 2015, US federal prosecutors brought a case against two US businessmen who allegedly paid bribes to PdVSA officials in exchange for help winning contracts from the oil company. That case was expanded in 2017 when prosecutors charged several former Venezuelan government officials with soliciting tens of millions of dollars in bribe payments in exchange for prioritizing payments from the failing oil company to certain contractors.

Moreover, PdVSA is not the only government institution in Venezuela subject to rampant corruption. As InSight Crime revealed in a recent investigation, virtually any potential avenue for graft is being exploited while the government of President Nicolás Maduro turns a blind eye to secure the loyalty of those around him. Cases include members of the armed forces, members of the first family and possibly even the president, who according to the Miami Herald may have participated in the PdVSA money laundering operation, although he is not mentioned by name in the US investigation report.

Rebolledo, author of the book How Money Is Laundered in Venezuela (“Así se lava el dinero en Venezuela”), told InSight Crime that “these money laundering operations are only possible if someone in an important position of power allows them to happen. That is what leads to a network like the one identified by US authorities being formed.”

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Venezuela Inflation to Hit 1 Mln Percent. Thanks, Socialism.

Oil pumpjacks are seen in Venezuela in May. (Isaac Urrutia/Reuters)

(Washington Post, Megan McArdle, 27.Jul.2018) – According to the International Monetary Fund, by the end of the year, the annual inflation rate in Venezuela will reach 1 million percent.

A number like that is hard to grasp. Simply put, a candy bar that cost $1 today would cost $10,000 at the end of a year. Anyone in that position would understandably rush to spend the money right now, on anything that might possibly hold its value. Everyone else would too. The entire economy becomes a giant game of monetary “hot potato.” Saving or planning becomes a sucker’s game.

Venezuela is not exactly a struggling undeveloped country; it has the world’s largest proven oil reserves. How the heck did this happen?

There are two answers, one technical and one political.

The technical answer is that hyperinflations occur because the government wants to spend much more money than it is collecting in taxes — so much more that no one is willing to lend it the money to cover the deficit. Instead, the government uses the central bank to finance the deficit. That puts more money in the economy, but since it’s chasing the same number of goods and services, prices rise to soak up all the extra cash. Unless the government manages to close its budget deficit, it must print even more money to buy the same amount of stuff . . .

Rinse and repeat a few times, and the inflation rate starts running into many zeros. The end generally arrives in one of two unpleasant ways: The government decides to stop the madness and implement a strenuous reform program, or the currency becomes so utterly devalued that churning out more of it is pointless. By the end of its hyperinflation, Zimbabwe was printing bank notes that ran into the trillions.

But it’s not a secret that this is where hyperinflation ends. Why did Venezuela embark on the road to destruction? And why does the government stay on it while the citizenry slowly starves?

In a word, socialism. After his election as president in 1998, Hugo Chávez pursued an increasingly aggressive socialist agenda, one that continued under his 2013 successor, Nicolás Maduro. Chávez nationalized foreign oil fields, along with other significant portions of the economy, and diverted investment funds from PDVSA, the state-owned oil company, into vastly expanded social spending.

Unfortunately, Venezuela’s heavy, sour crude oil was unusually hard to get out of the ground. Continual investment was needed to keep it flowing. So was the expertise of the banished foreign owners and the PDVSA engineers Chávez had purged for opposing this scheme. Production plunged; the only thing that kept Venezuela from disaster was a decade-long oil boom that offset falling production with rising prices.

Then came the 2008 financial crisis that crushed global demand for oil, followed by the onrush of U.S. shale oil, driving prices down further. And no one would loan money to Venezuela that couldn’t be repaid in oil. Meanwhile, unwilling to admit that socialism had failed, Venezuela made a fateful turn to the central bank.

Now, one could say that this is not an indictment of socialism so much as the particular Venezuelan implementation of it. But it’s striking how the precarious economics of socialism, including hyperinflations, are tied to petroleum. Many of the notable hyperinflations in history were tied to the collapse of the Soviet Union. And the story of the Soviet collapse is also a story about oil.

Central planning had wrecked the Soviets’ grain production by the 1960s, and collectivized industry didn’t produce anything that the rest of the world wanted to buy, leaving the Soviets unable to obtain hard currency to import grain. Oil sales propped up the Soviets until the mid-1980s , when prices crashed as new sources of oil came online (sound familiar?). The Soviet leadership was forced to liberalize to rescue the economy. The U.S.S.R.’s collapse soon followed.

Socialism, in other words, often seems to end up curiously synonymous with “petrostate.” The new breed of socialists cites Norway as a model, but saying “we should be like Norway” is equivalent to saying “we should be a very small country on top of a very large oil field.”

Without brute commodity extraction, you need capitalist markets to generate a surplus to distribute, which is why Denmark’s and Sweden’s economies have more in common with the U.S. system than with the platform of the Democratic Socialists of America. And as both Venezuela and the Soviet Union show, even oil may not be enough to save socialism from itself.

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Venezuela Gasoline Price Likely to Rise

(Energy Analytics Institute, Piero Stewart, 27.Jul.2018) – The price of gasoline in Venezuela is likely to increase.

For some services such as gasoline, there will be a relative increase in price, reported the daily newspaper El National, citing Ecoanalítica Director Asdrúbal Oliveros.

“It’s as if they were decreeing an unannounced increase in many of the services, and that has a significant impact not only on daily life, but also on inflation that will be generated,” said Oliveros.

Venezuela has long subsidized the price of the country’s gasoline and diesel, which has allowing its citizens to enjoy the world’s cheapest fuel prices. In 1989, increases in foodstuffs and fuel prices provoked nationwide protests, which eventually led to rise of the late President Hugo Chavez.

“The increase in gasoline will push up demand for cash since a rise in gasoline prices will force citizens to seek out more paper money,” he warned.

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Falling Oil Output Squeezes Maduro Government

(Energy Analytics Institute, Piero Stewart, 27.Jul.2018) – The continued decline in Venezuela’s oil production acts to squeeze the government of President Nicolas Maduro, says an Ecoanalitica executive.

“The fall in oil production puts more restriction on the government,” said Ecoanalitica Director Asdrubal Oliveros during an interview with Shirley Varnagy on her program ‘Shirley Radio.’

Venezuela, the country with the world’s largest oil reserves, continues to suffer self-inflicted economic, financial and humanitarian crises. Production of the country’s primary export, crude oil, fell to 1.340 million barrels per day in June 2018 compared to 1.911 million barrels per day in 2017, according to OPEC’s most recent Monthly Oil Market Report and based on secondary sources.

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Machado Says PDVSA Converted into ‘Junk’

(Energy Analytics Institute, Piero Stewart, 25.Jul.2018) – PDVSA has been converted into ‘junk or scraps’ by the administration of the current Venezuelan president.

That’s according to statements from Venezuelan opposition leader Maria Corina Machado. Her statements were made during a meeting with local media and posted to her twitter account in multiple posts.

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Former Cerro Negro Workers Still Seek Payment

(Energy Analytics Institute, Piero Stewart, 23.Jul.2018) – It has been 11 years and the 7,000 direct and indirect Venezuelan workers of US oil company Exxon Mobil still haven’t received their social benefits or other liquidations.

Those payment were assumed by the government of late Venezuelan President Hugo Chávez when his administration nationalized Exxon Mobil’s Cerro Negro heavy oil project located in the Hugh Chavez Orinoco Heavy Oil Belt, also known as the Faja.

“Several coworkers have died during this long time waiting while others have left the country, but we continue to demand our rights,” reported the daily newspaper El Nacional, citing Luis Vega, spokesman for those affected. In 2007, labor liabilities reached $5.2 billion, a figure that has increased due to accumulated interest, he said.

Many of the workers are from the Venezuelan states of Monagas, Sucre, Anzoátegui, Bolívar, Guárico and Delta Amacuro, said Vega.

About a month ago, Venezuela’s President Nicolás Maduro instructed PDVSA President Manuel Quevedo to solve the problem.

“PDVSA recognizes the debt, but doesn’t want to pay us alleging that [former PDVSA President] Rafael Ramírez stole the money,” added Vega.

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Oil, Electric Sectors to Join Venezuelan Strike

(Energy Analytics Institute, Piero Stewart, 23.Jul.2018) – Representatives from trade unions from the oil, electricity, food, education and health sectors announced plans to join a national strike called by opposition political parties, businessmen, unions, churches and other sectors of society in Venezuela.

“The governments of Hugo Chávez and Nicolás Maduro did not build or repair anything. [Instead], with their disastrous politics and corruption, they destroyed the infrastructure and the productive apparatus,” reported the daily newspaper El Nacional, citing oil union official Iván Freites. “They placed the country in the deep crisis that the workers and the population in general are experiencing.”

The current minimum wage of 100,000 bolivars per day isn’t enough to even buy a piece of bread or an egg, said Freites, who represents the Federation of Venezuelan Petroleum Workers or FUTPV by its Spanish acronym.

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Union Official Demands Release of PDVSA Workers

Iván Freites (center) speaks during press conference in Venezuela. Source: El Nacional

(Energy Analytics Institute, Piero Stewart, 23.Jul.2018) – The four workers are being held in detention due to accusations they caused a petroleum spill in the Guarapiche River in Monagas state.

Their arrest is “the straw that broke the camel’s back,” reported the daily newspaper El Nacional, citing oil union official Iván Freites.

The oil spill, besides causing ecological damage, has left an estimated 70% of the population in Maturín without water, the official said.

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Venezuela Thermal Plants at 25-30% of Capacity

(Energy Analytics Institute, Piero Stewart, 23.Jul.2018) – Venezuela’s thermal generation plants in Caracas are only operating at 25% to 30% of capacity, and units 7, 8 and 9 of the Tacoa plant in Vargas state are halted due to damage.

The situation in other parts of this OPEC country, such as Zulia state, are more serious, reported the daily newspaper El Nacional, citing union official Reinaldo Díaz.

Plants in Zulia such as Ramón Laguna, Termozulia and Rafael Urdaneta are currently only generating 350 megawatts (MW) of their installed capacity of 2,000 MW.

Such insufficiency to satisfy demand in Maracaibo has forced city officials in this major petroleum region to implement daily rolling power outages of a minimum of 5 hours with some lasting more than 8 hours, according to local television reports of residents in the affected areas.

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Ex-Venezuelan Energy Official Pleads Guilty

(AP, 20.Jul.2018) – A former official at a state-run electric company in Caracas, Venezuela, pleaded guilty on Monday to money laundering conspiracy relating to an alleged multibillion-dollar graft scheme in the Venezuelan oil industry.

Luis Carlos de Leon-Perez, a 42-year-old dual citizen of the United States and Venezuela, admitted his role in the scheme to bribe officials of Venezuela’s state-owned-and-controlled oil company, Petroleos de Venezuela, or PDVSA, the US Attorney’s Office in Houston announced. He also pleaded guilty to conspiracy to violate the US Foreign Corrupt Practices Act. He is scheduled to be sentenced on September 24.

De Leon admitted seeking bribes from owners of energy companies in the United States and elsewhere and directing some of the bribes to PDVSA officials.

In 2016, Venezuela’s opposition-led National Assembly said US$11 billion went missing at PDVSA in 2004-2014, when Rafael Ramirez was in charge of the company. In 2015, the US Treasury Department accused a bank in Andorra of laundering some US$2 billion stolen from PDVSA.

Ramirez was one of Venezuela’s most powerful officials until he resigned as Venezuela’s ambassador to the United Nations in December. He was not charged in the indictment and has denied any wrongdoing, dismissing the US probe into PDVSA as a politically motivated attempt to undermine President Nicolas Maduro’s government.

De Leon was arrested in Spain last October and extradited to the United States after a federal grand jury in Houston returned a 20-count indictment against him, Nervis Gerardo Villalobos Cardenas, 51; Cesar David Rincon Godoy, 51: Alejandro Isturiz Chiesa, 33; and Rafael Ernesto Reiter Munoz, 39.

Cesar Rincon has already pleaded guilty to money laundering conspiracy. Roberto Enrique Rincon Fernandez, 57, of The Woodlands, Texas; and Abraham Jose Shiera Bastidas, 55, of Coral Gables, Florida, have pleaded guilty to violating the Foreign Corrupt Practices Act and await sentencing. Prosecutors say they paid bribes in exchange for contracts to build electricity generators for PDVSA at a time Venezuela was suffering widespread power outages.

In all, 12 suspects have entered guilty pleas relating to the investigation, the Justice Department said.

Villalobos, Ramirez’s former deputy at PDVSA; Reiter, PDVSA’s former corporate security chief, and Isturiz all await trial on charges of money laundering and money laundering conspiracy.

Villalobos is also charged with conspiring to violate the Foreign Corrupt Practices Act. He and Reiter remain in Spain awaiting extradition, while Isturiz still has not been arrested.

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Venezuela Facing ‘Economic Collapse’, IMF Warns

(AFP, 18.Jul.2018) – Venezuela is in a state of “economic collapse” with hyperinflation not seen since the middle of the last century, the International Monetary Fund said Monday.

Despite higher oil prices that are benefiting most exporting nations, the IMF sees a worsening contraction of the economy, which in April already was forecast to decline 15 per cent, with inflation this year of 14,000 per cent.

“It’s very hard to exaggerate the extent of disruption in the Venezuelan economy,” IMF Chief Economist Maurice Obstfeld said.

Already the fund sees double-digit contraction in coming years and “we’ve increased our assessment about the degree of contraction”, he told reporters.

In addition, “we’re seeing a hyperinflation rivalled only by Zimbabwe and the great historical hyperinflation of the inter-war period”.

The IMF did not release a new forecast for Venezuela in the quarterly update to the World Economic Outlook, which provides a limited set of estimates.

Obstfeld noted the wave of migrants fleeing Venezuela was having an impact on neighbouring economies, even though there is no language barrier.

“Just as in other parts of the world there is a huge challenge to absorb these migrants,” he said.

OPEC data show Venezuelan oil production crashed to a new 30-year low of 1.5 million barrels a day in June.

The South American nation earns 96 per cent of its revenue through oil sales but a lack of foreign exchange has sparked economic paralysis that has left the country suffering serious shortages of food and medicine.

The government of socialist President Nicolas Maduro has told state oil company PDVSA to increase production in the country which sits atop the world’s largest reserves of crude.

***

U.S. Revokes Visa of Citgo CEO

Asdrubal Chavez Source: Bloomberg

(Bloomberg, Lucia Kassai and Fabiola Zerpa, 18.Jul.2018) – Being a blood relative of Hugo Chavez used to open doors. Now Asdrubal Chavez, cousin of the late Venezuelan socialist leader, is finding out it can close some as well.

In the most recent blow against Venezuela, the U.S. revoked the visa of Chavez, chief executive officer of Petroleos de Venezuela SA’s U.S. refining unit Citgo Petroleum Corp. and a former oil minister. He will be burdened with the task of commanding from outside the U.S. three refineries with a combined capacity to process 749,000 barrels of oil daily and an army of 3,500 employees.

Venezuela, home to the world’s largest oil reserves, has seen its production slide by more than one-third since late 2015, according to data compiled by Bloomberg. Its output may sink from 1.34 million barrels a day in June to just over 1 million, Torino Capital chief economist Francisco Rodriguez wrote in a note. U.S. sanctions have accelerated the decline, as have lawsuits by ConocoPhillips to claim assets as payment for an arbitration award.

The U.S. has sanctioned at least 48 Venezuelan nationals associated with economic mismanagement and corruption, including President Nicolas Maduro, and has provisionally revoked tens of thousands of visas in the aftermath of President Donald Trump’s travel ban. Still, kicking out a C-suite executive of the country is rare.

The revocation “does not change anything at Citgo in terms of its management and operations,” the company said in an emailed statement.

The State Department declined to comment on individual visa cases.

It’s unclear to where Chavez, who used to work from Citgo’s headquarters in Houston, will move. One of the possibilities would be for him to be based out of Aruba, where Citgo is seeking to refurbish a refinery and convert it into an oil upgrader that will transform extra-heavy Venezuelan oil into refinery-ready synthetic grades.

— With assistance by Nick Wadhams
***

Venezuela Claims It Plans To Raise Oil Production

(OilPrice.com, Tsvetana Paraskova, 17.Jul.2018) – Venezuela’s Oil Minister Manuel Quevedo has discussed plans with state-held oil company PDVSA to raise the country’s crude oil production in the second half of the year.

While Venezuela and its struggling oil firm claim that they are revising their production planning in order to increase the country’s oil production capacity and make this year a year of “consolidation and stabilization”, basically no one else thinks or claims that Venezuela could soon be able to reverse its steep production decline which sees it losing more than 40,000 bpd of crude oil production every month for several months now.

According to OPEC’s secondary sources in the latest Monthly Oil Market Report, Venezuela’s crude oil production dropped in June by 47,500 bpd from May, to average 1.340 million bpd last month. This compares with an average of 2.154 million bpd in 2016, and an average of 1.911 million bpd in 2017. Venezuela, for its part, has been self-reporting to OPEC much higher production figures, with the June production reported at 1.531 million bpd.

Amid plummeting crude oil production, PDVSA is said to have failed to honor its supply obligations in early June, and has started to refine imported crude oil.

The plunging oil production is nearing the psychological threshold of just 1 million bpd as early as this year, analysts and industry experts say, and don’t see how production can be restored after years of underinvestment and mismanagement.

On top of the lack of investment and an exodus of oil workers who don’t see the point of working for salaries that become worthless overnight due to the 13,860-percent hyperinflation, ConocoPhillips is looking to and is already seizing PDVSA assets in the Caribbean in a bid to enforce a court ruling that awarded the U.S. firm US$2 billion in compensation for the forced nationalization of company assets in Venezuela.

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Why Is Venezuela Still Sending Subsidized Oil To Cuba?

(OilPrice.com, Haley Zaremba, 17.Jul.2018) – In the past, oil has accounted for 96 percent of Venezuela’s exports and over 40 percent of government revenues. Now, as the nation’s economy continues to crumble amid sanctions, political strife, and low oil prices, the Venezuela’s all-important oil production is plummeting. In fact, last month’s production was the lowest in 30 years at 1.5 million barrels a day. In desperation, the struggling administration has even begun to shut down production proactively as their terminal storage meets maximum capacity and the government faces major bottlenecks at storage facilities and ports.

As oil production and exports drop, the Venezuelan government has even less money to buy essentials like food, medicines, and other basic goods–a well-established crisis growing worse all the time. The International Monetary Fund (IMF) has said that the brutal economic crisis underway in Venezuela is one of the worst in modern history. The nation’s once powerful economy has plummeted 45 percent in the last five years, and the IMF projects that it will shrink 15 percent in 2018 alone. Out-of-control inflation rates will reach 13,800 percent.

However, in the middle of the chaos — a collapsing regime, widespread hunger, medical shortages — there is one holdover from the socialist platform that autocratic President Nicolas Maduro has refused to lapse on. Despite the crisis on his own soil, Maduro continues to grant generous oil subsidies to Cuba.

The small island nation, not without its own economic issues, has been dependent on cheap Venezuelan oil since the 1990s. After the fall of the Soviet Union, comrade Cuba was in economic shambles. It was at this point that they turned to Venezuela reduced-rate crude oil, in exchange for sending skilled laborers across the Caribbean.

Now, as Venezuela sinks deeper and deeper into an extreme economic depression, few could have predicted that they would still be making good on that decade-old agreement with Cuba–even the Cubans themselves have been scrambling for new sources of cheap crude. Last year Venezuela even cut off exports to Cuba for eight months, but then once again began sending shipments of light oil to Cuba and Curacao in March 2017 at a great cost to their own refineries, which are running at just a small fraction of their capacity thanks to lack of maintenance and drained funds.

Despite all this, amazingly, there was a reported shipment of 500,000 barrels of Venezuelan crude shipped to northwestern Cuba last week, sparking an uproar back at home. Venezuela continues to supply Cuba with around 55,00 barrels of oil per day, costing the nation around $1.2 billion per year, an unthinkable generosity when 9 million Venezuelans are reporting that they can only afford to eat once a day. This money could be channeled into turning around Venezuela’s own crisis, to curb inflation and import desperately needed medicines that can no longer be found on empty Venezuelan shelves.

There is a new, albeit small, ray of hope, however, for Venezuela’s ailing economy. On July 1st Mexico overwhelmingly elected a leftist president for the first time in decades. Andres Manuel Lopez Obrador, known locally as AMLO, pledged on the campaign trail to bring Mexico’s foreign policy back to a standard of non-intervention. This would mean walking back current neoliberal Mexican President Enrique Peña-Nieto’s efforts to build a regional alliance against Maduro and put pressure on him to ease up on his increasingly despotic tendencies.

Despite public outcry against Maduro’s continued financial support of Cuba as his own people without food and desperately needed medicines, the reality is that Cuba is one of Venezuela’s last remaining allies. Even if Mexico is no longer actively working against Maduro’s regime, they won’t be supporting it the way that Cuba has and continues to do. The sad truth is that Maduro has and likely will continue to put politics over people, and cheap oil will continue to flow out of the pockets of Venezuela and into the ports of Havana, which sit ready and waiting.

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Ex-Venezuelan Energy Official Pleads Guilty

(AP, 16.Jul.2018) – A former official at a state-run electric company in Caracas, Venezuela, pleaded guilty to money laundering conspiracy relating to an alleged multibillion-dollar graft scheme in the Venezuelan oil industry.

Luis Carlos de Leon-Perez, a 42-year-old dual citizen of the United States and Venezuela, admitted his role in the scheme to bribe officials of Venezuela’s state-owned-and-controlled oil company, Petroleos de Venezuela, or PDVSA, the U.S. Attorney’s Office in Houston announced. He also pleaded guilty to conspiracy to violate the U.S. Foreign Corrupt Practices Act. He is scheduled to be sentenced Sept. 24.

De Leon admitted seeking bribes from owners of energy companies in the United States and elsewhere and directing some of the bribes to PDVSA officials.

In 2016, Venezuela’s opposition-led National Assembly said $11 billion went missing at PDVSA in 2004-2014, when Rafael Ramirez was in charge of the company. In 2015, the U.S. Treasury Department accused a bank in Andorra of laundering some $2 billion stolen from PDVSA.

Ramirez was one of Venezuela’s most powerful officials until he resigned as Venezuela’s ambassador to the United Nations in December. He was not charged in the indictment and has denied any wrongdoing, dismissing the U.S. probe into PDVSA as a politically motivated attempt to undermine President Nicolas Maduro’s socialist government.

De Leon was arrested in Spain last October and extradited to the United States after a federal grand jury in Houston returned a 20-count indictment against him, Nervis Gerardo Villalobos Cardenas, 51; Cesar David Rincon Godoy, 51: Alejandro Isturiz Chiesa, 33; and Rafael Ernesto Reiter Munoz, 39.

Cesar Rincon has already pleaded guilty to money laundering conspiracy. Roberto Enrique Rincon Fernandez, 57, of The Woodlands, Texas; and Abraham Jose Shiera Bastidas, 55, of Coral Gables, Florida, have pleaded guilty to violating the Foreign Corrupt Practices Act and await sentencing. Prosecutors say they paid bribes in exchange for contracts to build electricity generators for PDVSA at a time Venezuela was suffering widespread power outages.

In all, 12 suspects have entered guilty pleas relating to the investigation, the Justice Department said.

Villalobos, Ramirez’s former deputy at PDVSA; Reiter, PDVSA’s former corporate security chief, and Isturiz all await trial on charges of money laundering and money laundering conspiracy. Villalobos also is charged with conspiring to violate the Foreign Corrupt Practices Act. He and Reiter remain in Spain awaiting extradition, while Isturiz still has not been arrested.

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Venezuela’s Maduro Introduces Petro in Turkey

(Energy Analytics Institute, Piero Stewart, 14.Jul.2018) – Venezuela’s President Nicolás Maduro introduced ‘el petro’ during a presentation in Turkey.

Maduro reiterated that the Petro crypto-currency is based or backed by an entire block located in Hugo Chavez Orinoco Heavy Oil Belt, or the Faja, which contains more than five billion barrels of certified oil reserves, reported PDVSA in an official statement.

Its value is equivalent to the price of an oil barrel, he said.

Maduro added that Venezuela offered numerous opportunities to investors and invited businessmen to jointly work on oil, gas and mining projects in the South American country.

“I place it at your disposal to strengthen relations and accelerate investments between Venezuela and Turkey,” he added during meetings with representatives from Turkish private and public companies.
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Venezuela, Turkey Discuss Oil Supply

(Energy Analytics Institute, Piero Stewart, 14.Jul.2018) – Venezuela’s President Nicolás Maduro announced the two countries could soon sign a new oil agreement.

“A new agreement thereon shall be signed pretty soon,” reported PDVSA in an official statement, citing Maduro.

No specifics were provided in the statement.

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Machado Says Venezuela “Show Can’t Go On”

(Energy Analytics Institute, Piero Stewart, 13.Jul.2018) – Opposition leader María Corina Machado said the “show can’t go on” during a video broadcast from Punto Fijo.

The leader’s video in reaction to a recent oil spill at PDVSA that the state oil company blamed on workers.

“A criminal regime that transformed PDVSA from one of the companies with the best industrial safety indices into one of the most dangerous in the world, now pretends to blame the workers for this new spill,” wrote Machado in an official Twitter post. “It’s monstrous. My support for oil workers. Resist!,” she added.

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No End In Sight For Venezuela’s Oil Crisis

(OilPrice.com, Nick Cunningham, 12.Jul.2018) – Venezuela’s oil production plunged by another 47,500 barrels per day (bpd) in June, compared to a month earlier. An exodus of workers and field shut downs were reported for the month, pointing to a grim near-term future that could see total production dip below 1 million barrels per day (mb/d) by the end of the year.

According to OPEC’s secondary sources, Venezuela’s output fell to 1.34 mb/d in June, which, aside from a brief interruption of output due to a strike in 2002-2003, puts production at its lowest point in nearly seven decades.

The problems plaguing Venezuela’s oil industry are well-publicized, but the situation continued to deteriorate in June. Two officials from state-owned PDVSA told Argus that workers are fleeing operations. “More production wells are being shut down, the skilled oilfield labor force declined in all upstream divisions by at least a combined 1,000 workers in June, and scheduled maintenance continues to be postponed,” a PDVSA official from the western division said.

A separate official from the eastern division told Argus that production continued to fall in the first 11 days of July as more rigs were scrapped and more wells were shut down. PDVSA is “dying operationally,” the official said.

You wouldn’t know that if you went by government statistics, however. While OPEC’s secondary sources estimated average output at 1.34 mb/d in June, the Venezuelan government reported production figures at 1.531 mb/d, flat from May levels. Those figures defy belief and are not credible, but PDVSA’s leader, Manuel Quevedo, is “cooking the official data sent to OPEC to hide the truth about [PDVSA] from president Maduro and from the public,” an official from the energy ministry told Argus.

Venezuela’s production is now down nearly 800,000 bpd from a year ago, and falling.

“Output from Venezuela’s ageing conventional oil fields is in rapid decline and upgraders operated by foreign joint-venture partners in the vast Orinoco heavy oil belt are malfunctioning and running below capacity,” the IEA said in its latest Oil Market Report. “At the end of June, PDVSA and Chevron restarted the 210 kb/d Petropiar upgrader after almost a month-long closure.”

“In total, upgrading projects in Venezuela can turn roughly 600 kb/d to 700 kb/d of extra-heavy Orinoco crude into export grades. Recently they have been largely out of action due to bottlenecks at loading facilities.”

China has decided to invest $250 million to help slow the decline underway in Venezuela, but it isn’t at all clear that that amount of money will have a significant impact. After all, China has poured $50 billion in loans into Venezuela over the past decade, and the trajectory of Venezuelan oil production has only gone in one direction.

There is also the possibility that the June figures might look a bit better than should be the case because PDVSA drained inventories. Reuters reports that Venezuela’s crude exports to the U.S. recovered a bit in June, compared to May, but that PDVSA drew down on stocks in Curacao and Aruba ahead of ConocoPhillips’ seizure of the facilities. As Conoco presses its case against PDVSA, Venezuela has largely lost control of its facilities on those Caribbean islands.

There is no shortage of reasons to believe the situation will continue on a downward spiral. Oil wells are being shut down and the worker exodus will put an even deeper strain on operations. More than $9 billion in bond payments fall due this year, and it is hard to imagine the government and PDVSA marshalling the resources to meet those payments. Inflation is set to top some 13,000 percent this year, a mind-boggling figure, while GDP could shrink by a further 15 percent. By the end of the year, GDP will have contracted by nearly 50 percent since 2013.

The lack of payment to PDVSA’s joint venture partners threatens to accelerate production losses. The rig count fell to just 26 in June, according to Argus, down from 70 in the first quarter of 2016.

Venezuela has been losing around 50,000 bpd each month so far this year, which means it could lose another 300,000 bpd before the end of 2018. The losses are tightening the oil market, and Saudi Arabia is now forced to ramp up production – and cut into its spare capacity – to make up for the declines.

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PDVSA Gas Replaces Section of Gas Pipeline

Workers repairing a section of the natural gas pipeline. Source: PDVSA

(Energy Analytics Institute, Piero Stewart, 11.Jul.2018) – PDVSA Gas announced completion of work on the Cariaco-Margarita Wharf section of the Northeast G / J Gas José Francisco Bermúdez pipeline.

Work on the section entailed removing and replacing a 48 meter long section of the 16-inch diameter pipeline that transports natural gas from Sucre state to Nueva Esparta state, announced PDVSA in an official statement.

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Jusepín Oil Spill Demonstrates PDVSA Safety Failures

(Maritime Herald, 9.Jul.2018) – The oil spill that occurred this Friday, July 6 in two tanks of the secondary recovery plant of the Jusepín Operational Complex of Pdvsa, demonstrates the safety failures of the Venezuelan state industry.

This is what the biologist, Alejandro Álvarez Iragorry, considers that what happened for the second time in this Pdvsa facility, located in the northwest area of Maturín, is another sign that “PDVSA seems to be operating at the operational minimums “.

Neither the company itself, the Ministry of Petroleum or the Government of Monagas report, 72 hours after the fact, the amount of oil that fell to the Guarapiche River, but also speak of the fact with different terms.

For PDVSA, ” oily waters to the river ” fell ; According to the minister, they were ” oil fluids ” and the regional executive defined it as ” a spill of oil “, which led the authorities to suspend for an indefinite period the pumping of water to 80% of the population of Maturin, since seven of the 10 parishes in the capital of Monaco are supplied by the Guarapiche River .

Álvarez Iragorry, who is also a doctor in Ecology and coordinator of the Clima 21 Coalition, points out that the lack of information is a norm, not only in this accident but in others that have occurred since the one that occurred on February 4, 2012, also in the Operational Complex of Jusepín, considered one of the most serious in the Venezuelan oil industry.

“I am very concerned because, from the safety point of view, there is a greater chance of a major accident. Since the spill that occurred in the Guarapiche River six years ago, there have been about four more spills, that although they were not originated by PDVSA, some of them like Trinidad and Tobago, when entering Venezuelan marine waters are their responsibility and not they have responded as it should be, “the expert mentions.

For the biologist, without accurate information, you can not alert or recommend the citizens with enough details to take the forecasts as to what happens in these types of cases.

In addition, the contingency plans of PDVSA in each of the spill cases have questioned the capacity to respond. Several photos are remembered of how in 2012, those who were manually blocking the passage of oil in the Guarapiche River did not have uniforms or safety equipment.

Álvarez Iragorry emphasizes this to emphasize that if you add the lack of information, “when everything becomes opaque, you have no idea what is happening.”

Damage and environmental impact

Although it is early to evaluate the environmental impact in the Guarapiche River, which already suffered the effects of the first spill in 2012 when it is estimated that for 21 hours 100 thousand barrels of oil were poured into its bed, a new spill of course that causes a immediate damage in the flow.

The first is the one that affects citizens who are left without water supply indefinitely. The biologist believes that the Maturineses are the ones who must demand an answer from the rulers and authorities. “A healthy river will give healthy water if it is not healthy it will not give healthy water”.

The damage it causes in the river is also direct because it affects the vegetation, the soil and the species that inhabit one of the longest rivers that Monagas has and that crosses the municipalities Cedeño, Maturín and Bolívar.

The Guarapiche has mangroves that were severely contaminated six years ago. The amount of oil that fell in its waters was so great that it travelled 75 kilometres until reaching the French, Cuatro Bocas and Colorad pipes, which are the connection of the Guarapiche with the San Juan River and from there to the Caribbean Sea.

Just to take into account an effect of what happened six years ago, the journalist David González in a work published by the newspaper El Nacional made a tour of the river and this was part of what he said:

The tour lasts almost two hours after which the visitor will feel that he accessed a disaster area. At the foot of the mangroves a black strip protruding half a meter from the water: it looks like a large skirting board at the base of a very long plant wall. As the tide drops, more stems and more roots are exposed and you can see how deep the oil adhered. A fact can illustrate that only a part of the mangroves is visible: if a rod of two and a half meters is put into the water, the riverbed will not be touched yet. A similar landscape can be observed while navigating an approximate distance of 20 kilometres through the pipes adjacent to the San Juan River.

After the spill, this July 6 little is what is known, because as happened in 2012 the secrecy of Pdvsa remains.

For Álvarez Iragorry, the authorities speak of up to three terms to define the spill, which accounts for the lack of seriousness with which things are carried out, which could try to minimize the impact of those events.

“In case of being some type of residual hydrocarbon, here, in this case, we do not have information about it, it is an even more toxic material. In any case, there is an impact because it does not matter if it is any other waste or water contaminated with hydrocarbon because there is an impact, “he said.

Source: Efecto Cocuyo

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Quevedo Prays for Higher Venezuelan Output

(Energy Analytics Institute, Piero Stewart, 8.Jul.2018) – Venezuela’s Oil Minister General Manuel Quevedo prayed to God in search of divine assistance to boost Venezuela’s oil production.

The prayer was made by Quevedo during his participation in a special mass held at the headquarters of PDVSA and Venezuela’s Oil Ministry in the company of workers from both entities, reported PetroGui@, citing an official statement from the Oil Ministry.

“The recovery of PDVSA is also the recovery of the whole country,” said Priest Pablo Urquiaga of the Church of the Resurrection of the Lord in Caricuao, during the ceremony in La Campiña.

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China Gives New Life to Venezuela Despite US’ Ire

(Sputnik News, 5.Jul.2018) – China is lending its helping hand to Venezuela to stabilize the country’s oil sector, analysts told Sputnik, adding that Beijing’s economic activities in Latin America are apparently getting on Washington’s nerves.

China is about to breathe new life into Venezuela’s collapsing oil sector regardless of Washington’s displeasure: On July 4, 2018, Bloomberg reported that the China Development Bank is going to invest more than $250 million in the country’s crude production.

Liu Qian, analyst at the China Institute of Strategic Energy Studies, hailed Beijing’s move, stressing that Venezuela has long been one of China’s largest oil suppliers: “China’s direct investment of $250 million in Venezuelan national oil company [Petróleos de Venezuela, S.A.] will positively affect the stabilization of oil production in Venezuela and ensure delivery of crude oil to China,” he told Sputnik China.

However, according to Liu, Venezuelan economic difficulties could hardly be resolved by a one-time financial injection: “China does not exclude the provision of loans or other types of assistance to stabilize and boost oil production [in Venezuela] within the framework of a ‘loan-for-oil’ model of energy cooperation,” he highlighted.

The Chinese analyst underscored that the ongoing economic crisis in the Latin American country and the subsequent slump in oil production had affected the global energy market. Hence, the revival of the country’s energy industry might stabilize crude output, bring more oil to the market and thus prevent global oil supply shortages, he suggested.

China’s Economic Expansion in US’ ‘Backyard’

Washington is keeping a wary eye on China’s activities in Latin America, which the US has long seen as its “backyard,” with Venezuela being the White House’s major irritant.

“As usual, the US reacts very painfully to the fact that China is conducting nothing short of economic expansion in Latin America,” Vladimir Sudarev, professor at Moscow State Institute of International Relations (MGIMO) and expert on Latin America opined. “They throw a scare into Latin American countries saying that while their cooperation with China is profitable today, the day after tomorrow they will be completely dependent on China.”

However, neither Latin American states, nor China are falling for Washington’s gloomy prognoses, the Russian academic remarked.

While the US is taking measures to isolate Venezuela, China is not following suit, boosting its ties with the Caribbean country. In December 2017, Beijing invited Venezuelan Foreign Minister Jorge Arreas on an official visit. Furthermore, Finance Minister Simon Zerpa, who has recently held a meeting with officials from the China Development Bank and China National Petroleum Corporation, was subjected to US sanctions.

US President Donald Trump has repeatedly made tough statements against the Venezuelan government. He even went so far as to discuss a potential invasion of the Latin American country and the removal of President Nicholas Maduro with his aides.

Commenting on the Chinese initiative, Sudarev cast doubt on the assumption that China was seeking to support the Maduro government through the massive investment in the country’s oil sector.

“They have been investing [in Venezuela] for a long time, and, of course, in a certain sense they are interested in supporting a bankrupt Venezuelan state [oil] company so that it could regularly supply crude to China. They are being guided by pragmatic interests and not [the desire] to support the government of Nicholas Maduro,” he opined.

Sudarev envisioned that it will take time for Petróleos de Venezuela, S.A. (PDVSA) to regain its footing. According to the academic, it is unlikely that the company will manage to immediately absorb the Chinese multi-million loan and begin production at the levels it did 10 years ago. Moreover, he did not rule out that China’s investments in the Venezuelan oil sector could result in financial losses.

According to the International Energy Agency, in June 2018, Venezuelan oil production fell to 1.36 million barrels per day. For comparison’s sake, in 2013 the country’s output amounted to 2.9 million barrels a day. Now Maduro is promising to increase the daily crude output by 1 million barrels, while his critics are predicting a drop in production to 1 million barrel per day.

It is expected that the oil loan and another financial agreements will be officially inked by Beijing and Caracas in the coming weeks.

The views and opinions expressed by the contributors do not necessarily reflect those of Sputnik.

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PetroVictoria Producing 10,000 b/d

(Energy Analytics Institute, Ian Silverman, 5.Jul.2018) – The heavy oil project is currently producing 10,000 barrels per day, according to PDVSA.

PetroVictoria, is a joint venture comprised of Venezuela’s PDVSA and Russia’s Rosneft to develop heavy oil reserves in Venezuela as part of the Carabobo-2/4 project.

In May 2013, Rosneft and Venezuelan Corporacion Venezolana del Petroleo (CVP), a subsidiary of Caracas-based PDVSA, signed an agreement to establish the PetroVictoria joint venture. PDVSA holds a 60% interest in the venture, while Rosneft holds the remaining 40%

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PDVSA Installs Two Heavy Oil Desalters

Heavy oil desalters. Source: PDVSA

(Energy Analytics Institute, Ian Silverman, 5.Jul.2018) – The land transfer of two from Bolívar to Anzoátegui states, for oil crude desalination has successfully been completed.

The main function of both desalination plants is the subtraction of water and salt contained in heavy oil crude.

The two mega-structures were constructed with local Venezuelan talent in VHICOA workshops, a joint venture of the subsidiary PDVSA Industrial, with aim to boost productive capabilities, announced Petróleos de Venezuela, S.A. in an official statement.

The two identical containers, weighing 149 tons and spanning 25 meters long and 6.5 meters high, where built in a period of time of 11 months. The containers aim to guarantee processing of 52,000 barrels per day (b/d) of crude oil, in addition to the current production of the Petromonagas Operational Center (COPEM), presently estimated at 130,000 b/d, according to PDVSA.

Both desalters were certified by inspectors from the American Society of the Mechanical Engineers (ASME). Inspectors from Colombia, Mexico, Brazil and the USA certified the work on the structures, which have 22 millimeters thick steel sheet joints with a capability to withstand very high pressures and temperatures.

The VHICOA teams will be an important part of the PetroMonagas (PDVSA/Rosneft) Early Production Facility Center. The project, with has a registered process report of 65 percent, is located in the Carabobo Division of the Hugo Chávez Orinoco Oil Belt, also known as the Faja, and includes the participation of oil field service giant Schlumberger.

The oil crude processing modular center will be added to COPEM, once Schlumberger, the main contractor, ends the Engineering, Procurement and Construction (EPC), in February 2019. PDVSA aims to leverage early production from PetroVictoria, a joint venture comprised of PDVSA and Rosneft, which is currently producing 10,000 b/d.

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China to Invest $250 mln to Boost Venezuela’s Oil Sector

(Bloomberg, 4.Jul.2018) – Venezuela’s distressed oil sector may get some much needed financing from China, Finance Minister Simon Zerpa said after meetings with officials from China Development Bank and China National Petroleum Corporation.

China Development Bank will invest more than US$250 million to boost Venezuela oil production in the Orinoco Belt, Zerpa, who is currently in Beijing for bilateral talks, said in a ministry statement.

“We’ve received the authorisation for a direct investment of more than US$250 million from China Development Bank to increase PDVSA production, and we’re already putting together financing for a special loan that China’s government is granting Venezuela for US$5 billion for direct investments in production,” Zerpa said.

The two countries will sign an additional three or four financing deals in the coming weeks, he said.

Venezuela’s oil output averaged 2.9 million barrels a day in 2013, when President Nicolas Maduro was first elected.

In June, output dropped to around 1.36 million barrels per day, according to International Energy Agency data.

State oil company PDVSA has been struggling to send oil shipments to China after a legal order granted to ConocoPhillips froze its assets in Caribbean ports and terminals.

Maduro has vowed to boost production by 1 million additional barrels, while critics say output will plummet to 1 million barrels a day by the end of this year.

Venezuela and China officials will continue meetings on Wednesday, the ministry said in its statement. Zerpa, who has served in the post since October, was sanctioned by the US Treasury Department before his appointment.

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Venezuela’s Declining Crude Exports Squeeze India’s Refiners

(Reuters, Marianna Parraga, 3.Jul.2018) – Venezuela’s crude shipments to India, its third largest export market, fell 21 percent in the first half of the year, according to internal documents from state-run PDVSA, adding to supply troubles for Indian refiners as they are increasingly pressed to diversify oil imports.

Venezuela’s production decline to a 30-year low and export woes stemming from mismanagement, lack of investment and payment delays are affecting almost all of the OPEC-nation’s customers.

But the impact on India is notable and comes as its refiners are now preparing for a “drastic reduction to zero” of oil imports from U.S.-sanctioned Iran.

Last week, PDVSA officials met with executives from India’s Reliance Industries and Russia’s Rosneft, which owns a majority stake in India-based Nayara Energy, to discuss trade issues, the state-run company said.

The talks focused on how to remedy export delays, according to a person familiar with the matter.

Venezuela sent almost 280,000 barrels per day (bpd) of heavy crude to India in the first half of the year, a 21 percent drop versus the 355,500 bpd shipped in the same period of 2017, according to PDVSA trade documents.

The decline is the second steepest after the United States, which has suffered a drop of about 30 percent in crude imports from Venezuela this year, the documents seen by Reuters show.

If crude supplies from Iran and Venezuela, two of India’s top five oil suppliers, cannot be secured in coming months, some of the nation’s refiners would have to rely almost entirely on sourcing the heavy barrels they need from Iraq, according to analysts.

“Indian refiners are very worried about supply from Iran, but also from Venezuela,” said Robert Campbell from consultancy Energy Aspects.

Saudi Arabia is expected to boost supply to India in the short term, but those barrels would not match the quality of the missing Venezuelan crude, he added. “The lack of heavy barrels is not a problem only in the Atlantic Basin but in Asia as well,” he added.

PDVSA and Nayara did not reply to requests for comment. India’s Reliance declined to comment.

India is the world’s fourth largest refiner after the United States, China and Russia. While Chinese and Russian firms resell a large portion of the Venezuelan crude and fuel they receive to monetize oil-for-loan agreements, Indian refiners need the barrels they get through crude supply contracts with PDVSA.

FEWER BARRELS FOR EVERYBODY

Venezuela’s crude output is declining faster than expected amid insufficient investment, attempts to seize its overseas assets over payment disputes and skilled workers leaving its oil industry due to low salaries and an extended corruption probe within PDVSA.

The country’s oil production averaged 1.58 million bpd in the first five months of 2018, according to figures reported to OPEC, its lowest annual level since 1985. The fall, which is putting pressure on global supply and contributing to growing oil prices, has also taken a toll on exports.

PDVSA last month requested customers not send tankers to its main port of Jose to alleviate congestion. But vessels have continued arriving mainly for Chinese, Indian and U.S. clients, according to Thomson Reuters vessel tracking data.

The tanker bottleneck has worsened since May, when ConocoPhillips started legal actions to seize PDVSA’s assets to satisfy a $2-billion arbitration award, blocking the state-run firm from using its Caribbean terminals.

In June, PDVSA shipped to India 268,300 bpd after servicing some vessels that had waited for up to a month to load. The Venezuelan firm plans to deliver some 240,000 bpd in July, according to Reuters and PDVSA data.

The unstable crude supply from Venezuela to India in recent months has mainly benefited Iraq, India’s largest crude source, and United Arab Emirates, which in May replaced Venezuela as India’s fourth biggest crude supplier.

Reporting by Marianna Parraga in Houston, additional reporting by Promit Mukherjee in Mumbai; Editing by Tom Brown and Marguerita Choy

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China Throws Venezuela’s Oil Industry $5B Lifeline

(OilPrice.com, Irina Slav) – China’s Development Bank has approved a US$5-billion loan for Venezuela’s oil industry, Bloomberg reports, quoting the troubled South American country’s Finance Minister Simon Zerpa.

“We’ve received the authorization for a direct investment of more than $250 million from China Development Bank to increase PDVSA production, and we’re already putting together financing for a special loan that China’s government is granting Venezuela for $5 billion for direct investments in production,” the official said.

The loan is literally a lifeline for PDVSA, which has been unable to stop an accelerating production decline resulting from years of mismanagement and a cash crunch brought about by the tightening grip of U.S. sanctions.

International Energy Agency figures suggest Venezuela produced an average 1.36 million barrels of oil daily last month. This is down from 2.9 million bpd five years ago. President Maduro vowed to increase production by 1 million bpd by the end of the year, but he admitted that the goal would be difficult to meet.

It became even more difficult after ConocoPhillips seized PDVSA storage facilities in the Caribbean, keeping it from meeting its export obligations and creating tanker bottlenecks at Venezuelan ports.

PDVSA’s exports to China also suffered as a result of the quickly deteriorating situation. Shipping data from Reuters last month suggested that these could have plummeted to an eight-year low. This would have provided additional motivation to China to lend Venezuela a hand with growing its oil production.

As a major creditor and ally, China is sure to benefit from some preferential oil export conditions amid rising international prices that would ensure its continued backing of Caracas.

“One of the best things about Venezuelan oil was its stable volumes for all these years and competitive prices,” a senior Chinese oil industry official with direct knowledge of the Venezuelan supply issues told Reuters last month. “But now they seem in very bad shape, not having the money to upgrade port facilities, no money even to remove the high water content in crude oil.”

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US$1.4B Deal to Restart St Croix Refinery

(Stabroek News, 3.Jun.2018) – U.S. Virgin Islands Governor Kenneth E. Mapp announced yesterday an agreement which would reopen one of the world’s largest refineries, create hundreds of jobs in the territory and buttress the solvency of the Government Employees Retirement System (GERS).

According to a release from his office, Mapp said the US$1.4 billion pact was between the Government of the Virgin Islands and ArcLight Capital Partners, LLC, the owners of what had been one of the largest oil refineries in the world when it was shut down on the USVI island of St Croix in 2012. The release said that the deal includes reopening the refinery portion of the operation, which when restarted, will funnel hundreds of millions of dollars into the local economy.

The release said that under the agreement with ArcLight Capital, the owners of what is now called Limetree Bay Terminals, the company will invest approximately US$1.4 billion to upgrade the existing refinery located in St. Croix. Over the next 18 months, this will create more than 1,200 local construction jobs.

Once refinery operations begin at the end of 2019, as many as 700 permanent jobs will be created. The new jobs will be in addition to the over 750 jobs now at the terminal storage facility. The initial refining operations provide for the processing of around 200,000 barrels of crude oil feedstock per day.

“This agreement is great news for the people of the Virgin Islands as we continue to grow and expand our economy,” said Mapp, who added it is tremendous news for the ‘big island,’ which felt the full brunt of the shutdown of refining operations in 2012.  He added that the capital investment will not only benefit St. Croix since the monies from the agreement will boost the solvency of GERS and will also help fund a new 110-room, “upscale lifestyle” hotel, flagged by a major four-star brand on the sister island of St. Thomas.

Upon the closing of the transaction, ArcLight Capital will make a US$70 million closing payment to the Government of the Virgin Islands. The payment includes US$30 million for the purchase from the government of approximately 225 acres of land and 122 homes. The release said this property was acquired as part of the government’s settlement of certain claims against HOVIC, PDVSA of Venezuela, Hovensa and Hess Oil Corporation.

Once refinery operations begin and after crediting the US$40 million of prepaid taxes, Limetree will make annual payments to the government in lieu of taxes at a base rate of US$22.5 million a year. With market adjustments based on the refinery’s performance, this could increase to as much as US$70 million per year, but will not fall below US$14 million a year, the release said.

The release said that according to industry experts and consultants Gaffney, Cline & Associates, the government expects to receive more than US$600 million over the first 10 years of the restart of the refining operations. This income is in addition to the US$11.5 million currently flowing to the government from the oil storage terminal each year.

“For comparison sake, in the over 30 years that Hess Oil operated the refinery on the island of St. Croix, the company paid approximately US$330 million in corporate taxes to the government. As you may recall, in 2015 Hess Oil filed suit for the return of (those tax payments),” Mapp pointed out in the release. Hess Oil is one of the partners of ExxonMobil’s subsidiary, Esso in the Stabroek Block in Guyana’s waters.

Mapp said: “This landmark agreement did not happen overnight. It is the result of much hard work by the owners of ArcLight Capital and my Administration over the past two years. It is the product of complex negotiations with major players in the global oil industry. It required tremendous work with the Trump Administration and the President’s Council of Environmental Quality, the EPA (United States Environmental Protection Agency) and the U.S. Department of Justice. More work remains to be done, but this agreement allows the Virgin Islands to accelerate its recovery, grow its economy, create jobs for its people, propel new startup businesses, as well as support existing businesses and ultimately provide revenues for our government and our retirement system,” he said.

The release added that qualified Virgin Islands residents will be given preference in all hiring. ArcLight Capital will be obligated, and the local government will assist, to advertise and publicize all job opportunities for local residents. Residents of St. Thomas and St. John, who may be interested in working during the reconstruction of the refinery, will be offered a place to live while working on St. Croix without charge, the release added.

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Petrozamora Incorporates Steam Generators in Zulia

(Energy Analytics Institute, Piero Stewart, 3.Jul.2018) – PDVSA Petrozamora, a joint venture comprised of PDVSA and Russia’s Gazprom, completed recovery and incorporation of two steam generators.

The generators, Simón Bolívar 24 (SB-24) and Simón Bolívar 40 (SB-40), are located in located in the state Zulia at the Lagunillas Field in an area denominated location U74, reported PDVSA in an official statement.

The actions by CVP form part of a plan to recover lost production, and includes reincorporating eleven (11) boilers designed to improve the artificial lift processes at the Bachaquero and Lagunillas fields, both of which are operated by the joint venture.

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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.

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Venezuela’s Oil Ministry Has New Website

(Energy Analytics Institute, Piero Stewart, 29.Jun.2018) – Venezuela’s Oil Ministry launched its new website and promotional video regarding the same.

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Venezuela, Trinidad Review Joint Projects

Officials from Venezuela and Trinidad & Tobago during their meetings in Caracas. Source: PDVSA

(Energy Analytics Institute, Piero Stewart, 29.Jun.2018) – A delegation from Trinidad & Tobago traveled to Venezuela to discuss joint projects and gas related issues.

The meetings were aimed at guarantying the supply of Venezuelan natural gas to the Trinidad & Tobago domestic market, announced PDVSA in an official statement. The officials also discussed plans for gas trading in foreign markets.

Venezuela’s Oil Minister and PDVSA President Manuel Quevedo hosted the meetings.

The Trinidad & Tobago delegation consisted of Stuart Young, Minister of Procurator’s General Office and Legal Matters; Selwyn Lashey, Minister of Energy and Energy Industries; Mark Loquan, President Gas National Company and finally Paul Byam, Trinidad & Tobago Ambassador in Venezuela.

Other Venezuelan officials present during the meetings included: Venezuela’s Vice Minister of Gas, Douglas Sosa as well as Nemrod Contreras, Vice President of Gas.

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Citgo Appoints Aruba Refinery Executives

(Reuters, 28.Jun.2018) – Citgo Petroleum, the U.S. refining arm of Venezuela’s state-run oil company PDVSA, said it appointed two senior executives to new positions as it works to refurbish an idled Aruba refinery.

Luis Marquez was named vice president and general manager at the refinery, a 235,000-barrel-per-day plant in San Nicholas that has been awaiting an overhaul. Edward Oduber also was appointed interim on-site project manager for the refurbishment of the refinery, during Phase II of the project, the company said.

Citgo in 2016 signed an up to 25-year lease with the government of Aruba to refurbish and operate the plant as part of a $685 million project. Earlier this year, it had slowed work on the overhaul due to a lack of credit.

Marquez, who replaced interim general manager Raymond Buckley, began his career in 1981 at the Amuay Refinery in Venezuela and has held positions at PDVSA International Refining, PDVSA Argentina, PDVSA Ecuador, and Petrocedeño, the company said.

Edward began at the San Nicolas refinery in Aruba in 1990, and held positions with Citgo Aruba, Valero Aruba, and Coastal Aruba.

Citgo said that Joe Crawford Jr will continue as general manager maintenance and operations overseeing the operating portions of the facility along with the loading facilities, terminal and distribution network. (Reporting by Gary McWilliams; Editing by Amrutha Gayathri)

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PDVSA, Rosneft Officials Discuss Projects

(Energy Analytics Institute, Piero Stewart, 28.Jun.2018) – Officials from both oil companies held meetings in Caracas to discuss partnerships.

PDVSA President Manuel Quevedo, who also serves as Venezuela’s Oil Minister, conducted a meeting with Rosneft Vice President Didier Casimiro to discuss joint projects between the Venezuelan and Russian companies, respectively, and consider new opportunities to strengthen strategic relationships, announced PDVSA in an official statement.

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PDVSA, Reliance Discuss Trade Opportunities

Reliance and PDVSA officials during their discussions in Caracas. Source: PDVSA

(Energy Analytics Institute, Piero Stewart, 28.Jun.2018) – Officials from PDVSA and Reliance assess new trade opportunities.

PDVSA President Manuel Quevedo met with a delegation headed by Jayaraman Rajamaran, President and Head – Physical Trading – Crude/Oil Products Refining & Marketing at Reliance Industries Ltd.

Reliance – owner of Jamnagar refinery, the world’s most important refining complex – is an important trade partner to PDVSA.

Besides trade opportunities, the officials discussed issued aimed at increasing technical exchanges about processes and refining best practices, announced PDVSA in an official statement.

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OPEC Deal Implies 1.972 MMb/d from Venezuela

(Energy Analytics Institute, Piero Stewart, 27.Jun.2018) – OPEC’s recent agreement in Vienna implies Venezuela’s commitment to comply with oil production of 1.972 million barrels per day for the second semester of 2018.

The agreement was announced at the recent meeting – the 4th Ministerial Meeting of Oil Exporting Countries Organization (OPEC) and Non OPEC countries – held in Vienna, Austria with the view to continue joining efforts to achieve world oil market stability through 2016 Production Adjustment Cooperation Statement continuity, announced Petróleos de Venezuela, S.A. (PDVSA) in an official statement.

“The agreement to achieve 100 percent of production level, according to Resolution dated November 30th, 2016, implies to keep the present adjustment and the commitment of Venezuela to comply with 1.972 million barrels a day for the second semester 2018,” announced PDVSA, citing PDVSA President Manuel Quevedo.

Venezuela, the country with the world’s largest oil reserves, produced 1.392 million barrels per day (MMb/d) in May 2018, according to OPEC’s most recent Oil Market Report, citing data from secondary sources. This compares to oil production of 1.911 MMb/d in 2017 and 2.154 MMb/d in 2016, according to the OPEC data.

The Joint Monitoring Ministerial Committee plans to follow up with compliance of production adjustment levels by the OPEC nations, announced Quevedo, who also serves as Venezuela Oil Minister, without provide details.

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Petrojam Partner Knocks Contract Process

(Jamaica Gleaner, 27.Jun.2018) – Petrojam, the beleaguered government-controlled oil refinery, spent over $14 billion or 74 per cent of its domestic expenditure over a two-year period to last October via direct and emergency sourcing, rather than competitive bidding contracts, an internal audit by Jamaica’s partner in the refinery revealed.

The audit report, a copy of which was obtained by the Financial Gleaner, was completed in February and forwarded by PDVSA’s internal audit corporate manager Juan Rodriguez to Petrojam chairman Percival Percival Bahado-Singh, who, with the two other Jamaican directors, were forced to resign last week in the face of deepening allegations of widespread corruption at the refinery.

PDVSA, the state-owned Venezuelan oil company, owns 49 per cent of Petrojam.

While its report concluded that most of these direct-source contracts may have been necessary to solve urgent operational and other problems, the auditors complained that “there were items that could have been awarded under a competitive method” – an observation that is likely embolden critics of the refinery’s management in the belief that the excessive use of sole-source contracts opens the way to corruption.

These concerns will be further exacerbated by the report’s tone, which suggests less-than-robust record-keeping and data analysis that made audit verification, in many instances, difficult.

Petrojam’s parent, the Petroleum Corporation of Jamaica, redirected requests for comment on the report to Petrojam, but the refinery’s boss did not respond.

Phillip Paulwell, the shadow energy minister, said he was aware of the report and its contents, but was still studying it before arriving at firm conclusions.

“It does have some glaring matters of concern,” he told the Financial Gleaner. “I am taking my time to ensure that I understand all the issues and their implications,” he said.

With regard to the direct sourcing contracts, the Jamaican Government’s procurement rules allow for these up to a maximum of $1.5 million – it used to be $500,000 up to 2016 – except in circumstances such as emergencies, the goods or services are available only from a single contractor, or for national interest considerations.

Over the period covered by the audit, from January 2015 to October 2017, Petrojam awarded 3,583 contracts, of which 2,263, or 63 per cent, were via direct awards – although 325 of these, or 14 per cent, were to its subsidiary, Petrojam Ethanol Limited. Twenty-five per cent of the direct sourcing contracts exceeded the threshold for such award and six per cent of the contracts were deemed to have been triggered by emergencies.

The audit tests of 14 awarded by direct sourcing found that nine presented reasonable justification, while in five cases, the auditors found no “written justification”. Those cases, however, related to the repair and cleaning storage tanks, and all were approved by the general manager.

The auditors, concerned that competitive bidding accounted for only 25 per cent of Petrojam’s domestic contracts, called for an improvement in the “utilisation rate of the limited bidding and competitive bidding methodologies”.

CLOUDY AREA

The spot purchase of oil was an area in where the auditors could not always ascertain that Petrojam received the volumes for which it paid. Part of the problem has to do with the less-than-optimal functionality of the refinery’s storage tanks and other systems to ensure an absolute correlation between the returns in processed products and the expectations from the declared volumes of crude, based on simulations.

But it also appears that records of spot purchases, such as from the commodities trader, Vitol, were rigorously maintained to ensure that price calculations supported purchase invoices.

For instance, PDVSA auditors noted that the list of purchases of crude and finished products, which they were provided by designated officials, didn’t come from the Systems Application and Products, or SAP systems management software, which is widely used in the oil industry.

Further, they said: “Seventeen of 23 invoices (74 per cent) did not have the verification of the price calculation in the support of the purchase invoices the validation of the reasonableness of the amounts invoiced …”.

In other case, five of nine deliveries, purchased on the condition of delivery at terminal, or DAT, indicated gross volume rather than net volume at the discharge port, “increasing the risk of inconsistencies between the volume record in SAP” and the refinery stats on which monthly losses at the refinery are estimated.

Additionally, two of the 23 reviewed purchases showed volume difference of over 139,000 barrels “between the figures indicated on the commercial invoices provided by the customer (Vitol) and reflected in the independent inspector’s discharge reports”.

There were also significant differences on the price per barrel of oil, the auditors noted, “between the invoices reported in SAP by the accounting department”.

***

PDVSA’s Amuay Halts Cat Cracker

(Reuters, 27.Jun.2018) – Venezuela’s 645,000 barrel-per-day (bpd) Amuay refinery has halted its catalytic cracking unit and its distillation unit No. 5, a refinery worker and a union leader said on Wednesday, while state oil company PDVSA said the units were operational.

The cat cracker was halted on Saturday while the distillation unit was taken off line on Tuesday, said union leader Ivan Freites.

“There’s not enough steam to keep that plant in operation,” he said about the distillation unit.

“The cracking and distillation units are operational,” PDVSA said in a response to a message sent by Reuters.

A refinery worker, who asked not to be identified, said problems with steam compression and electricity generation had forced the cat cracker offline, adding that one of the two distillation units in service may soon suffer the same problems.

***

Stuart Young Leads Venezuelan Energy Talks

(LoopTT, 27.Jun.2018) – Minister in the Office of the Prime Minister, Minister in the Ministry of the Attorney General and Legal Affairs and Minister of Communications Stuart Young led a Trinidad and Tobago delegation in Venezuela on Wednesday.

The team comprised of the President of the National Gas Company of Trinidad and Tobago Limited (NGC), Mark Loquan, former PS Selwyn Lashley and other members of NGC to Caracas, Venezuela to continue negotiations with respect to the Venezuelan Dragon across the border gas field.

The Venezuelan delegation was led by Minister Manuel Quevedo, People’s Minister of Petroleum and President of PDVSA, Vice Minister Douglas Sosa and executives of PDVSA and the Venezuelan Ministry of Petroleum.

Executives of Shell were also in attendance led by Derek Hudson, Country Chair of Shell Trinidad’s operations.

The parties spent hours negotiating, bringing the possibility of the cross-border gas deal closer.

There remains a number of areas where further work is required and Minister Young agreed to return to Caracas, Venezuela in two weeks for the two Ministers to attempt to settle the terms of the agreement.

Minister Young extended an invitation for Minister Quevedo to come to Trinidad to visit the LNG and other downstream Petro-chem operations.

All parties involved remain committed to the Dragon Gas Project becoming a reality.

***

Venezuela’s Petropiar Upgrader Begins Restart

(Reuters, 26.Jun.2018) – Venezuela’s PDVSA and Chevron have begun to restart their 210,000-barrel-per-day (bpd) Petropiar heavy crude upgrader after a nearly month-long, repair-related shutdown and a fire, according to the state-run company and two sources close to the facility.

Venezuela’s crude upgraders, which can convert near 700,000 bpd of extra-heavy crude from the country’s Orinoco Belt into exportable grades, have been mostly out of service in recent weeks while PDVSA focused on easing a tanker backlog that has delayed exports.

The country’s oil production fell to 1.39 million bpd in May, according to secondary sources cited by OPEC, the lowest level since the 1950s. Oil is Venezuela’s main export and the decline has only served to deepen an already severe economic crisis.

Workers attempted to restart Petropiar earlier in June, but quality issues that were ultimately solved delayed the process, one of the sources said. The restart typically takes several days to be completed while the upgrader’s performance is evaluated.

A fire early on Tuesday at one of the upgrader’s furnaces left one worker injured, but had no material impact on operations, PDVSA said in a statement.

“The event was immediately controlled,” the company said in the statement, adding that crude production and upgrading were not directly affected by the fire.

If Petropiar fully restarts in the coming days, the neighboring 190,000-bpd Petrocedeno facility would be the only upgrader completely shut for maintenance while the 160,000-bpd Petro San Felix complex works intermittently, according to the sources.

But the 150,000-bpd Petromonagas, operated by PDVSA and Russia’s Rosneft, is expected to be out of service later this month due to a planned major maintenance project.

Reduced crude upgrading means PDVSA and its partners in the Orinoco Belt, the country’s largest producing region, have to mix Diluted Crude Oil (DCO) for export, but the volume of the replacement grade is typically lower.

That could help to ease a bottleneck of tankers waiting to transport oil exports. As of June 26, there were more than 75 tankers anchored off Venezuelan ports waiting to load some 24 million barrels of crude and refined products, according to Thomson Reuters vessel tracking data, near flat from earlier this month.

***

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.

***

PDVSA Controls Fire at PetroPiar Furnace

(Energy Analytics Institute, Piero Stewart, 26.Jun.2018) – The early morning incident occurred at the José Antonio Anzoátegui Industrial Complex (CIJAA) in Barcelona, Venezuela.

The fire occurred at the hydro processing unit furnace 14 F-001, announced PDVSA in an official statement.

The PetroPiar joint venture upgrades crude oil from the Hugo Chavez Orinoco Heavy Oil Belt, also known as the Faja.

The state oil company is looking into the causes of the fire. A PDVSA employee, Pedro Flores (38), injured during the incident, was transported to a local facility to receive medical care, the company reported.

***

Factsheet: PDVSA’s El Palito Refinery

PDVSA’s 140,000 barrel-per-day El Palito refinery in Carabobo state. Source: PDVSA

(Energy Analytics Institute, Piero Stewart, 23.Jun.2018) – PDVSA’s El Palito refinery has been in service now for 58 years.

Operations at the refinery commenced on June 23, 1960. The refinery, with two units: a primary crude distillation unit and catalytic reform unit, had an initial processing capacity of 55,000 barrels per day, according to PDVSA data.

Today, El Palito has a processing capacity of 140,000 barrels per day. The refinery, located along the Morón – Puerto Cabello national highway in Carabobo state, has four plant sections, which can supply the demands of the local and international markets.

El Palito is a medium conversion refinery that processes crude oil of 28 degrees API. The refinery supply comes primarily from Apure and Barinas states via a 600-plus kilometer oil pipeline, the longest in Venezuela, and from Monagas and Anzoategui states via tanker shipments.
***

Venezuela’s Quevedo Speaks of Oil War, OPEC

PDVSA’s Manuel Quevedo in Vienna, Austria. Source: PDVSA

(Energy Analytics Institute, Piero Stewart, 22.Jun.2018) – Venezuela’s Oil Minister Manuel Quevedo spoke out in Europe against U.S. sanctions against Venezuela.

“[These sanctions] represent a direct attack against the oil market stability, due to a non-conventional war undertaken by the largest world oil crude consumer,” reported PDVSA in an official statement, citing comments from Quevedo during the “World Economy and Oil Future” panel, within the framework of the 7th OPEC Seminar held in Vienna, Austria.

Quevedo, who also serves as the president of Venezuela’s state oil company PDVSA, also said exporting countries have the historic duty to guarantee, in a sustainable manner, the energy required for the economic development of the world population, while investments and time required are achieved for the use of other energy sources.

“That is the reason why we need to have a balanced market to allow oil exporting countries to keep a sustainable energy supply, and guarantee the investment levels required for the new oil projects to ensure that future year demand is covered,” said Quevedo.
***

Venezuelan Minister: Can ‘Absolutely’ Grow Output

(CNBC, 22.Jun.2018) – Manuel Quevedo discusses the meeting of the world’s top oil producers in Vienna.

Venezuela’s Oil Minister Quevedo, who also serves as the President of PDVSA, discusses the issue from Vienna.

https://www.cnbc.com/video/2018/06/22/venezuelan-energy-minister-can-absolutely-grow-production.html

EIA Publishes Updated Venezuela Country Report

(EIA, 21.Jun.2018) – Venezuela holds the largest oil reserves in the world, in large part because of the heavy oil reserves in the Orinoco Oil Basin. In addition to oil reserves, Venezuela has sizeable natural gas reserves, although the development of natural gas lags significantly behind that of oil, reported the US-based Energy Information Administration (EIA) in its updated Venezuela country report posted online. However, in the wake of political and economic instability in the country, crude oil production has dramatically decreased, reaching a multi-decades low in mid-2018.

***

Venezuelan Oil Output Charting New Lows

(UPI, Daniel J. Graeber, 19.Jun.2018) – Ahead of what could be pivotal talks among OPEC members, production from founding member Venezuela could hit new lows soon, an industry report found.

State-backed oil company Petróleos de Venezuela, known commonly as PDVSA, notified 11 of its international customers earlier this month that it wouldn’t be able to meet contractual obligations of 1.5 million barrels per day. According to commodity pricing group S&P Global Platts, PDVSA had only 694,000 barrels per day available for shipments.

“As workers have fled the country, state-owned oil company PDVSA has had a difficult time maintaining crude output, let alone boosting production,” its report, emailed to UPI on Tuesday, read. “PDVSA’s refining sector has also deteriorated on a lack of funds and manpower.”

PDVSA is facing mounting obligations to its partners, notably ConocoPhillips. Meanwhile, U.S. sanctions pressures have made it difficult to do business with Venezuelan entities, including PDVSA. A digital currency embraced by President Nicolas Maduro was banned under U.S. actions.

Secondary sources reported to OPEC that Venezuela produced around 1.4 million barrels per day last month, down by more than half a million barrels per day from last year’s average. OPEC ministers last this week are expected to decide to put more oil on the market to buffer against the chronic shortages from Venezuela, though the Maduro administration is opposed to those considerations.

Higher oil prices support oil-exporting nations and prices would drop if OPEC decides to make a supply-side move later this week.

According to the International Energy Agency, Venezuelan production could drop to as low as 800,000 barrels per day, though Platts expects output to say above the 1 million barrels per day mark through next year.

The country’s rig count, a loose barometer of future production, was 28 last month, down about half from the start of the year.

“PDVSA has experienced similar drops in the past,” the Platts report read. “In the 1980s, the number of rigs fell to less than 30, causing crude production to fall to 1.3 million barrels per day.”

***

Venezuelan Oil Ministry, PDVSA Plan to Boost Output

PDVSA’s Manuel Quevedo speaking in Caracas. Source: PDVSA

(Energy Analytics Institute, Piero Stewart, 17.Jun.2018) – Venezuela’s Oil Ministry and PDVSA reiterated joint plans to boost crude oil output by 1 million barrels per day.

To this end, officials from the OPEC nation’s oil ministry and state oil company meet in Caracas to discuss to jointly review heavy oil recovery plans among others aimed at boosting national oil production, reported PDVSA in an official statement.

“PDVSA divisions in Ayacucho, Boyacá, Carabobo and Junín, as well as with the regional office of the Hugo Chávez Frías Orinoco Heavy Oil Belt aim to develop strategies to increase the oil crude production over 1 million barrels at the national level,” reported PDVSA, citing company president Manuel Quevedo.
***

Venezuela Oil Exports to China Slump

(Reuters, 17.Jun.2018) – Reuters) – China’s imports of Venezuelan crude oil could sink to their lowest in nearly eight years in July as the OPEC producer struggles with shrinking output and mounting logistics issues, according to people familiar with the matter and shipping data.

State-controlled PetroChina expects June loadings from Venezuela, mainly the Merey grade, to be half the normal rates, according to two Beijing-based oil officials briefed on the matter. Venezuela’s state firm PDVSA has promised the lost volume would be topped up in July loadings for arrival in August-September, they said.

The plunge in supplies to Venezuela’s most important customer, creditor and political ally is the latest indicator of tough times for the cash-strapped country with the world’s largest oil reserves. Crude output fell to the lowest annual average in over three decades between January and April, while claims on assets by creditors have cut off PDVSA’s access to export terminals.

The slide cuts both ways. China’s growing thirst for oil amid still-sturdy economic growth is increasing its reliance on imports, while Venezuela’s trouble exporting as its infrastructure crumbles means it’s missing out on crude oil prices that have risen to their highest in years.

“One of the best things about Venezuelan oil was its stable volumes for all these years and competitive prices,” said one senior oil industry official with direct knowledge of the supply situation. “But now they seem in very bad shape, not having the money to upgrade port facilities, no money even to remove the high water content in crude oil.”

The officials spoke on condition of anonymity because they weren’t authorised to discuss the matter with media.

Only one supertanker, the “New Pearl” carrying 2 million barrels of Venezuelan crude, is set to arrive in China’s eastern province of Shandong in July, down from this year’s monthly peak of 11 million barrels in March, according to Thomson Reuters Eikon trade flows data.

That would be the lowest monthly import volume since late 2010, according to Chinese customs data C-IMP-VECN-MTH.

PetroChina said it does not comment on market speculation. PDVSA did not immediately respond to Reuters’ requests for comment.

‘BIGGEST CASUALTY’

Disruptions in Venezuelan crude supplies to China started in April, and from mid-May through early June PDVSA did not load any crude for PetroChina, said the senior oil official. The Chinese firm lifted an average of around 20 million tonnes a year – or 400,000 barrels a day – in 2016 and 2017 of Venezuelan crude oil under a government-to-government loan-for-oil programme.

“Venezuela remains the biggest and most visible casualty of the (oil) market share war,” analysts at RBC Capital Markets led by Helima Croft said in a note on Thursday.

“We see almost no prospect of a turnaround in the Venezuelan story this year, at least barring a change in government, and even if the country comes under new management, it will still take a considerable amount of time and international assistance to right the ship and restore production.”

PDVSA has halted operations at units that convert extra-heavy oil into exportable crude. Early this month it asked customers to transfer oil at sea to clear a backlog of tankers waiting to load at its ports.

The Venezuelan firm has notified PetroChina of the new ship-to-ship requirement and agreed also to bear the additional cost, according to another industry executive with knowledge of the matter.

‘CHANGE DIET’

One trader with an independent Chinese refiner said he was still receiving offers of Venezuelan oil for August delivery at stable prices compared with a month ago, but added that the supply outlook is murky. “There isn’t a lot of cheap heavy crude (available) so some Chinese refineries might have to change diet a bit,” he said.

Sengyick Tee, a Beijing-based consultant at SIA Energy, said Chinese independents have increased imports of other heavy crude grades such as Castilla from Colombia and fuel oil as replacement.

Venezuela was the eighth-largest crude supplier to China last year, with 435,400 barrels per day (bpd), behind Brazil, according to China customs data.

But it already dropped to the ninth position in the first quarter of this year with an average volume of 381,300 bpd as China ramped up imports from Iraq, Kuwait and Brazil.

Venezuelan crude exports to India have also dropped 20 percent in the first five months to 323,600 bpd, according to data from shipping and industry sources.

Reliance Industries Ltd and Nayara Energy, key Venezuelan crude buyers, have stepped up imports of similar-quality oil from Brazil, Mexico, Kuwait, Iran, Iraq, the United Arab Emirates and Chad for replacement, data showed.

***

Venezuela Oil Output May Sink To 1 MMb/d

(OilPrice.com, Tsvetana Paraskova, 15.Jun.2018) – Venezuela’s plummeting oil production is nearing the psychological threshold of just 1 million bpd as early as this year, analysts and industry experts tell Platts.

Venezuela’s production plummeted again in May, by 42,500 bpd from April to below 1.4 million bpd—1.392 million bpd, according to OPEC’s secondary sources in its latest Monthly Oil Market Report published earlier this week.

According to the United States EIA, Venezuelan production was 1.43 million bpd last month, down from 1.46 million bpd in April and from 1.98 million bpd in May of last year.

Lejla Villar, who works on projections for EIA’s monthly Short-Term Energy Outlook (STEO), currently expects Venezuela’s production to fall to 1 million bpd in the second quarter of 2019, but she is waiting to see June export numbers from Venezuela—if they are low, Venezuelan production could sink to 1 million bpd sooner than that.

“If the worst-case scenario for June production comes true, then we could see Venezuela’s production fall to 1 million b/d sooner,” Villar told Platts.

“Depending what June does, this may or may not lead me to take a more pessimistic view on Venezuela’s production outlook through the end of 2019,” she said.

The International Energy Agency (IEA) forecasts that Venezuela’s oil production could drop to just 800,000 bpd or even lower next year.

“For Venezuela, we assume no respite in the production collapse that has taken 1 mb/d off the market in the past two years,” the IEA said in its Oil Market Report this week.

According to Francisco Monaldi, a Latin American energy policy expert at Rice University, Venezuela’s production will see a “major drop” this month and next and production will plunge to the 1-million-bpd threshold by November or December this year.

Ed Morse, Global Head of Commodity Research at Citi Group, believes that the plunge to 1 million bpd is imminent, as current production is likely around 1.1 million bpd-1.2 million bpd.

Venezuela’s rig count number is in the 20s, while it needs it into above-40 territory to sustain production flat, according to Morse.
***

Lake Maracaibo: Descent into Chaos [EAItv]

(Energy Analytics Institute, Piero Stewart, 15.Jun.2018) – A brief look at Lake Maracaibo’s descent into chaos. The Maracaibo basin has produced over 43 billion barrels of petroleum, and close to 19 billion barrels of proven reserves still remain.

Venezuela Oil Output Slides to 1.4 MMb/d in May 2018

(Energy Analytics Institute, Piero Stewart, 14.Jun.2018) – Venezuela’s oil production continues its downward slope.

Venezuela’s crude oil production fell to 1.392 million barrels per day (MMb/d) in May 2018, according to a recent report by the Organization of Petroleum Exporting Countries (OPEC), citing data from secondary sources. This compares to production of 1.434 MMb/d in April 2018, 1.474 MMb/d in March 2018, and 2.154 MMb/d in 2016.

***

PDVSA Announces Start-Up of Cardon Refinery AV3 Plant

(Energy Analytics Institute, Ian Silverman, 14.Jun.2018) – PDVSA announced its subsidiary PDV Mantenimiento oversaw the successful start up of the High Vacuum 3 (AV3) Plant at the Cardón Refinery located in the Paraguaná Peninsula in Western Venezuela.

Savings to PDVSA from the activation of the AV3 will amount to an estimated $55.5 million per month. Coupled with the start-up of the Number 3 Distillery Plant located in Amuay, the savings amount to an estimated $127.1 million per month related to the acquisition of vacuum distillate (VGO), a basic component to produce fuel, reported PDVSA in an official statement, citing PDV Mantenimiento Routine Maintenance Manager Rafael Camacho.

The AV3 start-up leverages processing of 23,000 barrels per day (b/d) of VGO, which is a load component to the Fluidized Catalytic Cracking (FCC) unit, reported PDVSA. The FCC is a vital process to produce fuel.

In Venezuela’s western Falcon state, Venezuela’s state oil entity PDVSA operates two refineries: Amuay, with a 645,000 barrel-a-day processing capacity and Cardón, with a 310,000 barrel-a-day capacity. In neighboring Zulia state, PDVSA operates the smaller Bajo Grande refinery, with a 16,000 barrel-a-day capacity.

Photo credit: PDVSA
***

Venezuela Forgoes Nearly $30 Bln in Oil Revenues

(Energy Analytics Institute, Piero Stewart, 12.Jun.2018) – Venezuela will continue to forgo substantial oil revenues this year due to its collapsing production.

In the last four years of the administration of Venezuelan President Nicolas Maduro, the country’s oil production has fallen between 1.361 million barrels per day (MMb/d) according to secondary sources and 1.533 MMb/d according to the state oil entity PDVSA, wrote Ecoanalitica Director Alejandro Grisanti in a Twitter post. As a result, Venezuela will forgo oil income in 2018 estimated between $29.8 billion and $33.6 billion respectively, wrote Grisanti, a former analyst at Barclays in New York City.

***

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.
***

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.

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Venezuelan Decree Aims to Boost PDVSA Oil Capacity

(Energy Analytics Institute, Piero Stewart, 5.Jun.2018) – Decree No. 3368, dated April 12, 2018, and published in Gazette No. 41376, establishes a special transitional regime aimed at boosting Venezuela’s oil production capacity.

Additionally, resolutions No. 051 and 052, published in Gazette No. 41394, dated May 10, 2018, establish measures aimed at simplifying administration procedures at the state oil entity, Petróleos de Venezuela, S.A., its subsidiaries and joint ventures, announced PDVSA in an official statement.

Important sections of the decree are summarized below:

… Resolution No. 051 establishes actions and measures to effectively contribute to simplify procedures related to acquisition of property, service delivery and execution of works necessary to increase the productive capacity of Corporación Venezolana de Petróleo, S.A. (CVP) and the joint ventures.

… Under Resolution No. 051, PDVSA’s Finance Vice-Presidency is instructed to warranty the financial and budgetary availability for acquisition of property, execution of works, and service delivery, as well as submit an obligatory quarterly report before the governing body, which in turn, shall notify the General Comptroller’s Office.

… Under Resolution No. 052, PDVSA and its subsidiaries are instructed to establish measures and actions that contribute to the administrative simplification for acquisition of property, service delivery and execution of works necessary to increase the productive capacity.

… Finally, the resolution calls for temporary creation of the Special Regime Unity of Public Contracts, with aim to coordinate requirements of areas and businesses belonging to the national oil industry, prioritize contracting processes to contribute to the sustainable increase of the oil production, as well as forward those processes to the various commissions referred in the resolution.

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Venezuela Says 23,319 Wells Have 1.4 MMb/d Recovery Potential

(Energy Analytics Institute, Piero Stewart, 5.Jun.2018) – Venezuela’s Oil Minister Manuel Quevedo says the state oil company has identified 23,319 wells which have potential to recover Venezuela’s oil production by 1.426 million barrels per day (MMb/d).

Quevedo, who also serves as the president of PDVSA, made the announcement in La Campiña in Caracas during a meeting with Venezuela’s President Nicolás Maduro, announced PDVSA in an official statement.

In the western region of Zulia state alone some 13,435 category two and three oil wells have been identified with potential to recover production of 655 thousand barrels per day (Mb/d). In the eastern region of Venezuela another 9,500 wells have been identified with potential to recover production 700 Mb/d. In total, Quevedo said 23,139 wells have been identified with potential to recover 1.426 MMb/d.

The official didn’t explain where the additional 389 wells were located, which have potential to recover another 71 Mb/d.

Photo source: PDVSA

***

PDVSA mulling force majeure on oil exports -Argus

(Reuters, 5.Jun.2018) — Venezuela’s state-owned PDVSA is considering a declaration of force majeure on some of its oil supply contracts in June unless its clients agree to accept volume reductions of up to 50 percent, Argus reported on Tuesday, citing PDVSA officials.

PDVSA “in the best case only has about 695,000 (barrels per day (bpd) of crude supply available for export in June,” a PDVSA marketing division executive told Argus. (bit.ly/2Jtt55M)

PDVSA’s tumbling crude production, chronic breakdowns of its heavy crude upgraders and difficulty importing critical light crude and naphtha are progressively reducing the amount of oil available for export, Argus said.

PDVSA is asking its principal clients that are collectively owed 1.5 million bpd of crude in June to accept smaller volumes and restructure existing supply contracts for up to one year, Argus said.

Maintenance will last through the end of June and PDVSA clients that reject new deals with supply haircuts could see all of their Venezuelan supplies suspended until the circumstances obliging PDVSA to declare force majeure are resolved, one of the PDVSA officials told Argus.

PDVSA could not immediately be reached for a comment outside business hours. (Reporting by Rishika Chatterjee in Bengaluru; Editing by Peter Cooney)

***

Venezuela’s Grim Realities

(Anthony Venezia, Energy Intelligence, 30.May.2018) — The political and economic crisis afflicting Venezuela typically makes international headlines in connection with the possibility of sanctions being imposed on Caracas by the US, or the impact on world oil markets of the country’s dwindling crude production. But recent reporting by Energy Intelligence Latin America reporter Anthony Venezia has highlighted the grim on-the-ground realities facing the country’s state oil company, Petroleos de Venezuela (PDV), and its desperate workforce.

With much of the rest of the economy at a virtual standstill, PDV is essentially the country’s only source of cash generation, and is now allegedly being preyed upon by racketeers charging it exorbitant prices for goods, Venezuelan industry sources tell Energy Intelligence. Interviews with workers and contractors paint a picture of an anarchistic environment, in which corruption and fraud are commonplace. “There’s no [equipment] supply, but there’s a lot of demand,” one oil industry source says. “So, everybody has to know somebody to get anything.”

Such graft has only exacerbated PDV’s financial problems, which include crushing debt and default on its bonds. Oil output, meanwhile, has slipped to 1.4 million barrels per day from 2.17 million b/d in 2017, according to Energy Intelligence estimates, and the country’s refining complex is in disrepair. And with President Nicolas Maduro winning re-election over the weekend in a vote widely seen as undemocratic, little relief is in sight.

A common racket that sources working in the Venezuelan oil industry describe involves shadowy intermediaries, operating out of residential or even false addresses, that step into transactions between PDV and what few suppliers remain in Venezuela, marking up prices and pocketing the difference. These shadowy intermediaries are referred to as “briefcase companies,” an allusion to how money obtained via graft is commonly perceived to be exchanged. Such illegitimate companies are not unique to the energy sector and appear to hold sway over virtually every part of Venezuela’s weakened economy.

“These organized mafias steal millions of dollars of equipment and then sell it on the black market,” a source at PDV tells Energy Intelligence. “I’m talking thousands of kilometers of cables, pumps, seals, parts.” Multiple sources claim such firms are frequently set up by ex-employees of PDV’s procurement department, who leverage their network to tap into its supply chain.

Plugged In

The firms, likely innumerable across the economy, usually comply with minimum legal requirements such as obtaining a government tax ID. Several sources say company names that convey an air of legitimacy yet remain very generic are common, although the firms often have no fixed addresses, phone numbers or internet presence. Individuals operating such schemes are called “enchufados,” which in Spanish means “plugged in,” as they are connected to industry or political insiders who facilitate purchases.

“You get one of these enchufado guys who finds a supplier and says, ‘you want to sell your pumps, they sell for $60, but I can get PDV to buy 20 of them for $45,'” a source at a major service company says, explaining how a scheme might work in practice. “So, the supplier says, ‘my margin is less, I make them at $40, but OK.’ And the enchufado doesn’t worry because his cousin at PDV is the one approving it,” adds the source, who no longer lives in Venezuela, but still does business there.

The enchufado would then sell the pumps at $60 or more but pay the supplier $45 apiece, splitting the difference with his or her PDV accomplice. Meanwhile, PDV accountants would simply register a finalized purchase at $60 per pump.

With “briefcase companies” monopolizing many transactions, and virtually no one else selling goods on the open market, PDV and other oil companies have little choice but to pay up. “At the end of the day, there’s a well that needs to be worked on … so, they end up paying,” the major service firm source adds.

Markups of 100%-150% on the list price are common, sources say, but might be as high as 1,000% in some cases. One oil industry source in Venezuela recalls a large piece of equipment normally costing around $200,000 being marked up to more than $1 million.

Because the firms have no physical infrastructure to stock items, transactions are generally one-shot affairs carried out in US dollars, as Venezuela’s bolivar has become worthless. Once a sale is complete, the firms are abandoned to cut off paper trails and new ones are set up to continue the racket.

The major service firm employee says the schemes do not even need to be set up inside Venezuela, alleging that a host of ex-PDV logistics staff are operating remotely in and around the Miami, Florida area, with in-country acquaintances doing the dirty work.

Venezuela’s government seems powerless to stop the rackets, despite extensive coverage in the local press. It is likely a PDV audit last December was at least partially undertaken to root out such schemes. Before the late President Hugo Chavez took power in 1999, PDV had essentially zero tolerance for corruption, a source formerly with the firm tells Energy Intelligence. But corruption flourished during Chavez’s decade-plus in power, continued after he died in 2013, and now eats into Venezuela’s shrinking oil revenue stream.

Unable to eliminate the schemes, Venezuela has at times played down the menace they pose. In 2016, for instance, after citizens questioned whether the illicit firms played a role in hyperinflation by artificially driving up prices for everything from food to medicine, officials maintained they were marginal and not a true threat to commerce.

However, in September 2017, Venezuela identified two such “briefcase companies” in the mining and chemical sectors, according to a state news site, supposedly raiding the residences they were registered under.

In that same instance, the government also acknowledged that a similar “multimillion-dollar embezzlement” had occurred in Venezuela’s Orinoco Belt heavy-oil region, perpetrated by what it said were individuals residing in the US.

Rock Bottom

While PDV struggles with the corrosive effects of such widespread graft and corruption, workers in the country’s oil fields are facing even graver challenges, laboring under brutal conditions, from food shortages to a lack of spare parts and even roaming gangs terrorizing employees, stealing what little they have left.

“What you hear from outside is a lot better than what we’re actually living through in the fields,” one source inside Venezuela says. “The morale of the people in the industry has hit rock bottom.”

Multiple sources on the ground in Venezuela, as well as several who have fled the country, paint a bleak picture of working conditions, with PDV apparently unable to provide even the basics. Cafeterias operated by the state oil giant often have no food — mirroring shortages experienced by the wider Venezuelan population — depriving employees of the calorie intake needed to undertake hours of manual labor. Weakened employees frequently request part-time shifts or medical leave, says one source, which PDV begrudgingly grants.

Blackouts are also an everyday occurrence, leaving equipment without power and forcing crews to work intermittently. Even when there is electricity, facilities used to monitor operations often have no air conditioning, leaving personnel at the mercy of Venezuela’s tropical climate — one source describes a control facility where the temperature inside routinely hits 40°C (104°F), making anything resembling normal productivity all but impossible.

In scenes reminiscent of the “Mad Max” film series set in a dystopian future in which armed factions feud over oil, employees also risk violence merely by showing up for work. Several sources spoke of a lack of trucks for transport, forcing workers to bring their own vehicles to the job site and leaving them vulnerable to carjackings.

“The lack of security in the areas around the wells is out of control,” says one source, noting armed gangs roam the fields, stripping anything of value from equipment and personnel. Indeed, wiring and electronics are often stolen off rigs, their copper to be scrapped for cash, while PDV personnel are routinely robbed of their belongings.

Workers say they frequently complain to PDV about security, with strikes over those issues as well as general working conditions commonplace, but the company does nothing “concrete” to address it. PDV has not responded to Energy Intelligence attempts to contact it for comment either on the day-to-day conditions facing its workers, or the allegations of graft and corruption.

While there is usually a Venezuelan National Guard unit stationed at oil installations, their presence seemingly does not improve the situation. Some workers suggest it may even be part of the problem.

When thefts and assaults occur, provided employees have not been robbed of their cell phones, workers say calling the authorities for help from out in the fields’ vast, wide-open spaces is a lost cause.

“Even if you did call the police,” one source says, “when they show up, they might rob you, too.

 Anthony Venezia is a reporter with Energy Intelligence based in New York. This article is based on news stories that have previously appeared in Energy Intelligence’s publication Oil Daily.

***

India Says No Plans for Tade with Venezuela’s ‘petro’

(Reuters, 28.May.2018) — India said on Monday it had no plans to use Venezuela’s local cryptocurrency ‘petro’ in oil trade with the Latin American nation, which is facing sanctions from the United States.

Responding to a question at a news conference, Foreign Minister Sushma Swaraj cited an order by the country’s central bank saying it did not allow trade using cryptocurrency.

Venezuela, whose oil output is falling under pressure from the U.S. sanctions, is offering discount on oil sales done in ‘petro’.
***

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.
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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.”
***

PDVSA Owes Cardon IV Partners Eni and Repsol $1 Billion

(Energy Analytics Institute, Piero Stewart, 25.May.2018) ‐- Venezuela’s state oil company Petróleos de Venezuela owes an estimated $1 billion to its partners in the Cardón IV natural gas project offshore.

Gas Energy Latin America Partner Antero Alvarado told Petroguía in interview that Caracas-based PDVSA is accumulating estimated monthly expenses of $60 million for the purchase of gas from Repsol and Eni.

Financial problems at the project relate to indefiniteness of exports, tariff lags, and accumulated debts PDVSA has with the foreign partners that have the licenses, according to Alvarado.

Spain’s Repsol and Italy’s Eni, joint operators, discovered the Perla field in 2009. Initial production at the field, located in shallow waters in the Gulf of Venezuela, commenced in 2015 at 150 million cubic feet per day (MMcf/d). Two additional phases of the project’s development were planned to boost production to 800 MMcf/d in 2017 and then a peak of 1,200 MMcf/d in 2020, according to Eni data. The Perla field is also expected to be producing 15,000 barrels per day (b/d) of condensate, which will rise to 38,000 b/d by 2020.
***

Venezuela Election, US Sanctions, Rising Prices, Falling Output

(Platts, 18.May.2018) — Ahead of Sunday’s presidential election in Venezuela, Risa Grais-Targow, director-Latin America, at the Eurasia Group, spoke to S&P Global Platts about the expected US response, the impact of rising oil prices on sanctions and the ongoing collapse of the country’s oil sector.

The interview has been edited for brevity and clarity.

PLATTS: What do you expect the US response will be to Sunday’s election?

GRAIS-TARGOW: I think the US has already been pretty clear that they view these elections as fraudulent. So I think, at a minimum, they will reject the results and refuse to recognize them. There could be some additional sanctions in response as well.

PLATTS: What will those sanctions look like?

GRAIS-TARGOW: The signaling from the [Trump] administration in more recent weeks has been less in the direction of aggressive sanctions right off the bat. I think especially with [exit from] the Iran deal they seem to be a bit more concerned about international oil prices and higher domestic gasoline prices. Obviously, their Iran policy contributes to that and it seems like, even though we have a more hawkish foreign policy team, there may be a bit more reluctance to add Venezuela to those pressures as well. I think that it would be, maybe, milder sanctions to begin with, something more like a ban on the sale of diluents and lighter crudes to Venezuela or potentially an insurance-related ban that would affect their oil cargoes. But it seems like the import ban that was being discussed a few months ago more actively is now looking like something that would only happen over a longer time frame.

PLATTS: What would need to occur for an import ban to go forward?

GRAIS-TARGOW: In general, the preference here has been to escalate sanctions. The fact that we haven’t had those initial, targeted sanctions for the oil sector happening before the vote means that you start with them after the vote. To the extent that it doesn’t change the Maduro administration’s behavior then we could still escalate towards an import ban. But it seems like we would probably start with milder actions and escalate towards that, using the threat of more aggressive actions as a potential deterrent.

PLATTS: Is there an outcome Sunday in Venezuela that wouldn’t draw a US response?

GRAIS-TARGOW: I think the only scenario in which we don’t is if [Venezuelan presidential candidate Henri]Falcon somehow manages to win, which, in my view, is pretty unlikely at this point.

PLATTS: What impact have existing sanctions had on Venezuela’s oil sector?

GRAIS-TARGOW: Some of the sanctioned individuals had been executives at PDVSA, so what we saw last year was some reluctance to enter into deals with PDVSA. The existing sanctions, the financial sanctions that were imposed in August, those have had a much more severe impact on the oil sector. They don’t allow the government to issue promissory notes to service providers and so that’s really hurt their ability to maintain these relationships with service providers and it’s one of the reasons that we’ve seen such aggressive production declines over the past six months or so.

PLATTS: How much are oil prices at the moment impacting what the US response to Venezuela could be?

GRAIS-TARGOW: It’s certainly a factor. We had Trump tweeting out a few weeks ago this attack on OPEC over oil prices. It does seem to be something that he’s concerned about. If you look at historic trends, higher domestic gasoline prices tend to really change domestic economic sentiment and generally tend to hurt the administration. That’s something the government obviously wants to avoid with November mid-terms. Especially since we’re entering into peak summer driving season, that’s become more of a consideration as they think about the policy response to Venezuela.

PLATTS: Where is rock bottom for Venezuela’s oil sector? Are we already there?

GRAIS-TARGOW: I think we’ve all been shocked at the acceleration of production declines. I’ve generally seen a floor owing to the joint ventures, which are much more functional than PDVSA’s solely operated production. That range is 900,000 b/d to 1.1 million b/d that are being operated as joint ventures. That, to me, has always been the floor. The challenge now is that the government has been more aggressive with its joint venture partners and so now we’re in a new era where we could see the joint venture partners starting to reduce their presence or suspend operations. If we see some of the western companies starting to pull out owing to safety concerns or some of these issues and concerns about their human capital then I think that floor starts to sink further.
***

Venezuela Oil Output Down to 1949 Levels

(Energy Analytics Institute, Aaron Simonsky, 18.May.2018) – Venezuela’s oil production continues to fall, and further declines are anticipated due to a number of problems at state oil company PDVSA, according to a report by Caracas Capital Markets.

“Venezuela’s oil production has now fallen from 3.5 million barrels per day when Hugo Chavez was elected in 1998 to 1.436 bpd last month. Instead of going up to 6-8mm bpd where Venezuela’s oil production should have been by 2008, Venezuela’s oil production has returned to the level it first achieved in 1949,” wrote Russ Dallen, Managing Director at Caracas Capital Markets, in a report last week to clients.

Dallen, a bond trader, further said: “We haven’t yet fallen back to 1948 levels, but we anticipate that we will return to 1948 this month, when Venezuela was producing 1.339 million bpd. By 1950, Caracas was producing 1.497 million bpd — even more than it is currently producing.”

The U.S. is now exporting over 1.6 million barrels of crude oil per day – more than all of Venezuela’s total production, according to Dallen who wanted to “put Venezuela’s disastrous fall in oil production to 1.436 million bpd in perspective.”

Further declines in Venezuela’s oil production are expected due to a number of problems that continue to stymie PDVSA, wrote Dallen.
***

PDVSA Looks to Recuperate Lake Vessels in Bachaquero

PDVSA officials visiting Bachaquero along the Eastern Coast of Lake Maracaibo. Source: PDVSA

(Energy Analytics Institute, Aaron Simonsky, 17.May.2018) — PDVSA officials Executive Vice President Ysmel Serrano and External Directors Ricardo León and Yurbis Gómez visited with workers from the Petrozamora mixed company, while touring the Libertador II dock located in Bachaquero along the Eastern Coast of Lake Maracaibo, to discuss plans to recuperate lake vessels.

While no financial details were reported by PDVSA, one external director commented about the visit and planned work by the state entity.

“We don’t need dollars to construct our machinery, everything we need we have it here in the talent from Zulia and the revolutionary conscience,” said Gómez.
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Factbox: Venezuela’s Ayacucho Block 1

(Energy Analytics Institute, Jared Yamin, 14.May.2018) – Venezuela’s Ayacucho Block is one of four that comprise the Hugo Chavez Orinoco Heavy Oil Belt, also known as the Faja. Collectively, the four blocks, comprised of Boyacá, Junín, Ayacucho and Carabobo, contain the largest accumulation of heavy and extra-heavy crude oil (ECHO) in the world, according to PDVSA.

Ayacucho Block 1 contains estimated certified reserves of more than 5 billion barrels of extra-heavy oil, which serve as a guarantee to the Petro, the first Venezuelan cryptocurrency.

Ayacucho Block 1 spans an area of 380 square kilometers, and is located in the extreme northeast of the Ayacucho Division. Currently, 11 oil wells are functioning in the area where oil has an average API of 9.5 to 9.9 degrees, according to PDVSA, as the state oil company is known.
***

PDVSA Ex-President Luis Giusti Says Co. Bankrupt

(Energy Analytics Institute, Jared Yamin, 14.May.2018) – Venezuela’s state oil company Petróleos de Venezuela, S.A. (PDVSA) is bankrupt, at least that what its former president Luis Giusti thinks.

“If you look at the signs … they all point to a company that is bankrupt,” said Giusti during a televised interview on the Bayly show on 27 April 2018 with host Jamie Bayly.

Giusti initiated his career at Shell Corporation in Venezuela. He later worked at Maraven, S.A., a PDVSA operating affiliate. In 1994, Giusti was named chairman and CEO of PDVSA, positions he maintained until March of 1999, according to data posted to the website of the Center for Strategy & International Studies (CSIS), an organization where Giusti served as a senior advisor directly after departing PDVSA in 1999.

At the helm of PDVSA, Giusti oversaw major reforms to the Venezuelan petroleum sector including opening the sector to private participation, which attracted foreign direct investments (FDI) between 1995-2004 estimated at around $30 billion.

An engineer by profession, Giusti graduated from the University of Zulia in 1966, and received a M.S. in petroleum engineering from the University of Tulsa in 1971.

What follows are short extracts from the interview:

BAYLY: Why has Venezuela sent so much oil to the U.S. over the years?

GIUSTI: A lot of Venezuela barrels always went to the U.S. for a reason that is clear and precise, and that is due to the decisions made by many refineries along the Gulf Coast to invest in deep conversion capacity and to buy cheaper raw material.

Of the seven refineries in Venezuela only one is operating and the reason is simple and much more than efficiency losses and installation deteriorations. They’re simply not operating because there is no petroleum in Venezuela to process. (See Note 1)

BAYLY: If the US asked you what it could do to assist Venezuela such as to cease imports of Venezuelan crude oil or cease exports of U.S. gasoline to Venezuela, what would you recommend?

GIUSTI: It’s a bit difficult because you need to surmise the crises the citizens are living right now and take into consideration whether such a measure could turn everything around to achieve a change in a reasonable time in Venezuela. I would say that is the main concern.

BAYLY: How much money has been stolen from PDVSA?

GIUSTI: Venezuela and PDVSA are in the situation they are now due to a mismanagement of funds, without even talking about corruption.

After ten years of discretional uses of resources under the mandate of Chavez, we know that much of the funds went to personal accounts. Over a good 10-year period of Chavismo the amount that has been stolen could easily surpass $100 billion.

BAYLY: Is PDVSA bankrupt?

GIUSTI: Since PDVSA is a company of the state, it will never declare in bankruptcy. But, if you look at signs such as: not being able to pay bond returns, the Chinese’s unwillingness to lend more money, declining production levels, and salaries around $5 per month, among others signs, they all point to a company that is bankrupt.

BAYLY: What about the fact that is now run by military personnel?

GIUSTI: Military personnel who could be good or bad in their profession run PDVSA, but they are military personnel that don’t know anything about the petroleum sector.

BAYLY: How does Venezuela exit this disaster?

GIUSTI: It’s a hard question to answer but we are in the presence of a binary decision. There will not be talks about our understandings, or that we will team up. The scenario comes down to the persons in power leaving or there’s no way to resolve this.

Editor’s Note 1: The PDVSA refineries located in Venezuela include: Amuay (645 Mb/d), Cardon (310 Mb/d), Puerto La Cruz (187 Mb/d), El Palito (140 Mb/d), Bajo Grande (16 Mb/d) and San Roque (5 Mb/d), according to PDVSA data.
***

PDVSA Inaugurates Valdez Thermoelectric Plant in Güiria

(Energy Analytics Institute, Jared Yamin, 14.May.2018) – PDVSA inaugurated the 175 megawatt TG1 turbo-generating unit of the Juan Manuel Valdez Thermoelectric Plant located within the CIGMA industrial complex in Güiria, Venezuela.

The thermoelectric plant will have a total capacity to generate 350 megawatts of energy. Located in Sucre state, the plant will supply energy to CIGMA, the Eastern Caribbean Delta Axis and other PDVSA developments offshore, reported the state oil company in an official statement.
***

Conoco Authorized to Seize $636 Mln in PDVSA Assets

(Reuters, 13.May.2018) – A Curacao court has authorized ConocoPhillips to seize about $636 million in assets belonging to Venezuela’s state oil company PDVSA due to the 2007 nationalization of the U.S. oil major’s projects in Venezuela.

The legal action was the latest in the Caribbean to enforce a $2 billion arbitration award by the International Chamber of Commerce (ICC) over the nationalization.

The court decision, first reported by Caribbean media outlet Antilliaans Dagblad on Saturday, says Curacao can attach “oil or oil products on ships and on bank deposits.”

Conoco and PDVSA did not immediately respond to requests for comment on the decision, which was seen by Reuters and dated May 4.

Conoco earlier this month moved to temporarily seize PDVSA’s assets on Aruba, Bonaire, Curacao and St. Eustatius. That threw Venezuela’s oil export chain into a tailspin just as Venezuela’s crude production has crumbled to a more than 30-year low due to underinvestment, theft, a brain drain and mismanagement.

Reuters reported on Friday that PDVSA was preparing to shut down the 335,000 barrel-per-day Isla refinery it operates in Curacao amid threats by Conoco to seize cargoes sent to resupply the facility.

PDVSA is also seeking ways to sidestep legal orders to hand over assets. The Venezuelan firm has transferred custody over the fuel produced at the Isla refinery to the Curacao government, the owner of the facility, according to two sources with knowledge of the matter.

PDVSA transferred ownership of crude to be refined at Isla to its U.S. unit, Citgo Petroleum, one of the sources said.

For the time being, PDVSA has suspended all oil storage and shipping from its Caribbean facilities and concentrated most shipping in its main crude terminal of Jose, which is suffering from a backlog.
***

PDVSA’s Quevedo Meets with Service Providers in Maturin

(Energy Analytics Institute, Aaron Simonsky, 8.May.2018) – Venezuela’s Oil Minister and PDVSA President Manuel Quevedo traveled to Maturín to meet with representatives from companies that provide services to PDVSA’s Eastern Production division.

Everything that we are proposing at this stage of the industry would not be possible without the workers, reported PDVSA in an official statement, citing Quevedo. “It deals with expanding projects and new alliances based on ethics and values,” he said.

In the meetings, Quevedo stressed the importance of Emergency Economic Decree No. 3,368 published in the Official Gazette No. 41,376. The decree authorized creation of a Special and Transitory Regime for the state oil company aimed to expedite paperwork related to contracting.

“The decree will establish a new order that permits for a speedy process and end bureaucratic procedures,” said Quevedo.
***

PDVSA Audit and Venezuela Oil Sector Opening Needed

Henri Falcon with Bocaranda. Source: Bocaranda.

(Energy Analytics Institute, Piero Stewart, 7.May.2018) – Venezuela’s opposition presidential candidate Henri Falcon said changes need to be made at state oil company Petróleos de Venezuela, S.A.. He also said an petroleum sector opening was needed to attract investments and boost declining oil production in the OPEC nation.

The transformation of PDVSA would have to begin with an audit, said presidential aspirant Falcon during a televised interview on “The Bocaranda Show” with host and journalist Nelson Bocaranda. Why? “Because PDVSA, which was always the motor of production of resources to support our imports, today has been converted into the cradle of corruption in the country,” said Falcon.

Later, referring to professional workers at PDVSA, as the Caracas-based company is known, Falcon added that a process of professionalism needed to be initialized. He also said that a petroleum opening ‘apertura’ with investments from the Venezuelan state, and also internationally from the private sector was needed so that “the international private sector could be used to give a push to PDVSA to rescue production, which has been declining.”
***

Venezuela Ratifies PDVSA President Quevedo, Names Board

(Energy Analytics Institute, Aaron Simonsky, 6.May.2018) – Venezuela published its Official Gazette No. 41,389 on 3 May 3 2018 which detailed Decree No. 3398 and the naming of the Board of Directors of state oil company Petróleos de Venezuela, S.A. (PDVSA). Most importantly, the decree ratified Manuel Quevedo as president of PDVSA.

The decree, signed by Venezuela’s President Nicolás Maduro, also confirms the following appointments:

— Ysmel Serrano as Executive Vice President,
— Guillermo Blanco as Vice President of Refining,
— Nelson Ferrer as Vice President of Exploration and Production,
— Fernando de Quintal, Vice President of Trade and Supply,
— Iliana Ruzza, Vice President of Finance,
— Nemrod Contreras, Vice President of Gas,
— Marcos Rojas Marchena, Vice President of International Affairs, and
— Miguel José Quintana, Vice President of Planning and Engineering.

Members retaining their functions as External Directors include the following:

— Wills Rangel,
— Yurbis Gómez,
— Ricardo Leon, and
— Simón Zerpa Delgado.
***

Venezuela’s Oil Minister Promotes Partnerships in the Faja

(PDVSA, 5.May.2018) – People’s Minister of Petroleum and President of Petroleos de Venezuela SA (PDVSA), Manuel Quevedo, held a strategic meeting with oil business leaders in the Ayacucho Division of the Hugo Chávez Orinoco Oil Belt, as part of the Oil Production Recovery Plan

Vice President of Exploration and Production, Nelson Ferrer; Vice President of Corporación Venezolana de Petróleo (CVP), Rafael Urdaneta; Orinoco Oil Belt Executive Director, Freddy Viloria; and Rear Admiral Gustavo Romero Matamoros, Commander of the Belt Security and Protection Special Unit participated in the meeting.

According to Minister Quevedo, the purpose of the meeting was to increase awareness on the scope of Economic Emergency Decree No. 3368, published in Official Gazette No. 41376 dated April 12, which creates a Special and Transitory Regime for the oil industry to accelerate the administrative procedures of the oil contracts.

They signed 11 strategic partnerships and 3 letters for the start of oil service projects in the eastern region, involving Venezuelan businesses.

Minister Quevedo also made a call to maintain a close relationship with PDVSA partners and suppliers, to build a new business model which addresses, more expeditiously, the processes for the acquisition of oil services as well as the payment of debts and production commitments.

“If we want to build a country and eliminate vices, we need extraordinary measures, the cooperation of all, build a new order that allows a direct relationship with our partners”, he said.

Representatives of Multiservicios Sánchez & Valera, Petrolera Álvarez, Orinoco Drilling, Consoldi, Equiservis and Cooperativa 2021, among others, said this is an opportunity to shore up a new business model with PDVSA, a way to provide services that guarantee the maintenance of equipment, the provision of inputs and other oil logistics.

With these actions, Socialist PDVSA continues to consolidate ties with the Venezuelan productive sector through a new business scheme and a win-win relationship, thus increasing operational reliability from the energy heart of the socialist homeland.
***

Total President Says Output At One Venezuela Field Down 33%

(Energy Analytics Institute, Piero Stewart, 22.Apr.2018) – Patrick Pouyanne, the Chief Executive Officer of French major Total, announced production at one of its oil fields in Venezuela was down to 80,000 barrels per day (b/d) from 120,000 b/d.

Pouyanne made the comments during an oil summit in Paris, reported Oil Price. He added that production in Venezuela was down due to a lack of capital and staff contributions from its partner PDVSA.
***

PDVSA Refining VP Blanco Visits Puerto La Cruz Refinery

(Energy Analytics Institute, 28.Mar.2018) – PDVSA Refining Vice President Guillermo Blanco visited the operational areas of Puerto La Cruz Refinery (RPLC), located in northern Anzoátegui state, reported PDVSA in an official statement. General Manager Johnnyel Ramos guided Blanco and External Director Yurbis Gómez around RPLC.

The RPLC is one of four facilities that comprise the refining circuit, along with El Chaure Refinery, San Roque Refinery and Guaraguao Crude Storage and Shipping Terminal (TAEG).
***

PetroChina, Rosneft Leave Venezuela Refining Projects

(Kallanish Energy, 28.Mar.2018) – Chinese and Russian state oil companies PetroChina and Rosneft will not pay the costs of repairing and modernizing Venezuela’s Cardón and Amuay refineries for PDVSA, according to union sources.

Ivan Freites, senior official of the Venezuelan Unions Federation of Oil Workers, told local newspaper El Nacional the foreign partners decided after lengthy negotiations with PDVSA the projected $10 billion cost was too high.

Under proposed lease agreements, the firms would solely cover the costs of upgrading both refineries and use each for 10 years. After that period, the refineries, still owned by the Venezuela government, would be returned to PDVSA, Kallanish Energy learns.

“That agreement did not prosper because these refineries are in a deplorable state and they realized that the investments they had to make are extremely high,” said Freites.

Rosneft would manage the Amuay refinery — which has the capacity to process roughly 640,000 barrels per day (BPD) of crude — and PetroChina would take over the Cardón refinery – which can process 305,000 BPD.

Located in Falcón state, they are both part of the Paraguaná refining complex, which has a capacity of roughly 940,000 BPD, including the Bajo Grande refinery.

Freites said that without foreign investment, Venezuela is likely to shut three of its major refineries in coming weeks, as a shortage of crude and lack of personnel will add further pressure and prevent the facilities from operating.

The refineries pending “indefinite closure” are Cardon, El Palito (140,000 BPD) and Puerto La Cruz (190,000 BPD), the union leader said. Together, they account for nearly half of PDVSA’s 1.3 MMBPD of domestic refining capacity.

Currently, only four refineries are said to be operating in Venezuela, at roughly 30% of their combined nominal capacity – reportedly at about 390,000 BPD.

None of the companies responded to request for comments.
***

Venezuela’s Refining Capacity Impresses but Utilization Tells Story

(Energy Analytics Institute, Pietro D. Pitts, 27.Mar.2018) – Venezuela’s PDVSA owns six domestic refineries with a combined processing capacity of 1,303 thousand barrels per day (Mb/d), according to data from the state oil entity.

A quick summary of the refineries follows:

Refinery ————- Capacity (Mb/d) —- % of Total

Amuay ————— 645 ——————- 49.5%
Cardon ————– 310 ——————– 23.8%
Puerto La Cruz —- 187 ——————- 14.3%
El Palito ————- 140 ——————- 10.7%
Bajo Grande ——- 16 ——————— 1.3%
San Roque ——— 5 ———————– 0.4%
TOTAL ————— 1,303 —————- 100.0%

Venezuela’s refining sector has been hampered now for some time by lack capital investments, maintenance, feedstock, and a continued exodus of quality domestic and international workers, all of which have combined to boost accidents and downtime while bringing down utilization rates. Today, the combined utilization rate for the 6 refineries is nowhere near the levels seen during better times, and PDVSA is increasingly forced to import some petroleum-derivatives from abroad.

***

Officials from Trinidad and Venezuela Discuss Gas Deals

Officials from Trinidad and Venezuela. Source: PDVSA

(Energy Analytics Institute, Piero Stewart, 27.Mar.2018) – Delegations from Trinidad and Tobago and Venezuela meet in Caracas to review progress related to gas agreements between both nations, reported PDVSA in an official statement.

The delegations reviewed the progress of agreements to finalize construction, operation and maintenance of a gas pipeline that would span from the Dragon field in Venezuela to the Hibiscus field in Trinidad, and eventually supply the domestic market in Trinidad as well as abroad.

The delegation from Trinidad was comprised of the Minister in the Office of the Prime Minister, Stuart Young, and Ambassador Paul Byam; Permanent Secretary at the Ministry of Energy and Energy Industries, Selwyn Lashley; and Chairman of the National Gas Company, Gerry Brooks. The Venezuelan delegation was lead by Venezuela’s Petroleum Minister and President of PDVSA Manuel Quevedo; PDVSA Vice Minister of Gas, Douglas Sosa; and President of the subsidiary PDVSA Gas, Nemrod Contreras.
***

PDVSA to Shut Three of Four Refineries Indefinitely: Platts

(Platts, 22.Mar.2018) – PDVSA is planning to close three of its four large refineries in Venezuela indefinitely due to of lack of crude to process and because the state company does not have enough staff to operate the plants, union sources said Thursday.

Refineries: Venezuela’s Cardon, Puerto La Cruz and El Palito

Owner: PDVSA

Overall capacity (b/d):

— Cardon 310,000

— Puerto La Cruz 187,000

— El Palito 145,000

Units affected: All

Duration: Ongoing

“The information we have is that PDVSA will close the Cardon, Puerto La Cruz and El Palito refineries in the next few weeks,” said union executive Ivan Freites. Freites said that the Cardon refinery would only be used for the production of lubricants and as part of PDVSA’s logistics for the supply of fuels to the national market. “PDVSA will continue to operate the Amuay refinery where it concentrates specialized personnel in refining and the crude available for processing,” Freites said.

Freites said PDVSA specialists are leaving Venezuela for other countries, where they can obtain higher salaries and a better quality of life. At least 4 million people, or 15% of Venezuela’s population, have left the country because of a serious, ongoing economic crisis. “Our records in the unions indicate that 70% of the plant operators and 75% of the process engineers have renounced PDVSA,” Freites said.

PDVSA’s four large refineries in Venezuela are all operating below capacity and with many maintenance problems. This has forced the country to import refined products.

On March 15, Venezuela’s 955,000 b/d Paraguana Refining Center, or CRP, was operating at 267,000 b/d, or 28% of capacity, PDVSA said in technical report. The CRP includes the 645,000 b/d Amuay refinery and 310,000 b/d Cardon refinery. It also includes the Bajo Grande asphalt plant, which has been shut since November 6 due to damage to a furnace.

The technical report said Amuay was operating at 167,000 b/d, or 25.9% of capacity, and Cardon was operating at 100,000 b/d. But on March 21, PDVSA shut its 185,000 b/d No. 5 distiller at Amuay, bringing the plant’s throughput down to 120,000 b/d, or 18.6% of its capacity. PDVSA has not run Amuay at maximum capacity since August 2012, when an explosion killed 42 people and injured 80.

The Puerto La Cruz refinery was operating at 50,000 b/d, or 26.7% of capacity, on March 21.

“The El Palito refinery has been operating intermittently for short lapses, when there is light crude oil to process. At this moment it is paralyzed,” said a refinery union leader who spoke on condition of anonymity.

“Additionally, El Palito does not have electricity supply autonomy, being highly dependent on the national electricity system that also faces a series of crises,” the union leader said. “PDVSA has announced that it will not send more crude to El Palito, so its definitive closure is imminent,” he added.

PDVSA could not be reached for comment.
***

Oil Workers Protest at PDVSA HQs In Caracas

(Energy Analytics Institute, Piero Stewart, 22.Mar.2018) – Workers at PDVSA’s headquarters in Caracas, La Campiña, participated in protest today inside the company’s main building, reported the daily El Nacional, citing a local reporter, Ramon Camacho.

During the protest, the workers demanded that PDVSA make due on all late payments to employees and also shouted out suggestions to the actual president of the state entity, Manuel Quevedo, to step down.

PDVSA didn’t respond to email requests to verify the actions.
***

PDVSA Lagunillas Site Fire Takes 12 Hours to Extinguish

(Energy Analytics Institute, Piero Stewart, 20.Mar.2018) – A fire reported Saturday 17 March 2018 at a PDVSA controlled petroleum site located in the Lagunillas sector in Zulia state took an estimated 12 hours to extinguish due to a lack of fire foam, reported the daily El Nacional, citing a tweet from Somos Noticias COL.

It is unclear how the fire started or what was affected during the incident as PDVSA has yet to provide details.

***

PDVSA Collective Contract Eliminates 8 Hour Shifts

(Energy Analytics Institute, Piero Stewart, 19.Mar.2018) – A new collective contract signed by PDVSA on 14 March 2018 eliminates 8 hour shifts and work lunch rooms, reported the newspaper El Nacional, citing oil union official Iván Freites.

Workers will now be required to work 12-hour shifts, said Freites. He added Venezuelan petroleum sector workers plan actions to reject the new collective contract, without providing details.

“With the elimination of 8 hour shifts, we are returning to the 19th Century,” said Freites.
***

Guyana Is About to Open Up Pandora’s Barrel

(Mac Margolis, 16.Feb.2018) – Wedged between Brazil and Venezuela, Guyana could easily go unnoticed. It has fewer than 750,000 people and a per capita income of $4,300, half the regional average, qualifying it as the hemisphere’s third-poorest nation.

At the moment, Guyana also might be its luckiest. Having struck big oil offshore starting in 2015, industry experts reckon total reserves at around 2 billion barrels. That bounty could make Guyana immeasurably rich and Latin America’s biggest producer in less than a decade – or just another Trump-hole.

History abounds with tales of raw-material bonanzas turned into, at best, a mixed blessing for poor countries. Dutch disease, corruption (think Venezuela and Nigeria), life support for dictators: The gift of oil comes with many afflictions. A classic International Monetary Fund study found that living conditions in oil-rich nations in sub-Saharan Africa were no better or worse than countries without oil.

“Equatorial Guinea comes to mind,” Rice University energy scholar Francisco Monaldi told me, in reference to the Central African dictatorship which, after striking oil in the 1990s, went in a matter of years from desperately poor to desperately rich.

“We know historically that if you’re poorly managed when you received the windfall, you’ll likely have difficulty capitalizing your bounty for development,” said Monaldi.

The example is not lost on Guyana, which has a vibrant if flawed — “partially free,” according to Freedom House — democracy, but frail institutions and admittedly scarce human capital to manage the coming wealth. “Guyana has almost zero capacity now for dealing with oil and gas,” Jan Mangal, petroleum adviser to President David Granger, said recently at the University of Guyana.

While officials in Georgetown quickly disavowed Mangal, his comments were hard to ignore. With major oil set to flow as soon as 2020, authorities are bracing both for the shock of wealth and its attendant woes. The bounty will not come all at once: Exxon and other producers will use most of the early oil to pay down startup costs. But that will only delay the impact. “It’s like drinking from a fire hose right now,” Vincent Adams, a Guyanese engineer who recently retired from the U.S. Department of Energy, told me.

One of the biggest challenges is who will manage the gusher. Guyana is a nation of emigrants. Some 463,000 Guyanese, or 60 percent of its population, live abroad, and the outflow continues apace. What’s worse, the leavers have included roughly nine of every 10 graduates with higher education — energy experts and oil engineers among them — according to the World Bank. “The cream of the crop migrated,” said Adams. “In terms of local capacity, we are at a serious disadvantage.”

Guyana could attenuate the brain drain by reaching out to its diaspora. There are more than 100 reported expatriate organizations, and as a group overseas Guyanese consistently send more money back home than foreign investors plow into the economy every year, according to a recent study by Hisakhana Pahoona Corbin and Luis Eduardo Aragon of the Center for Advanced Amazonian Studies. “We have a repository of knowledge outside of Guyana which is amazing,” said Adams.

The government belatedly began to tap this talent pool, launching an official Guyana Diaspora Project in late 2012, but the effort has been criticized as timid. “In spite of this potential, few institutional arrangements have been put in place to better engage the diaspora or to unlock their potentials as an alternative for accelerating development,” Corbin and Aragon wrote last year.
Granted, Guyana will have some help. The Extractive Industries Transparency Initiative is counseling officials on how to avert corruption. Multilateral lenders are training Guyanese to develop an investment plan and mitigate the fiscal risk of the oil boom. “The sudden inflow of wealth could become a tsunami, and if it’s not managed well, could leave a dire situation,” Ramon Espinasa, general coordinator of the Extractive Sector Initiative at the Inter-American Development Bank, said in an interview.

Big Oil also knows the stakes. Despite the familiar criticisms — “Dem know wha Exxon do to govt all over de world,” one marquee local columnist warned in a mock patois — drillers have every reason to make sure their investment is safe.

The hardest part will be down to the host country, of course. “Until recently, small countries like ours were sheltered by benefactors in the east or west. Now the Berlin Wall is gone and the protectors have become our competitors, and we’re left to deal with the world markets,” said Adams.

That’s the challenge the country’s emigrants faced when they remade their careers abroad. Now Guyana must reach out to its diaspora ringers and bring that lesson home.
***

PDVSA’s Del Pino Backs Constituent

(Energy Analytics Institute, Ian Silverman, 23.May.2017) – PDVSA President Eulogio Del Pino announced that he fully backs Venezuelan President Nicolás Maduro in the Constituent Assembly process to defeat what he described as violence brought about by the right-wing political groups, reported PDVSA, citing the president of the state oil company.

“They send paramilitaries to attack our distribution units and services stations to later say there is no fuel and generate false opinions about supply,” said Del Pino.

***

Venezuelan Oil Workers March With Maduro

(Energy Analytics Institute, Ian Silverman, 23.May.2017) – Venezuelan petroleum sector workers accompanied Venezuelan President Nicolás Maduro during a march for peace to the headquarters of the National Electoral Council (CNE by its Spanish acronym) in Caracas where he revealed details related to the upcoming Constituent Assembly, a process to rewrite the OPEC country’s Constitution.

“The petroleum workers are here defending the Bolivarian Revolution and giving their all for dialogue,” said PDVSA External Director Ricardo León, referring to the ongoing protests nationwide against the government of Maduro.

***

PDVSA’s Deterioration on All Fronts

(Energy Analytics Institute, Pietro D. Pitts, 22.May.2017) – In recent weeks PDVSA has reported at least three accidents: Petrotrin oil spill in Sucre state and incidents at its Cardon and Curaçao refineries.

The writing on the wall continues to point to a cash-strapped state oil company with an inability to make investments, retain top talent, organically grow oil production, and let alone take on the leadership role in Venezuela’s upstream, downstream, or midstream sectors. The stand-alone events at PDVSA’s Cardon and Curaçao refineries demonstrate conditions at the company’s refineries continue to deteriorate as expected due to a lack of investments, upgrades and maintenance by the state oil entity.

***

PDVSA, Shell Discuss Gas Exports

(Energy Analytics Institute, Piero Stewart, 21.May.2017) – PDVSA and Shell continue to conduct discussions related to the exportation of Venezuelan natural gas to the twin-nation island of Trinidad and Tobago, reported PDVSA in an official statement.

“We are evaluating the base of resources for export,” announced PDVSA, citing PDVSA Gas President César Triana. “We have received proposals to finalize the accelerated production project and future development of the field to boost export volumes to the Caribbean nation,” she said. Discussions between the companies were headed by PDVSA President Eulogio Del Pino and PDVSA Gas President Cesar Triana and Shell Venezuela and Trinidad President Luis Prado.

Discussions between the companies teams focused on three aspects: gas volumes, gas prices and the field interconnection point. An earlier agreement signed by the companies entails construction, operation, and maintenance of a gas pipeline to transport the fuel source between both nations and span from the Dragon field located in Sucre state to the Hibiscus field in Trinidad. The project is estimated to have achieved the 91% completion mark, PDVSA reported.

Paria North — where the gas will come from — contains 14.3 trillion cubic feet (Tcf) of gas reserves in four fields: Dragón, Patao, Mejillones and Río Caribe. The Dragón field alone contains 3.1 Tcf, according to PDVSA.

Discussions also focused on the flaring of gas in North Monagas and future recollection of this gas and other general themes related to the Petroregional del Lago mixed company. The initial volumes from the Dragón field will be destined for the Venezuelan domestic market to substitute the use of diesel at thermo-electric plants, and is estimated to free up 32,000 barrels per day of fuel.

***

PDVSA Says Curacao Refinery Fire Out

(Energy Analytics Institute, Ian Silverman, 21.May.2017) – PDVSA announced that it has completely controlled a fire that occurred at its Isla de Curacao refinery.

The incident occurred at the distillation unit of the refinery, reported PDVSA in an official statement. PDVSA has assigned an investigation committee to determine the causes of the incident.

***

PDVSA Says Oil Spill Clean-up Advances

(Energy Analytics Institute, Piero Stewart, 20.May.2017) – PDVSA announced that clean-up activities continue along the Venezuelan coast off Sucre state, related to the spill of crude oil at the Pointe-à-Pierre refinery in Trinidad and Tobago, reported the state oil co. in an official statement.

After reviewing clean-up activities along the Paria Peninsula, PDVSA President Eulogio Del Pino announced Venezuela had removed 80% of the spill fuel.

“We flew over Cocal, Pata, and Puerto Hierro beaches as well as Pato Island and observed that the clean-up process is above 80%,” said Del Pino. “The remaining impact is minimum.” We have removed 80% of the fuel from the spill that had reached La Caracola beach in Margarita Island, said Del Pino. Oil also reached Los Roques; however, the impact was minimum, PDVSA reported.

PDVSA is awaiting a visit from Petrotrin to discuss the oil spill. “Petrotrin [officials] will visit all the affected areas,” said Del Pino.

***

Venezuela Faces Liquidity Crisis

(Piero Stewart, Energy Analytics Institute, 20.May.2017) – Petroleum production below historic average levels, economic distortions on all fronts, the problem with Venezuela, which is clear for the financial markets, is the liquidity crisis, according to an economist in Caracas.

“The Venezuela debt is considered one of the most attractive for those willing to assume the risk, said Peruvian Economist José Gonzáles during an interview broadcast by Globovision. As they say in the financial markets, “the Venezuelan debt is not for the weak of heart.” The Venezuelan bonds are very attractive but also very volatile, he said. The returns on the Venezuelan bonds [are demonstrating to some extent] — because the perception continues to be that the payment conditions are critical in terms of liquidity and if this economic situation continues — that it could led to insolvency, said Gonzáles.

***

PDVSA Guarantees Gasoline, Fuel Supply

(Energy Analytics Institute, Aaron Simonsky, 20.May.2017) – PDVSA continues to guarantee the supply of fuels across the country despite ongoing protests, reported PDVSA in an official statement, citing Commerce and Supply Vice President Ysmel Serrano.

PDVSA guarantees it will deliver more than 50 million liters of fuel including 91 and 95 octane gasoline, diesel, domestic gas, and marine fuel, among others, announced Serrano without providing a specific period.

***

Venezuelan Ranchers Affected by Gasoline Shortages

(Energy Analytics Institute, Jared Yamin, 19.May.2017) – In recent weeks, a reported 66 companies in Venezuela dedicated to the collection of milk have closed their doors and stopped distribution activities due to problems receiving fuel, reported the daily newspaper El Nacional, citing Leonardo Figueroa, president of the Ranchers Association of Táchira state.

“We don’t have gas-oil or gasoline,” said Figueroa during an interview with Union Radio. “Transport operations are paralyzed and if the situation isn’t resolved soon it could cause a crisis worse than what we are living due to the scarcity [of just fuel].” Táchira state is a major producer of milk in Venezuela, he added.

***

PDVSA Steps Up Fuel Security

(Energy Analytics Institute, Ian Silverman, 18.May.2017) – PDVSA has reinforced effects to protect is fuel supply amid ongoing protests across Venezuela.

Several protests have led to incidents affecting gasoline distribution tankers and oil sector workers, reported PDVSA in an official statement.

“We have reacted rationally and continue to transport more than 1,600 gasoline gondolas and another 1,000 with gas that are moved daily throughout the country,” said Del Pino.

***

PDVSA Halts Cardon Catalytic Unit

(Energy Analytics Institute, Ian Silverman, 16.May.2017) – PDVSA halted the catalytic cracking unit at the 310,000 barrel-per-day Cardón refinery in Punto Fijo, reported Reuters, citing a worker at the plant and a union official. It is unclear when the unit will be back online.

***

PDVSA, Camimpeg-SPS Ink Maracaibo Deal

(Energy Analytics Institute, Aaron Simonsky, 16.May.2017) – PDVSA in alliance with Camimpeg (Compañía Anónima Militar de Industrias Mineras, Petrolíferas y Gas) and Southern Procurement Services (SPS) plan to boost production in Lake Maracaibo by more than 30,000 b/d with an investment of $400 mln, reported PDVSA in an official statement.

“There are more than 500 MMbbls to be developed at Urdaneta Field and we’re going to take it to its maximum production,” said PDVSA President Eulogio Del Pino during a signing ceremony at the Alí Primera Dock, located in La Cañada de Urdaneta municipality in Zulia state.

Del Pino said an unconventional financial model was being applied, for the first time in lake operations, through which “we pay upon services rendered, in this case, upon incremental barrel produced.” The model has been implemented in other areas, and will be replicated in other Lake Maracaibo fields, he said. The companies seek to increase production through the drainage of recoverable hydrocarbon reserves in the reservoirs, according to PDVSA. The alliance between CamimpegSPS and PDVSA calls for development of the Urdaneta Field located in Lake Maracaibo, as well as work at the Alí Primera Dock. Work activities include repairing boat facilities and installations, field optimization, safety reinforcement, drilling wells and recovery activities.

***

IndoVenezolana Opens Injection Plant

(Energy Analytics Institute, Aaron Simonsky, 15.May.2017) – Petrolera Indovenezolana opened a Saltwater Injection Plant in Zuata North field, Anzoátegui state to boost production and prevent reservoir declination. The field, located in Hugo Chávez Orinoco Oil Belt’s Junín Division, utilized Venezuelan technology during the early phase of the project, reported PDVSA in an official statement.

The project aims to recover production levels and increase it over the short term to 23,000 b/d from 18,500 b/d, PDVSA said. The medium-term goal is to achieve average production of 22,000 b/d which partners PDVSA and Indian company Oil and Natural Gas Corporation Videsh (ONGC) aim to maintain over a 10-yr period. Implementation of this secondary recovery method is expected to boost the current recovery factor to 15% from 9%; thus, recovering an additional 80 MMbbls, according to PDVSA.

***

Trinidad Oil Spill Reaches Venezuelan Beaches

(Energy Analytics Institute, Aaron Simonsky, 13.May.2017) – PDVSA has intensified contingency measures to counter the ill effects of an oil spill that occurred last week in neighboring Trinidad and Tobago.

Oil from the spill has reached the Venezuelan eastern coast including the Bay of Morro de Puerto Santo and Cipara beach in the Arismendi municipal in Sucre state as well as other coastal areas such as La Caracola in Valdez beach, Punta Ballena and El Ángel, all located in Nueva Esparta state, announced PDVSA in an official statement.

PDVSA’s Zone 5 Contingency Plan was activated on April 25, 2017 to counter the leakage of fuel oil from Petrotrin’s Pointe-à-Pierre Refinery located in Trinidad. PDVSA personnel continue to conduct maritime and aerial inspections along the areas affected by the spill and primarily of the Paria Peninsula in Sucre state and the southern area of Nueva Esparta state. PDVSA did not provide estimates as to how much oil may have reached Venezuelan coastal regions nor did it provide details of the potential environmental impact of the leakage.

***

PDVSA’s Barinas Plant Ready in June 2017

(Energy Analytics Institute, Aaron Simonsky, 13.May.2017) – PDVSA announced construction of a 100-MW electric generation plant located in Barinas state had reached the 98% mark in terms of completion.

Work on the plant is estimate for completion this June 2017, PDVSA announced in an official statement.

New infrastructure at the plant located in the Santa Ines Agroindustral Complex (Cominsi by its Spanish acronym) will allow the company to satisfy the energy needs of the petroleum sector and population in Barinas.

“The energy will supply PDVSA’s operating system with just 15-MW while the remaining 85% will be destined for the Barinas electric network,” reported PDVSA citing the company’s Planning and Engineering Vice President Marianny Gómez.

Construction of the dual fuel plant commenced 34 months ago. Financing to the tune of $300 million was procured through the ChinaVenezuela Fund, announced PDVSA. The pre-commissioned and commissioned testing by PDVSA and its principal contractor, China’s Sinohydro, has advanced without problems, reported PDVSA.

The project, during the construction phase, generated a maximum of 893 direct employees and approximately 2,679 indirect employees. Since construction commenced in February of 2014, the employees have accumulated 2,965,710 labor hours, announced PDVSA.

***

PDVSA Participates in OTC 2017 in Houston

(Energy Analytics Institute, Aaron Simonsky, 13.May.2017) – PDVSA participated in the Offshore Technology Conference held in Houston, Texas from 1-4.May.2017.

PDVSA Gas Vice President César Triana headed a sizable contingent, and presented the company’s Business Plan 2016-2026 to conference participants.

***

Citgo Says No to Heating Oil Program

(Energy Analytics Institute, 26.Mar.2017) – Houston-based Citgo Petroleum Corporation, the U.S.-based refinery arm of PDVSA, had to skip out on sending heating oil to citizens in the U.S. northeast under a program dubbed “Joe-4-Oil” amid a continued economic crisis in the oil-rich nation, reported the news agency AP.

***

Venezuela Output to Fall 100-150 Mb/d in 2017

(Energy Analytics Institute, Piero Stewart, 26.Mar.2017) – An inability to boost foreign and domestic investments in Venezuela’s oil sector in 2017 will result in further declines in the Caribbean nation’s production of crude oil, according to IESA Professor Richard Obuchi.

Producing petroleum requires investments, and if they do not materialize, oil production is expected to fall an additional 100,000 to 150,000 barrels per day, announced Obuchi during the conference titled “Economic Perspectives 2017” held at the Instituto de Estudios Superiores de Administración (IESA) in Caracas. “Economic activity is expected to fall between 4 and 6 percent of GDP,” he added.

“PDVSA’s capacity to maintain production fell in 2016 due to, [but not limited to], a lack of investments and obligations related to financial debts,” said the Full Professor of Political Economy and Governance at the IESA Business and Public Policy School Michael Penfold during the conference. As a result, in 2016, PDVSA experienced a 12 percent decline in production, he said.

“When someone compares PDVSA’s investments levels with other state oil companies such as Pemex and Ecopetrol they will see the companies have been reducing investments. PDVSA has reduced investments much more than Pemex, Ecopetrol and even Rosneft, and we’re talking about investment reductions at PDVSA that not only prevents it from maintaining production but fundamentally explains why production has been declining so much in recent years,” concluded Penfold.

***

Venezuela Not Selling Gasoline in Pesos

(Energy Analytics Institute, Aaron Simonsky, 15.May.2017) – Venezuela expects to receive between $120,000 and $150,000 per day from the sale of its gasoline along the Colombian border, reported the daily El Nacional citing Economist Aldo Contreras. However, since initiating the process on January 2, 2017 to commercialize its gasoline along the border in Colombian pesos, the Venezuelan government has yet to register a sale in pesos.

The sale of Venezuelan gasoline along the Colombo-Venezuelan border was envisioned by the government of President Nicolas Maduro to cut down on contraband and boost foreign export revenues.

***

Venezuela Holds World’s 8th Largest Gas Reserves

(Energy Analytics Institute, Piero Stewart, 11.Mar.2017) – Venezuela, the country with the world’s largest crude oil reserves, also continues to hold the world’s eighth largest accumulation of natural gas reserves (see table below), according to BP’s Statistical Review of World Energy.

Top Ten Holders of Natural Gas Reserves Worldwide

Rank —- Country ———————- Natural Gas Reserves (Tcf)

1 ——— Iran ————————– 1,201.4

2 ——— Russia ———————– 1,139.6

3 ——— Qatar ———————— 866.2

4 ——— Turkmenistan ————– 617.3

5 ——— USA ————————- 368.7

6 ——— Saudi Arabia ————— 294.0

7 ——— United Arab Emirates —- 215.1

8 ——— Venezuela * ————— 198.4

9 ——— Nigeria ——————— 180.5

10 ——- Algeria ———————- 159.1

Source: BP

Note: PDVSA reported that Venezuela’s natural gas reserves were 201.349 trillion cubic feet (Tcf) at year-end 2015, the last time the company reported annual auditing operational data. Of this total, 64.916 Tcf corresponded to associated gas in the Hugo Chávez Heavy Oil Belt, and 36.452 Tcf corresponded to associated gas related to extra heavy oil in Venezuela’s Eastern Basin, according to PDVSA data.

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Jusepin Plant to Assist PDVSA Gas Reduce Flaring

(Energy Analytics Institute, Piero Stewart, 11.Mar.2017) – PDVSA said that the start of the Jusepin 200 gas processing plant will allow its affiliate PDVSA Gas to reduce gas flaring by 100 million cubic feet per day (MMcf/d), announced Venezuela’s oil ministry in a twitter post.

The compression plant, located in the NIF Complex (Hato El Limón), is comprised of four compression trains with capacity to handle 200 MMcf/d of gas at a level of 60 pounds per square inch gage (PSIG).

***

Harvest Natural Announces 4Q:16 Results

(Harvest Natural Resources, Inc., 6.Mar.2017) – Harvest Natural Resources, Inc. announced 2016 fourth quarter and year-end earnings.

Harvest posted a fourth quarter 2016 net income of $100.6 million, or $9.00 per basic and diluted share, compared with a net loss of $73.2 million, or $5.70 per basic and diluted share, for the 2015 fourth quarter. For the year-ended December 31, 2016, Harvest’s net income was $66.6 million, or $5.35 per basic and diluted share, compared with a net loss of $98.6 million, or $8.71 per basic and diluted share, for 2015.

The fourth quarter 2016 results include non-recurring items of (i) gain on the sale of Harvest-Vinccler Dutch Holding B.V. of $118.9 million or $10.64 pre-tax per basic and diluted share; and (ii) loss on extinguishment of debt of $10.3 million, or $0.92 pre-tax per basic and diluted share. Adjusted for these non-recurring items, Harvest would have had a fourth quarter net loss, unadjusted for any income tax effects, of $8 million, or $0.72 per basic and diluted share.

The year-end 2016 results include exploration charges of $2.4 million, or $0.19 pre-tax per basic and diluted share, and non-recurring items of (i) gain on the sale of Harvest Holding of $115.5 million, or $9.29 per basic and diluted share; (ii) loss on the impairment of oilfield inventories of $1.5 million, or $0.12 pretax per basic and diluted share; (iii) interest expense of $4.2 million, or $0.34 pre-tax per basic and diluted share; (iv) loss on the change in fair value of warrant liabilities of $9.4 million, or $0.75 pre-tax per basic and diluted share; (v) gain on the change in fair value of derivative assets and liabilities of $2.4 million, or $0.19 pre-tax per basic and diluted share; (vi) loss on the extinguishment of debt of $10.3 million, or $0.83 pre-tax per basic and diluted share; and (vii) impairment of a note receivable of $5.2 million, or $0.41 per basic and diluted share. Adjusted for exploration charges and these non-recurring items, Harvest’s net loss, unadjusted for any tax effects, for 2016 would have been $18.5 million, or $1.49 per basic and diluted share.

Sale of Venezuela Interests

On October 7, 2016, Harvest completed the sale of all of its interests in Venezuela. The sale occurred pursuant to a June 29, 2016 share purchase agreement under which HNR Energia B.V. sold its 51 percent interest in Harvest Holding to Delta Petroleum N.V., a limited liability company organized under the laws of Curacao. Harvest Holding indirectly owned a 40% interest in Petrodelta S.A., through which all of the company’s interests in Venezuela were owned. As a result of the sale, Harvest Holding’s effect on results of operations and other items directly related to the sale have been reported as discontinued operations.

CT Energy Holding SRL, a private investment firm organized as a Barbados Society with Restricted Liability, assigned all of its rights and obligations under the Share Purchase Agreement to its affiliate, Delta Petroleum, on September 26, 2016. Harvest has no control or ownership interest in Delta Petroleum.

At the closing, the company received consideration consisting of:

— $69.4 million in cash paid after various closing adjustments. — An 11% non-convertible senior promissory note payable by Delta Petroleum to HNR Energia six months from the closing date in the principal amount of $12 million, guaranteed by the sole member and sole equity-holder of Delta Petroleum. This note plus accrued interest is due April 7, 2017. — The return of all of the company’s common stock owned by CT Energy, consisting of 2,166,900 shares to be held by the company as treasury shares. — The cancellation of $30 million in outstanding principal under the 15% Note. — The cancellation of the warrant issued to CT Energy in 2015 to purchase up to 8,517,705 shares of common stock for $5 per share (after adjustments for the November 3, 2016 stock split).

The relationship between the company and CT Energy effectively terminated upon the completion of the sale under the Share Purchase Agreement. All company securities held by CT Energy were terminated or relinquished, and Oswaldo Cisneros and Alberto Sosa resigned as CT Energy’s non-independent designees to the company’s board of directors. Additionally, all liens securing company debt formerly owed to CT Energy were released at the closing. Upon the closing, the company’s primary assets were cash from the proceeds of the transaction and the company’s oil and gas interests in Gabon.

NOL Poison Pill

Rights Agreement to Protect Net Operating Losses

On February 16, 2017, the Board adopted a Rights Agreement designed to preserve the company’s tax assets. As of December 31, 2016, the company had cumulative net operating loss carryforwards (NOLs) of approximately $56 million, which can be utilized in certain circumstances to offset possible future U.S. taxable income.

Harvest’s ability to use these tax benefits would be limited if it were to experience an “ownership change” as defined under Section 382 of the Internal Revenue Code. An ownership change would occur if stockholders that own (or are deemed to own) at least five percent or more of Harvest’s outstanding common stock increased their cumulative ownership in the company by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. The Rights Plan reduces the likelihood that changes in Harvest’s investor base would limit Harvest’s future use of its tax benefits.

Shareholder Vote

At the company’s special meeting of stockholders on February 23, 2017, the stockholders voted to (1) authorize the sale by us, indirectly through a subsidiary, of all of our interests in Gabon upon the terms and conditions set forth in the Sale and Purchase Agreement; (2) approve, on an advisory basis, compensation that will or may become payable by us to our named executive officers in connection with the sale of our Gabon interests; and (3) authorize the complete liquidation and dissolution of Harvest.

Proposed Dissolution and Liquidation

Following the successful sale of our Venezuelan interests in October 2016 and in light of the proposed sale of our Gabon interests, our board of directors considered dissolution and liquidation as a possible alternative. On January 12, 2017, the Board unanimously determined that the dissolution and liquidation of Harvest was advisable, authorized the dissolution and liquidation and recommended that the proposed complete dissolution be submitted to a vote of Harvest’s stockholders.

Our Board also adopted a plan of complete dissolution, liquidation, winding up and distribution (the “Plan of Dissolution”) on this date. Harvest’s stockholders approved the proposed dissolution and liquidation at the special meeting on February 23, 2017.

Under the dissolution, liquidation and winding up process, which remains subject to the control of the Board and company management, the proceeds from the Gabon transaction would be combined with other Harvest assets to be distributed to Harvest’s stockholders, subject to the payment of certain costs and expenses. The company currently expects to commence dissolution proceedings as soon as practicable after the closing of the sale of its Gabon interests.

Distributions to Shareholders

The Board intends to declare a distribution payable to the shareholders after the Gabon transaction has closed. The exact amount of the distribution has not been determined at this time. Once the record date is set, the company will disclose the proposed distribution.

***

Mariscal Sucre to Produce 300 MMcf/d

(Energy Analytics Institute, Piero Stewart, 2.Mar.2017) – The Mariscal Sucre offshore project is expected to be producing 300 million cubic feet per day (MMcf/d) in the fourth quarter of 2017, PDVSA announced in an official statement.

The Mariscal Sucre project is comprised of four fields: Dragón, Patao, Mejillones and Río Caribe.

***

PDVSA Steps up Legal Actions Against PetroSaudi

(PDVSA, 24.Feb.2017) – PDVSA, through its subsidiary PDVSA Servicios SA, has been involved in a legal battle against PetroSaudi Oil Services Ltd.

Among other claims, PDVSA seeks to obtain compensation for damages incurred due to the poor performance of the offshore drilling unit contracted to carry out drilling and well completion activities in the gas reservoirs located north of Sucre state, as part of the Gran Mariscal Sucre project.

Following a PDVSA Executive Committee decision, a series of legal actions were agreed upon in August 2015, leading to Commercial Arbitration based in Paris and governed under the laws of the Bolivarian Republic of Venezuela.

During the course of legal actions several decisions have been made in favor of PDVSA, thus preventing the defendant, PetroSaudi Oil Services Ltd. from continuing to abuse, in an unscrupulous manner, the good faith of the parties in the execution of the activities related to the rendering of the offshore drilling services. The Arbitral Tribunal, which has heard the reasons for the contractual disputes, is expected to issue a Final Award during the fourth quarter of this year.

The High Court of Justice in England, having heard the case in first instance, issued a judgment last October 2016, declaring fraudulent, null and void the actions taken by PetroSaudi Oil Services Ltd. to execute guarantees and obtain payments in flagrant contravention to the decision by the Arbitral Tribunal prohibiting access to amounts of money that are in dispute in said proceedings until a final judgment on merits is rendered.

This Judgment was appealed by the contractor to the Court of Appeal of England, which erroneously overturned the decision of the High Court of Justice. However, the execution of this Judgment has been temporarily suspended and accordingly, PDVSA is taking all pertinent legal actions.

Pursuant to the foregoing, on February 9 of the current year an application for permission to appeal was made to the Supreme Court of the United Kingdom to ask for a correction of the errors made by the aforementioned Court of Appeal.

PDVSA will tirelessly pursue all means to defend its assets, which belong to the Venezuelan people.

***

PDVSA, Rosneft Hold Conference on EHCO

(PDVSA, 23.Feb.2017) – PDVSA and the Russian company Rosneft held a technical conference on strategy, innovation and technology for a sustainable future, February 22-23, 2017 at PDVSA Intevep’s headquarters in Los Teques, Miranda state.

The event brought together 150 PDVSA and Rosneft specialists from various fields to strengthen cooperation, exchange and technological integration between the People’s Power Ministry of Petroleum, PDVSA, Intevep, joint ventures and Rosneft.

At the opening event, President of PDVSA Intevep Omar Uzcátegui spoke about the potential of this PDVSA subsidiary for the development of technologies and providing specialized technical assistance services. He also spoke about the participation of PDVSA Intevep in the Hydrocarbons Economic Driver to facilitate the massification and implementation of its technologies.

Technical Director of Rosneft in Venezuela Kim Gobert, spoke about the importance of the Hugo Chávez Orinoco Oil Belt, the worl’s largest proven hydrocarbon reserve base. He said that it was necessary to make progress in the strengthening of relations between the two companies to accelerate research projects on the development of heavy and extra heavy crude oil.

The conference brought together specialists from PDVSA and Rosneft, who spoke on diluent management, enhanced hydrocarbon recovery technologies for heavy and extra heavy crude, infrastructure and transportation of crude oil, electricity demand in oil and gas areas, gas management and handling, innovative technological solutions in oil and gas areas including offshore, and a new vision in the improvement and management of solids, effluents and gases.

There are technical round tables for the discussion of four priority issues, such as: integrated gas management, reservoir development and enhanced hydrocarbon recovery, crude oil upgrading and diluent management, and infrastructure and transportation.

The conference aimed to boost the development of PDVSA and Rosneft joint ventures, such as Petromonagas, Petromiranda and Petrovictoria in the Hugo Chávez Orinoco Oil Belt for extra heavy crude oil, and Petroperija and Boquerón in traditional areas.

***

PDVSA Strengthens Cuba-Venezuela Agreement

(PDVSA, 22.Feb.2017) – The vice president of trade and supply of PDVSA Ysmel Serrano, concluded a work trip to Cuba in order to strengthen energy cooperation ties as part of the Cuba-Venezuela Agreement.

Key issues for the development of integration policies with the peoples of the Caribbean were discussed in a meeting with the Minister of Energy and Mines Alfredo López Valdez, and the General Director of state-owned company Unión Cuba-Petróleo (CUPET) Juan Torres.

Serrano said this bilateral agreement, since its inception in 2000, has fulfilled the obligations set forth in the comprehensive energy cooperation accord, “having a positive impact on the economic and social development of both nations.”

Accompanied by Operations Manager and President of PDV Marina Admiral Franklin Montplaisier, he visited the Matanzas Supertanker Base, the main marine terminal for the reception of hydrocarbons and operations logistics system for storage and distribution.

Supply strategies to ensure ongoing and efficient shipment reception operations were discussed. “It was made clear to us the excellent conditions and the high operational level of this base,” said Serrano.

They also held a meeting with Vice President of the Executive Committee of the Council of Ministers Ricardo Cabrisas Ruiz, on refining, production, exploration, commercialization and distribution of hydrocarbons, highlighting the key role of Venezuela in the development of their Economic and Social Plan 2017-2030.

Cabrisas acknowledged efforts made by Venezuelan President Nicolás Maduro to support the recovery of oil prices. He also expressed his solidarity and emphatic support for the Bolivarian Revolution and the Vice President of the Republic Tareck El Aissami, in the midst of the U.S. empire’s vile attack of recent days.

Finally, Serrano ratified the support and commitment of oil industry workers in the construction of a multipolar world where the sovereignty of the peoples is respected, as dreamed by Commander Fidel Castro and our Supreme Commander Hugo Chávez.

***

PDVSA and Schlumberger Discuss Business Relations

(PDVSA, 22.Feb.2017) – On February 21, 2017, Schlumberger CEO Paal Kibsgaard, visited the headquarters of Petróleos de Venezuela S.A. (PDVSA) to hold a meeting with PDVSA President Eulogio Del Pino.

The agenda focused on Venezuela opportunities as the low oil price cycle is coming to an end. They exchanged views on the existing portfolio and the future that brings together both companies.

It is important for Schlumberger to strengthen its activities in Venezuela; they are working on models to cover the needs of both companies, while at the same time creating new jobs thus increasing the efficiency of operations for PDVSA, said Kibsgaard.

Del Pino expressed satisfaction with the discussion of projects and proposals made by Schlumberger. This is an ideal time for the industry to come up with creative solutions to bring about necessary investment for the benefit of both companies and the stability of the oil market, he said.

***

PDVSA Actions in Rincón, Shiera Cases

(PDVSA, 20.Feb.2017) – As has been informed, PDVSA subsidiary Bariven, S.A., has been the victim of a fraud perpetrated by former contractors and suppliers of the company led by Roberto Enrique Rincón Fernández and Abraham José Shiera Bastidas, who in complicity with former employees of a foreign PDVSA subsidiary obtained procurement contracts through acts of corruption.

To date, eight implicated persons, including Rincón and Shiera, have pleaded guilty to such fraud before the United States District Court for the Southern District of Texas Houston Division.

Upon learning of the fraud, the company’s internal control bodies were immediately instructed to thoroughly investigate the situation.

PDVSA has made significant progress in this ongoing legal case. To compensate for the damage suffered as a result of these acts of corruption, the following actions have been taken:

— Bariven, as a direct victim of the acts of corruption, has introduced before the criminal court in Houston, Texas familiar with the criminal proceedings against the accused, a request for restitution to be recognized as a victim and order the defendants to compensate financially for the damages suffered by Bariven.

— On January 17, 2017, the trial judge adopted Bariven’s position and ordered all parties to the proceedings, including the federal prosecution representing the interests of the United States government as well as the accused, to submit their positions on Bariven’s request no later than February 20, 2017. This is a major breakthrough for Bariven, that had opposed the request by the federal prosecutor’s office to defer this process indefinitely. With this order, the judge ensures that Bariven will be heard and that the accused individuals will have to face up to their responsibilities.

— Companies linked to the persons accused in Houston, Texas were ordered to immediately stop receiving payment. Several of these companies initiated claims in arbitration tribunals requesting the payment of allegedly owed invoices. Bariven, as the other party in such contracts, has opposed said payment and furthermore, it has filed a counter claim against the plaintiff companies for damages caused as a result of contracts that show elements of corruption. The plaintiff companies in these cases are directly linked to Rincón and his family.

— We have investigated and identified in several countries, assets and property of persons linked to these acts of corruption and their possible front persons. The filing of all corresponding legal actions, both civil and criminal, has been authorized in the appropriate foreign jurisdictions.

Finally, the company has strengthened its internal controls and implemented new procedures to prevent situations such as these from happening again and ensure its prompt prevention, detection and response.

PDVSA and its affiliates will not tolerate acts of corruption and will continue to investigate and act with the aim of establishing responsibilities for all identified facts.

***

PDVSA to Investigate Barinas Pipeline Fire

(Energy Analytics Institute, Piero Stewart, 17.Feb.2017) – PDVSA announced a fire along a section of an oil pipeline located in Barinas state was controlled with the assistance of the state fire department, state police and civil protection personnel.

The fire occurred along the San Silvestre–El Real section of the 20-inch pipeline in Barinas Municipal, the company announced in an official statement on February 12, 2017.

PDVSA is investigating the causes of the fire. No injuries were reported to PDVSA workers, or residents living or working near the pipeline, the company said.

***

PLC Refinery Conversion to Conclude in 2018

(Energy Analytics Institute, Piero Stewart, 17.Feb.2017) – PDVSA estimates that the deep conversion project at its 100 percent owned Puerto La Cruz refinery, which will require foreign investments of $10.5 billion and allow the refinery to process 210,000 barrels per day, will conclude in late 2018.

***

Venezuela Advances with PLC Conversion Project

(PDVSA, 14.Feb.2017) – Members of the China-Venezuela High Level Joint Commission toured the facilities of the Puerto La Cruz Refinery in Anzoátegui state, to review the progress of the Deep Conversion Project, a big scale project of PDVSA for the processing of heavy and extra heavy crude from the Hugo Chávez Orinoco Oil Belt.

For the president of PDVSA, Eulogio Del Pino, investment continues in Venezuela and is making headway.

“This is the largest engineering project being done in the Americas. It is in the order of $10.5 billion, with HDH Plus® Venezuelan technology made by Intevep, the research and development center of the oil industry,” Del Pino said.

Approximately 210,000 barrels per day (mb/d) of heavy and extra heavy crude oil will be processed through Puerto La Cruz Refinery’s deep conversion project, with international financing. The project is expected to be completed by the end of next year.

It will change the refinery’s current light crude diet to include heavy and extra heavy crude oil from the Hugo Chávez Orinoco Oil Belt, also known as the Faja, and will generate world quality end products.

For the development of this project 850 families that lived around the complex’s expansion area were relocated and received homes through the Great Housing Mission Venezuela, said Del Pino.

PDVSA Vice President of Planning and External Director Ricardo Menéndez, together with the Chinese ambassador to Venezuela Zhao Bentang, and the Vice Chairman of the National Development and Reform Commission Ning Jizhe also participated in the inspection of the works.

“This project is strategic for the development of our country, reflecting the vision of the Eternal Commander Hugo Chávez to use the Orinoco Oil Belt as the main reserve for the future of the country. President Nicolás Maduro has continued this legacy,” said Menéndez.

The Chinese ambassador to Venezuela spoke about the vision of development that both countries have supported. “We have made a number of agreements that have expanded and deepened cooperation in all areas. Today, I join the working commissions to seek more opportunities for future cooperation. I am convinced that this relationship will contribute to the development of our peoples,” he said.

Through the China-Venezuela High Level Joint Commission, social, cultural and academic projects have been supported such as the Great Housing Mission Venezuela, Barrio Nuevo-Barrio Tricolor, and the Confucius Center which strengthen the relationship between both countries.

According to Menéndez, these international investments show that “they believe in Venezuela, they believe in our country and only the revolution can deal with situations and lead us into the future.”

***

Venezuela, China Hold High Level Commission

(PDVSA, 13.Feb.2017) – The 15th China-Venezuela High Level Joint Commission took place at the José Félix Ribas Hall of Teresa Carreño Theater in Caracas, with the aim of discussing the progress of the Economic Agenda for Binational Cooperation and continue strengthening relations between the two nations throughout the year.

The Commission was chaired by Venezuela’s Vice President of Planning Ricardo Menéndez, accompanied by the country’s Oil Minister Nelson Martínez, PDVSA President Eulogio Del Pino, the Economic Vice President Ramón Lobo, the Communes Minister Aristóbulo Istúriz, the Vice President of the National Development and Reform Commission of China Ning Jizhe and representatives of Chinese companies.

The Commission will review issues related to mining, investment of Chinese companies in Venezuela and mechanisms to strengthen the process of domestic industrialization while at the same time addressing critical issues of the Venezuelan economy, said Menéndez.

“This High Level Joint Commission aspires to take a fundamental leap forward with the issue of production lines and placing China’s surplus capacity in Venezuela as a new stage from the point of view of the relationship between our countries,” Menéndez said.

With regard to investment, Menéndez said that new construction and cargo transportation companies will be set up in Venezuela, and announced the signing of new production agreements for the factories set up by both nations as well as the visit to flagship projects in oil fields.

“The strengthening of the national industry will be reflected in the production lines and development capacities of the 15 economic drivers of the Bolivarian Economic Agenda, created by the President of the Republic Nicolás Maduro to boost the economy of the country,” said Menéndez.

***

Venezuela Signs Eight Agreements with China

(PDVSA, 13.Feb.2017) – PDVSA ratified its cooperation with the People’s Republic of China with the signing of eight agreements at the 15th China-Venezuela High Level Joint Commission, which was held at the José Félix Ribas Hall of the Teresa Carreño Theater in Caracas.

The event was headed by Venezuela’s President Nicolás Maduro, and the Vice Chairman of the National Development and Reform Commission (CNDR) Ning Jizhe, with the participation of Vice President of Planning and External Director of PDVSA Ricardo Menéndez, Venezuela’s Oil Minister Nelson Martínez, PDVSA President Eulogio Del Pino, Economic Vice President Ramón Lobo, Communes Minister Aristóbulo Istúriz, Foreign Minister and Vice President of International Affairs of PDVSA Delcy Rodríguez, and others.

PDVSA signed a memorandum of understanding (MOU) to participate in the construction project of Nahai refinery in China; the engineering, procurement and facilities construction contract to increase extra heavy crude production at the facilities of Petrolera Sinovensa, S.A.; a MOU for the development of the Petrozumano JV; and financing by China Development Bank as part of the Special Fund for oil projects.

PDVSA also signed a MOU for a well exploitation pilot test work plan for the Petrourica JV; set up the mixed capital company Venezolana de Mantenimientos Especializados Remensa; set up a JV between PDVSA and Shandong to develop maintenance capacities for the delivery of specialized services; and a MOU between PDVSA and Shanghai for the corporate insurance and reinsurance program of PDVSA and its subsidiaries.

These agreements were signed by PDVSA President Eulogio Del Pino, PDVSA Vice President of Exploration and Production Nelson Ferrer Sánchez, the representative of PDVSA Servicios Petroleros Osmel Molina, and their Chinese counterparts.

President Maduro said these 22 agreements are for $2.7 billion.

“This makes 2017 the year of the economic recovery of our country, with the collaboration of a friendly nation like China, in a win-win relationship,” Maduro said.

Speaking about these financing projects for the people of Venezuela, he said: “Nothing and nobody will be able to stop them; it is the ultimate will of our government and the people to continue to expand the mechanisms that have proven their viability.”

He said he was satisfied with the results of the work of the Joint Commission, “which has been the ultimate expression of the success of China-Venezuela relations.”

***

Venezuela, Algeria Officials Discuss Bilateral Coop

(PDVSA, 13.Feb.2017) – Venezuela’s Foreign Minister Delcy Rodríguez and Oil Minister Nelson Martínez visited the People’s Democratic Republic of Algeria to continue working visits to member a and non-member countries of the OPEC.

The officials discussed bilateral cooperation issues during their meeting with Algerian Foreign Minister Ramtane Lamamra, and Energy Minister Noureddine Bouterfa.

Algeria is a member of the Joint OPEC-Non OPEC Ministerial Monitoring Committee that oversees compliance with the production adjustment agreement of 24 oil producing countries.

The ministerial tour has included OPEC countries such as Iran, Iraq, Qatar, Kuwait, Saudi Arabia and Algeria, and not OPEC, such as Russia and Oman, following instructions by Venezuela’s President Nicolás Maduro, to continue with the Bolivarian Peace Diplomacy and strengthen relations with strategic partners in energy matters.

The initial OPEC decision to freeze production between 32.5 and 33 million barrels per day (MMb/d), with individual country quotas, was taken in Algeria. Venezuela made the proposal for non OPEC countries to join in the agreement.

***

Venezuela’s Martínez meets Omani Counterpart

(PDVSA, 10.Feb.2017) – Venezuela’s Foreign Minister Delcy Rodríguez and the country’s Oil Minister Nelson Martínez traveled to the Sultanate of Oman to meet with Omani Oil Minister Mohammed bin Hamad Al Rumhy, as part of a tour of member and non-member countries of OPEC.

Oman, together with Venezuela, Algeria, Kuwait and Russia make up the Joint OPEC – non OPEC Ministerial Monitoring Committee to monitor compliance with the agreement signed last December by oil producing countries to bring balance to the market.

At this meeting with Minister Rumhy, they assessed compliance with the agreement as good, said Rodríguez.

Producing countries have the historical responsibility to defend oil market stability, Martinez said.

Oman was one of the non OPEC producers that provided ongoing support to the strategy of adjusting production to recover oil prices.

Both countries agreed to strengthen bilateral relations and cooperation mechanisms for mutual benefit, according to a Twitter post by Rodríguez.

As part of the Peace Diplomacy promoted by the President of the Republic Nicolás Maduro, Rodríguez and Martinez delivered a letter to the Sultan of Oman Qaboos bin Said al-Said addressed to him, on the OPEC-non OPEC agreement.

***

Why is Venezuela’s Oil Sector So Shattered?

(Igor Hernández, IESA Professor, 8.Feb.2017) – For oil-dependent Venezuela, the drop in oil prices since 2014 has been hard. Combined with the collapse in production, it has created an unprecedented economic crisis.

Output decreased by 337,000 barrels per day (bpd) between December 2015 and December 2016 to 2.27 million bpd, according to figures Venezuela’s government provided to OPEC. This is more than other OPEC countries over the same period and is on par with Nigeria. This follows a 359,000 bpd cut between 2005 and 2012.

Why has the industry crisis been so severe in Venezuela? I address the question at length with my colleague Francisco Monaldi in a recent working paper for the Center for International Development at Harvard University. Here are a few insights from our analysis.

Financially, state-owned oil company PDVSA—which controls upstream activities directly or through tightly controlled joint ventures with private companies—is losing on all fronts: it is missing out on revenue collection and it is spending its shrinking budget on noncore activities. Meanwhile, production costs in Venezuela have increased.

PDVSA is losing a quarter of its revenue to fuel subsidies, oil imports and shipments of oil that do not generate revenues for the company:

USD (in millions) ——————– 2015

Gasoline and diesel subsidy —– $11,165

Non-cash exports value ———- $9,547

Oil imports from the U.S. ——– $1,672

TOTAL ——————————- $22,384

Note: PDVSA reported total revenues of 88,554 Source: Igor Hernández and Francisco Monaldi. Weathering Collapse: An Assessment of the Financial and Operational Situation of the Venezuelan Oil Industry. (Harvard University, The Growth Lab, November 2016)

The deviation of resources into general public expenditures, such as development funds and social spending, limits PDVSA’s ability to invest in exploration, production and maintenance. The extent of this deviation is unclear given inconsistent government statements. Data shows that the difference between what PDVSA reports for social program spending in its financial statements and in its annual report is as large as $90 billion for the cumulative period between 2010 and 2015.

Moreover, there are several factors affecting the cost structure of petroleum projects: geological constraints, taxes, the exchange rate, the lack of infrastructure for crude transport and financing costs. Developing extra-heavy crude oil, which constitutes most of the country’s remaining reserves, is costlier than lighter crudes. It requires particular infrastructure, technology and skilled labor that Venezuela lacks. Extra-heavy oil must also be blended with lighter crudes to meet refinery requirements. A lack of locally sourced light crude has forced PDVSA to import light crude oil from the United States.

Successive modifications in the hydrocarbons law have produced the current tax structure. These changes increased royalties and income taxes, and introduced other contributions. Gross taxes now account for almost 40 percent of the total cost of oil projects, higher than any other major oil producer but Russia.

Production costs are also highly sensitive to inflation, as the currency is pegged to the dollar. Accelerating inflation levels and the government’s policy in maintaining a fixed exchange rate have led to a large real appreciation of the exchange rate. This has led to higher domestic costs for PDVSA and its joint venture partners.

PDVSA’s cash-flow constraints led it to resort to direct financing from the central bank to cover local expenses and increase its debt from less than $3 billion in 2006 to almost $41 billion in 2016. Central Bank financing has led to an exponential increase in money supply and has been a direct cause of the rapid acceleration in prices. PDVSA has also delayed payments to suppliers, which led to a halt in activities from contractors such as Schlumberger, Halliburton and Baker Hughes. This has accelerated recent production declines.

PDVSA’s response to its financing crisis is short term in nature. It transformed debt to suppliers into financial debt, agreed on direct payments in kind to some creditors, emitted costly bond swaps and used overseas assets as collateral for mortgages. This combination means that PDVSA is further reducing its future cash flows and could end up losing valuable assets to creditors.

PDVSA is also facing tremendous operational challenges, including basic ones like a shortage of inputs and access to electricity. There is a lack of skilled labor, particularly since the massive layoff of expert technical and management personnel in 2003. Safety, environmental and security risks are concerning as well.

Companies engaged in joint ventures with PDVSA have expressed concern at the high concentration of decision-making power inside the company and at the discretional use of financial resources that lead to project execution delays and additional operational risks.

All of these considerations are reflected in a recent survey by the Fraser Institute. The study places Venezuela at the bottom of a global ranking of jurisdictions attractive for petroleum investments. Lack of a solid institutional framework and increasing uncertainty regarding future political developments have not helped.

Profound reform of Venezuela’s oil industry is urgent. But in a country so dependent on oil exports, any attempt to improve the operations of the oil sector would have to address the distribution of oil rents, the quality of public institutions and the governance of PDVSA.

Igor Hernández is a professor at the Center on Energy and the Environment (CIEA) at IESA in Caracas and a graduate student fellow at the Center on Energy Studies at the Baker Institute at Rice University.

Editor’s Note: The link to full article with tables can be found here: http://www.resourcegovernance.org/blog/why-venezuela-oil-sector-so-shattered

***

PDVSA Exploration VP Tours Faja Ops

(PDVSA, 4.Feb.2017) – PDVSA Vice President of Exploration and Production Nelson Ferrer, led a tour of the facilities of the Orinoco Drill Operators Cooperative Association, which absorbed former Petrex Sudamérica workers, in the Hugo Chávez Orinoco Oil Belt.

He was able to see the progress of the new labor scheme promoted by the oil workers and spoke with those involved in this new way of protagonist participation of the workers. He listened to their experiences and learned how the hydrocarbons extraction process has been optimized.

He also visited drilling rigs LGV-103 and PDV-57, located 15 minutes from the Ayacucho Division, in southern Anzoátegui state. Both rigs are currently part of the restoration of 28 wells, which represent an associated production of 10,000 barrels per day (mb/d) since August 2016.

“We believe in the workers; with them we generate production and added value. The organized mass of workers, with commitment and loyalty to Chávez, President Nicolás Maduro and the homeland, can achieve excellent results,” said Mr. Ferrer.

The President of the Orinoco Drill Operators Cooperative Jesús Díaz, said the workers are proud that their work transcends the borders of the state of Anzoátegui all the way to Caracas.

“We are heads of households committed to the homeland, workers’ President Nicolás Maduro and the legacy of Hugo Chávez the Giant, who always shared the idea that the workers should take over their work places,” Díaz said.

PDVSA continues to promote actions for the transformation of the oil industry, deepening its socialist vision by meeting the objectives and following the guidelines of the Homeland Plan Act and the “Golpe de Timón” or “The Turnaround”, a legacy of Supreme Commander Hugo Chávez.

***

New PDVSA Board Preparing for Changes

(Energy Analytics Institute, Piero Stewart, 2.Feb.2017) – A newly appointed Board of Directors at PDVSA will be charged with taking actions to prepare the company for the eventually turn around in the crude oil export market.

Venezuela’s President Nicolas Maduro said during his weekly broadcast that the new board would work on recuperation of issues vital at PDVSA including but not limited to sustainability, growth and advance investments.

***

Mariscal Sucre Has 600 MMcf/d Production Potential

(Piero Stewart, Energy Analytics Institute, 1.Feb.2017) – Venezuela’s Mariscal Sucre natural gas project offshore has a production potential of 600 million cubic feet per day.

The company plans to use this gas production to supply export markets in Colombia, Ecuador, Central America and the Caribbean, announced PDVSA in an official statement.

The fields associated with the Mariscal Sucre project, located in water depths between 328-427 feet (100130 meters), are situated nearly 25 miles north of Venezuela’s Paria peninsula in Sucre state, according to Technip. PDVSA expects peak production from the four fields that comprise the Mariscal Sucre project: Mejillones, Rio Caribe, Dragon and Patao, will reach 1.2 billion cubic feet per day (Bcf/d) of natural gas and 28,000 barrels per day (b/d) of condensates. Production will be destined for export markets as well as the Venezuelan’s domestic market via the CIGMA gas plant located in Guiria in Sucre state, according to PDVSA.

***

Venezuelan Executives Discuss Oil Agenda

(Energy Analytics Institute, Piero Stewart, 29.Jan.2017) – Members of the Hydrocarbon Motor of the Bolivariana Economic Agenda met in Caracas to discuss advances under the plan.

The meeting, held January 26, 2017 at the headquarters of PDVSA, in La Campiña in Caracas was attended by representatives from the Bolivariana Energy and Petroleum Federation (FEBEP), Venezuela’s Hydrocarbon Chamber (CPV), Venezuela’s Hydrocarbon Association (AVHI), Venezuela’s Gas Processors Association (AVPG), the Venezuela’s Industrial Federation (Fedeindustria) for small, medium and artisans as well as Covencaucho, announced PDVSA in an official statement.

***

Maduro Announces Shakeup to PDVSA Board

(Energy Analytics Institute, Pietro D. Pitts, 29.Jan.2017) – Venezuela’s President Nicolas Maduro announced changes to the Board of Directors at PDVSA and said the members would be expected to assume the homework of deepening the transformation of the entity into a Socialist Corporation.

PDVSA’s President Eulogio Del Pino was restated to head the company and will preside over the board, reported PDVSA in an official statement, citing comments made by Maduro during his Sunday program that took place in the Ciudad Guayana in Bolivar state.

The board of PDVSA, as the Caracas-based company is known, is comprised of the following members: Maribel Parra, the new Executive Vice President; Nelson Ferrer, the new Exploration & Production Vice President; Guillermo Blanco Acosta, the new Refining Vice President; Simón Zerpa, the new Finance Vice President; Delcy Eloína Rodríguez, who maintains her post as Vice President of International Affairs; Ismel Serrano, the new Commerce and Supply Vice President; Marianni Gómez, the new head over Planning and Engineering; and César Triana, new Director of PDVSA Gas.

Maduro also announced new external directors Yurbis Gómez and Ricardo León would be the spokespersons for the oil sector workers and said that Rodolfo Marco Torres, Ricardo Menéndez and Wills Rangel would retain their existing posts.

***

Bariven to be Heard in Restitution Process

(PDVSA, 28.Jan.2017) – Bariven, S.A., a PDVSA subsidiary, has taken legal action to obtain compensation for damages suffered due to fraudulent actions by former contractors and suppliers who in collusion with former workers of Bariven and some of its subsidiaries, obtained procurement contracts through acts of corruption, causing property and moral damage to the company.

Legal actions include this restitution request made by Bariven so that is recognized as a victim of acts of corruption and the accused of such acts are ordered to compensate financially for damages suffered by Bariven. This restitution request is currently before a criminal court in Houston, Texas, which is familiar with the criminal proceedings against those accused with acts of corruption.

On January 17, 2017, the judge hearing the case adopted Bariven’s position and ordered all parties to the proceedings, including the Federal Prosecutor’s Office representing the interests of the U.S. government, and the accused to present their positions on Bariven’s request no later than February 20, 2017. This is an important development for Bariven, which opposed the Federal Prosecutor’s request to defer this process indefinitely. With this order, the judge ensures that Bariven will be heard and that the accused individuals will face up to their responsibilities.

PDVSA will continue to inform the nation and the international community on the ongoing actions against these persons and their property. Bariven reiterates its commitment to the pursuit of justice and will fight relentlessly so that those responsible, with no exceptions, are criminally and materially punished.

***

Venezuela Eyes Boosting Hydrocarbons Economic Driver

(PDVSA, 26.Jan.2017) – Members of the Hydrocarbons Economic Driver of the Bolivarian Economic Agenda, met at La Campiña headquarters of PDVSA in Caracas, for the presentation of the first annual report.

The first session of 2017 was attended by more than 30 representatives from the Bolivarian Federation of Energy and Oil (FEBEP), Venezuelan Oil Chamber (CPV), Venezuelan Hydrocarbons Association (AVHI), Venezuelan Gas Processors Association (AVPG), Federation of Small and Medium Size Industries and Artisans (Fedeindustria), and Covencaucho.

“This was one of the economic drivers with the most activity, dynamism and results; it was extremely productive,” said Eulogio Del Pino, president of PDVSA and coordinator of the hydrocarbons sector. He said the agenda is already set for the first four meetings which will focus on each of the sectors that are particularly important for the hydrocarbons sector, on a weekly basis.

He also announced key achievements, including $5 billion financing obtained for oil production joint ventures with the main partners, both national and international. Also, large scale projects continued, such as Puerto La Cruz Refinery’s Deep Conversion in the state of Anzoátegui, with an investment of more than $8 billion.

New joint ventures were created with the national private productive sector. “Traditionally, they had imported supplies which now we will produce in the country, such as grooved pipes. About eight of these companies are already in full production,” he said. And a discussion group is being formed to look at the production, supply and remand of lubricants.

“We signed export agreements with our neighboring countries and strengthened our efforts geared at the Caribbean refineries where we have operations, including Aruba and Curacao. We also held binational events with Trinidad and Tobago, specifically in the border areas where we have common reservoirs,” he said.

Del Pino said that the meeting was productive. “It definitely means that 2017 will be of great boost and advance.”

Debt reduction

For the president of PDVSA, reducing PDVSA’s financial debt in an economically difficult year was particularly important. This was possible thanks to the bond swap and timely payments.

“We were required to publish our consolidated debt before January 20. Currently, the debt is down by $2.7 billion from the previous year,” Del Pino said.

Finally, he spoke about new financing strategies and novel oil industry hiring schemes which contributed to positive results, and indicated that PDVSA lowered costs by 30%, which is fundamental for the Venezuelan economy.

***

PDVSA Financial Debt Down by $2.7 Bln in 2016

(Energy Analytics Institute, Aaron Simonsky, 20.Jan.2017) – Cash-strapped PDVSA went out on a limb again last year to reduce its long-term financial debt.

PDVSA, as the Caracas-based company is known, may not have invested heavily in exploration and production activities to boost falling crude oil production or in its six ailing domestic refineries but it did somehow manage to reduce its total financial debt by $2.7 billion in 2016, the company announced in an official statement.

“This figure demonstrates the financial strength of the Venezuelan Bolivariana Republic and PDVSA, whom have honored all their obligations despite the cycle of low oil prices,” announced PDVSA.

Energy investors have continued to take a wait and see attitude regarding Venezuela’s oil and gas sectors among others in this South American country amid ongoing economic and political crises that have triggered negative economic growth, three-digit inflation, and scarcity of medicines and foodstuffs. As expected, energy sector investments and subsequently oil production in the country continues to wane.

***

Maduro Names Citgo President as Venezuela’s Oil Minister

(Energy Analytics Institute, Aaron Simonsky, 20.Jan.2017) – Venezuela President Nicolas Maduro announced the appointment of Nelson Martínez, the actual president of Citgo Petroleum Corporation, as the country’s new petroleum minister. Martínez replaces outgoing Petroleum Minister Eulogio Del Pino.

“Our friend Eulogio Del Pino remains in front of PDVSA,” reported state oil company PDVSA in an official Twitter post, citing Maduro. PDVSA, as the Caracas-based company is known, also reported Maduro as saying they “we’re going to restructure the industry,” without providing details and referring to the troubled oil sector of the member country to the Organization of Petroleum Exporting Countries (OPEC).

Houston-based Citgo is capable of refining 749,000 barrels per day of crude at refineries in the United States of America located in Texas, Illinois and Louisiana. Citgo markets more than 600 different types of lubricants and sells motor fuels through more than 5,300 independently owned, branded retail outlets, according to data on the company’s website.

***

Maduro Fires Pequiven President

(Energy Analytics Institute, Piero Stewart, 16.Jan.2017) – Venezuela’s newly appointed Vice President Tareck Aissami announced that the country’s President Nicolas Maduro had ordered the dismissal of Pequien President Juancarlo Depablos Contreras due to issues related to shortfalls in production and supply of raw materials.

“Serious acts of corruption have been uncovered at Pequiven and he [Contreras] is being held in custody in order to soon discuss the irregularities within the company,” reported the daily newspaper El Nacional, citing Aissami.

Maduro subsequently named military General Rubén Ávila Ávila as the new president of Pequien.

***

PDVSA’s Domestic Refining Utilization Falls

(Energy Analytics Institute, Aaron Simonsky, 16.Jan.2017) – Refining utilization rates at PDVSA’s six domestic refineries averaged 30.7 percent in 2016 owing to permanent and temporary plant shut downs, and continued problems procuring replacement parts all due to finance issues.

PDVSA’s domestic refineries – Amuay, Cardón, Bajo Grande, Puerto la Cruz, El Palito and San Roque – which have a combined installed processing capacity of 1,303,000 barrels per day only processed an average 400,000 barrels per day in 2016, said oil union official Iván Freites, who represents the United Federation of Venezuelan Oil Workers (FUTPV) in an phone interview from Punto Fijo.

Cash-strapped PDVSA, as the state oil company is known, needs a cash infusion of $5 billion to boost the utilization rates to 60 percent, he added.

***

Venezuela Sales Gasoline in Colombian Pesos

(Energy Analytics Institute, Piero Stewart, 4.Jan.2017) – Venezuela, the South American country with the region’s largest crude oil and natural gas reserves, initiated the sale of its gasoline in Paraguachón, located in the La Guajira Department in Colombia.

Cooperation between the governments of Colombia and Venezuela has allowed activities to move forward.

Venezuelan President Nicolas Maduro thanked his Colombian counterpart Juan Manuel Santos for his collaboration which allowed for the distribution of gasoline along the border area near the Colombian and Venezuelan border, reported PDVSA in an official Twitter post.

***

Venezuela Moving Towards Oil Industry Restructuring

(Energy Analytics Institute, Aaron Simonsky, 4.Jan.2017) – “Venezuelan President Nicolas Maduro says ‘we’re going towards a restructuring of the (oil) industry’ and names Nelson Martínez, the actual president of Houston-based Citgo Petroleum Corporation, as Venezuela’s Petroleum Minister. Martínez replaces Eulogio Del Pino in this position. Del Pino retains his post as the president of PDVSA.

The announcement is a departure from the dual post assignments held by Del Pino and his former boss Rafael Ramirez, who also simultaneously held the posts of oil and mining minister and president of PDVSA, as the Caracas-based company is known. I view any separation of persons and/or powers between the two entities (PDVSA and the oil ministry) as a good starting point for further restructuring and much-needed and welcomed restructuring to come to the industry, if it indeed does,” wrote contributing writer Pietro D. Pitts in a series of Twitter posts.

***

PetroMonagas Initiates Drilling at UBCP14

(Energy Analytics Institute, Piero Stewart, 2.Jan.2017) – PDVSA PetroMonagas initiated directional drilling activities in Río Yabo — located in the Aceital del Yabo community in Anzoátegui state — and plans to install 800 meters of 30-inch tubing over 60 days.

The tubing will have a transport capacity of 70,000 barrels per day (b/d) and handle production from the Basic Construction and Production Units (UBCP by its Spanish acronym) #14 and #21, PDVSA reported in an official statement.

PDVSA PetroMonagas expects to produce 16,000 b/d of extra heavy crude oil from UBCP #14. To-date, capital expenditures at this project have surpassed $7 million and an additional $5 million are expected to be invested in 2017 during the second phase of the project, reported PDVSA, as the state oil company is known.

***

Venezuela Implements Oil Cut Agreement

(PDVSA, 27.Dec.2016) – PDVSA announced implementation of an agreement to reduce production reached by member and non member countries of the Organization of the Petroleum Exporting Countries (OPEC). Under the agreement, Venezuela must implement a production cut of 95,000 barrels per day.

As of January 1, 2017 PDVSA and /or its subsidiaries will implement a reduction of the volumes of the main crude oil sales contracts without prejudice to PDVSA’s international contractual commitments and in accordance with the terms and conditions of current contracts.

It is public knowledge that Venezuela, together with the other members of OPEC, agreed to curb production to 32.5 million barrels per day as of January 1, 2017 at the 171st Meeting of the Conference which was held November 30, 2016 in Vienna, Austria.

PDVSA honors the commitment made by Venezuela, and reaffirms its commitment to comply with the decisions reached by it and contribute to the stability of the world oil industry.

***

Venezuela Oil Output to Near 2 MMb/d

(Energy Analytics Institute, Piero Stewart, 27.Dec.2016) – OPEC member nation Venezuela, which produced 2.097 million barrels per day (MMb/d) in November, according to the December 2016 Monthly Oil Market Report published by the Organization of Petroleum Exporting Countries (OPEC), which cited secondary sources, could see its crude oil production reach 2.002 MMb/d after it implements recently announced production cuts of 95,000 barrels per day by the organization.

Using OPEC direct communication data for Venezuela, the South American nation’s production could reach 2.179 MMb/d, down from 2.274 MMb/d in November.

Venezuela — reeling in political and economic crises and suffering from the world’s highest inflation — is preparing to reduce its oil production as part of a reduction agreement reached on November 30, 2016 in Vienna, Austria by OPEC and non-OPEC nations, reported PDVSA in an official statement.

Effective January 1, 2017, PDVSA and/or its affiliate companies will reduce production volumes in total conformity with the terms and conditions of existing contracts, the statement said.

***

Six Dead in PDVSA Truck Accident

(Energy Analytics Institute, Piero Stewart, 27.Dec.2016) – An accident between a fuel transport truck owned by PDVSA and a vehicle carrying six persons from Venezuela’s armed forces unfortunately claimed resulted in the death of all the military personnel.

The accident occurred in Tachira state and is under investigation by personnel employed with the state oil entity, according to reports from Venezuelan journalist Anggy Polanco in numerous twitter posts.

PDVSA has yet to emit an official statement about the accident.

***

PDVSA Incorporates New Grads into Workforce

(Energy Analytics Institute, Ian Silverman, 26.Dec.2016) – Three officials from PDVSA participated in a graduation ceremony in San Tomé, south of Anzoátegui state, whereby 124 graduates received diplomas and were immediately incorporated into the payroll of state oil company PDVSA.

The officials included PDVSA Exploration and Production Vice President Orlando Chacín, Orinoco Oil Belt Production Executive Director Pedro León, and Orinoco Belt Formation Plan Coordinator Héctor Andrade, reported PDVSA in an official statement.

To-date, more than 2,000 engineers — and others with specialties in geophysics, chemicals, petrochemicals, gas and the environmental as well as other graduates specializing in administration and accounting – have participated in the program dubbed ‘The Socialist Project for the Formation of the Hugo Chavez Orinoco Heavy Oil Belt,’ also known as the Faja.

***

PDVSA Says It Maintains Full Ownership of Citgo

(Energy Analytics Institute, Ian Silverman, 25.Dec.2016) – PDVSA maintains full ownership and control over its Houston-based subsidiary Citgo Petroleum Corporation.

PDVSA, in an official statement, also downplayed media versions and comments emitted by persons it claims are only interested in generating political instability in Venezuela based on speculation, rumors and biased information in an attempt to discredit the company.

In October, PDVSA used a 50.1 percent interest in Citgo as a guarantee for bond swap operations and the remaining 49.9 percent interest in its U.S.-based refining subsidiary as a guarantee to raise new financing, according to the statement.

Redd Intelligence, on November 30, uncovered a Delaware Uniform Commercial Code (UCC) filing and broke initial news regarding the filing against Citgo parent PDV Holding, Inc. that revealed Venezuela had secretly mortgaged its Citgo refineries in the U.S. to Russia’s state-controlled oil company Rosneft.

***

PDVSA to Industrialize Faja Oil

(PDVSA, 15.Dec.2016) – As of 2019, PDVSA, through Puerto La Cruz Refinery’s Deep Conversion Project, will industrialize crude oil from the Orinoco Oil Belt using HDHPLUS®, a Venezuelan technology, announced the People’s Power Minister of Foreign Trade and International Investment Jesus Faría.

Minister Faría and the Ambassador of South Korea to Venezuela Kyung Tea Hwang, travelled to the state of Anzoátegui to meet with the Executive Director of New Refinery Projects, Upgraders and Terminals Gabriel Oliveros, and the General Manager of Eastern Refining Diego Astudillo. The General Manager of the VONE Consortium B.I. Kim, and state governor Nelson Moreno were also at the meeting.

This is the largest crude oil refining project in our continent; it will receive an investment of $9 billion, said Faria, who was satisfied with its 73.8% progress. It currently employs 6,500 workers, and uses technology developed by PDVSA Intevep. This demonstrates the trust of large companies in South Korea, the People’s Republic of China and Japan that invest in Venezuela and its potential and sets the foundations for a productive, independent, and technologically sovereign Venezuela.

The Ambassador of South Korea Kyung Tea Hwang highlighted the investment made by Hyundai in Venezuela, which is a clear indication of the strengthening of bilateral relations between the two countries.

The General Manager of Eastern Refining Diego Astudillo said that when it is fully operational, Puerto La Cruz Refinery will process 210,000 barrels of heavy crude oil per day into light products of high commercial value. Additionally, social investment projects are being implemented to benefit the community.

Anzoátegui state governor Nelson Moreno said that this PDVSA project goes hand in hand with human development. 820 families that lived within the safety zone of Puerto La Cruz Refinery were moved away and craftsmen involved in the construction of the project received training.

***

Trinidad and Venezuela Reach Deals

(Energy Analytics Institute, Piero Stewart, 5.Dec.2016) – Together with President Nicolas Maduro and Prime Minister of Trinidad Keith Rowley we reached historic energy agreements, wrote PDVSA President Eulogio Del Pino in a series of twitter posts.

“Together with Shell Venezuela we agreed to start negotiations to obtain financing for Petroregional del Lago, S.A.,” wrote Del Pino.

***

Venezuela to Export Gas to Trinidad

(PDVSA, 5.Dec.2016) – During a meeting in Miraflores Palace, the People’s Power Minister of Petroleum and President of PDVSA Eulogio Del Pino and the Prime Minister of Trinidad and Tobago Keith Rowley, signed an agreement to implement the Natural Gas Supply Project from Venezuela to Trinidad and Tobago through a gas interconnection from the Dragon Field in northeastern Venezuela.

This agreement will boost gas production and exports, as Venezuela continues with its policy of strategic alliances. Through this partnership, one or more gas pipelines will be built from the Mariscal Sucre area in Venezuela to Trinidad and Tobago.

The interconnection to export gas will be established from the Venezuelan Dragon Field to the Hibiscus platform in Trinidad and Tobago. Another potential route will be evaluated from Güiria, in Sucre state, to Point Lisas in Trinidad.

Decade for energy integration

For President Nicolás Maduro, this strategic alliance makes a reality a decade of Latin American and Caribbean integration.

“We are working on our maritime borders with blocks of gas. We have reached agreements for their joint exploitation, taking advantage of the strengths of both nations for a win-win. This is what we call Bolivarian Peace Diplomacy. Through a dialogue we seek to develop common interests,” Maduro said.

He asked Minister Del Pino to accelerate implementation and investment on these projects.

Historic development

Prime Minister Rowley described the signing of the agreement as a historic development that will improve relations between the two nations.

“Today’s development marks a commitment to develop face to face, holding onto opportunities that are beneficial to the people of Venezuela, to the people of Trinidad and Tobago and the wider Caribbean,” Rowley said.

The prime minister believes the agreement will open opportunities for various “significant and necessary commercial developments in the hydrocarbons sector.”

 

“These units of commerce open doors towards a staircase upon which Trinidad and Tobago can walk confidently into the international marketplace…We look forward to climbing these stairs, side by side with Venezuela as we enjoy the benefits of our petro Caribbean basin,” concluded Rowley.

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Harvest Natural Resources Reports 3Q:16 Results

(Harvest Natural Resources, Inc., 9.Nov.2016) – Harvest Natural Resources, Inc. reported a third quarter 2016 net loss of approximately $7.1 million, or $0.55 per diluted share, compared with net income of $5.7 million, or $0.52 per diluted share, for the same period last year. The third quarter results include exploration charges of $0.6 million, or $0.05 pre-tax per diluted share, and transaction costs related to the sale of Harvest-Vinccler Dutch Holding B.V. of $1.8 million, or $0.14 pre-tax per diluted share. Adjusted for exploration charges and transaction costs, Harvest would have posted a third quarter net loss of approximately $4.7 million, or $0.36 per diluted share, before any adjustment for income taxes.

Sale of HNR Energia

On October 7, 2016, the company, and its wholly owned subsidiary, HNR Energia, completed the sale of all of HNR Energia’s 51% interest in Harvest Holding, to Delta Petroleum, pursuant to the Share Purchase Agreement. Harvest Holding owns, indirectly through wholly owned subsidiaries, a 40% interest in Petrodelta, S.A., a mixed company organized under Venezuelan law, through which all of the company’s interests in Venezuela were owned. Thus, under the Share Purchase Agreement, the company sold all of its interests in Venezuela to Delta Petroleum.

Delta Petroleum is an affiliate of CT Energy, which assigned all of its rights and obligations under the Share Purchase Agreement to Delta Petroleum on September 26, 2016.

At the closing, the company received consideration consisting of:

— $69.4 million in cash paid after various closing adjustments;

— an 11% non-convertible senior promissory note payable by Delta Petroleum to HNR Energia six months from the closing date in the principal amount of $12.0 million, guaranteed by the sole member and sole equity-holder of Delta Petroleum;

— the return of all of the company’s common stock owned by CT Energy, consisting of 8,667,597 shares (approximately 2,166,900 shares taking into account the November 3, 2016 one-for-four reverse stock split) which was approximately 16.8% of all outstanding shares pre-closing, to be held by the company as treasury shares;

— the cancellation of $30 million in outstanding principal under the 15% Note; and

— the cancellation of the CT Warrant.

At the closing, the outstanding principal and accrued interest totaling $38.9 million and $1.4 million, respectively, under both the 15% Note and the Additional Draw Note, were repaid, net of withholding tax, as a closing adjustment to cash, and the 15% Note and Additional Draw Note were terminated. To fund Harvest’s transaction expenses and operations until the closing under the Share Purchase Agreement, CT Energy had loaned Harvest $2 million on each of June 21, 2016, July 20, 2016, August 24, 2016 and September 21, 2016 under the Additional Draw Note.

The relationship between the company and CT Energy effectively terminated upon the closing under the Share Purchase Agreement. In addition to the termination or relinquishment of all company securities held by CT Energy, Oswaldo Cisneros and Alberto Sosa resigned as CT Energy’s non-independent designees to the company’s board of directors. The company decreased its number of board members from seven to five immediately after the resignations.

Additionally, the Securities Purchase Agreement and certain agreements related to the Securities Purchase Agreement, including the Management Agreement, terminated. Finally, all liens securing company debt formerly owed to CT Energy were released at the closing.

NYSE Listing Requirements

On October 25, 2016, the company announced that it would conduct a one-for-four reverse split of its authorized, issued and outstanding common stock. The one-for-four reverse stock split became effective after the market closed on November 3, 2016, and the company’s common stock began trading on a splitadjusted basis at market open on November 4, 2016. The reverse stock split will not impact any stockholder’s ownership percentage of the company or voting power, except for minimal effects resulting from the treatment of fractional shares. Following the reverse split, the number of outstanding shares of the company’s common stock was reduced from 44,171,215 to approximately 11,042,804. Additionally, the number of authorized shares of the company’s common stock decreased from 150,000,000 to 37,500,000. On November 3, 2016, the company completed a one-for-four reverse split of its common stock. As of November 4, 2016, the closing price of the company’s common stock had increased to $4.45 per share. Given the increase in the company’s share price, the company expects that it will have regained compliance with the Pricing Standard by December 19, 2016.

On April 25, 2016, the company received a notice from the NYSE stating that the company was not in compliance with a second NYSE continued listing requirement, which provides that a company is not in compliance if its average global market capitalization over a consecutive 30 trading-day period is less than $50 million and, at the same time, its stockholders’ equity is less than $50 million.

The company believes that the sale of its Venezuelan interests on October 7, 2016 ultimately will allow it to regain compliance with the Financial Standard by increasing its stockholders’ equity. However, the company must demonstrate compliance for two consecutive financial quarters before the deficiency can be cured.

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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.
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(Editing by Peter Wilson)

Venezuela Still the Country with the Largest Oil Reserves

(Energy Analytics Institute, Pietro D. Pitts, 14.Aug.2016) – Venezuela, the resource-rich South American country known for its chocolates, Caribbean beaches, lively citizens and beauty queens, still reigns as the country with the largest crude oil reserves, according to the BP Statistical Review of World Energy (June 2016).

Venezuela had proved oil reserves of 300.9 billion barrels at year-end 2015 and a reserves-to-production (R/P) ratio of 313.9 times based on production of 2.626 million barrels per day in 2015, according to the review.

Said another way, Venezuela has enough crude oil reserves to last it for 313.9 years.

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Venezuela Cancels Premier LAPS Oil Event

(Energy Analytics Institute, Pietro D. Pitts, 4.Jul.2016) – Venezuela will not hold its annual Latin American Petroleum Show (LAPS).

The decision to cancel the event this year is due to financial constraints that render PDVSA unable to provide major hosting support as well as payment issues with international service providers who aren’t yet willing to assume additional debts sponsoring the event amid mounting unpaid debts with the country’s state oil company, said Venezuela’s Petroleum Chamber president elect Alexis Medina P. in an exclusive interview with Energy Analytics Institute in Caracas.

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Venezuela to Soon Initiate Gas Shipments to Colombia

(Energy Analytics Institute, Piero Stewart, 4.Jul.2016) – Venezuela plans to soon initiate shipments of natural gas to Colombia, reported Venezuela’s new agency AVN, citing the country’s Oil Minister Eulogio Del Pino.

The gas will come from the Perla field offshore, which is part of the Cardon IV project.

“We are producing 600 million cubic feet per day of natural gas, sufficient to export and satisfy domestic needs,” said Del Pino, who also serves as the president of the state oil company PDVSA.

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Venezuela Producing 3.8 MMboe/d, PDVSA President Says

(Energy Analytics Institute, Piero Stewart, 4.Jul.2016) –Venezuela is producing 3.8 million barrels of oil equivalent per day, PDVSA President Eulogio Del Pino said during an interview on the television program José Vicente Hoy, which is produced by Televen.

“These days they are saying our production is falling. These are figures that are completely irresponsible and that relate to an attack that is also financial because what they do is disqualify us financially,” said Del Pino, referring to articles and other media reports about Venezuela’s oil production figures and other key economic data such as inflation, gross domestic product, produce scarcity and international reserves, among others.

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Maduro Holds Meeting with Citizens’ Joseph Kennedy

(Energy Analytics Institute, Piero Stewart, 2.Jul.2016) – Venezuela’s President Nicolas Maduro held a meeting with Citizens Energy Corporation founder Joseph Kennedy in Caracas to discuss matters related to the U.S.-based non-profit organization, reported Venezuela’s new agency AVN.

Citizens Energy is a non-profit company that receives and distributes Venezuela heating oil to U.S. citizens in need across various states in the U.S.A.

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PDVSA Says Drilling Rig Inventory at 311 Units

(Energy Analytics Institute, Piero Stewart, 25.Jun.2016) – PDVSA’s inventory of drilling rigs in Venezuela at the end of May 2016 reached 311 units, of which 156 were owned by the company, while 155 were owned by third parties, the state oil company announced in an official statement on its website.

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Venezuela Sends Two Fuel Tankers to Singapore

(Energy Analytics Institute, Piero Stewart, 25.Jun.2016) – Venezuela sent two fuel tankers at full capacity to Singapore, reported Reuters.

The tankers, New Dream, rented by PetroChina, Britanis, and Trafigura, are en route to Singapore with 270,000 tons of fuel, reported the news agency.

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PDVSA Raises Recovery Factor in South Junín District

(Energy Analytics Institute, Jared Yamin, 21.Jun.2016) – PDVSA has increased the recovery factor to 35 percent from 20 percent in the South Junín district of the Orinoco Heavy Oil Belt or the Faja using various technologies.

Said technologies could establish a base or floor recovery factor in the Faja of 40 percent, reported the daily newspaper El Universal, citing petroleum expert Fernando Travieso. Assuming such a base recovery factor, Venezuela could register certified reserves of close to 513 billion barrels, said the expert.

Details of the recovery techniques used to achieve the 35 percent recovery factor were not revealed.

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PDVSA Completes Directional Work on 70th Well in Maracaibo

(Energy Analytics Institute, Jared Yamin, 20.Jun.2016) – PDVSA’s Western Petroleum Services division has performed services on a total of 70 drilling wells with the recent completion of work on a directional drilling well located in Lake Maracaibo.

Work at the LB-2963-ST well where the PDV-142 rig is located, was completed with equipment and personnel from Venezuela. In previous years these services were performed by international companies, announced PDVSA in an official statement on its website.

PDVSA’s Western Petroleum Services division owns 12 directional drilling rigs, which were acquired from China under agreements initially signed by late Venezuelan President Hugo Chávez. PDVSA completed 29 percent of its activities in the Western region of the country with these Chinese rigs and estimates this figure could increase to 50 percent in 2016.

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ExxonMobil Sells Share of Chalmette Refining, LLC in Louisiana

(Exxon Mobil, 18.Jun.2016) – Exxon Mobil Corporation has reached an agreement with PBF Energy Inc. for the sale and purchase of its 50 percent interest in Chalmette Refining, LLC in Chalmette, Louisiana.

PBF Energy will purchase 100 percent of Chalmette Refining, LLC, which is a joint venture between affiliates of Petróleos de Venezuela, S.A. (PDVSA) and ExxonMobil.

The agreement includes the Chalmette refinery and chemical production facilities near New Orleans, La. and the company’s 100 percent interests in MOEM Pipeline, LLC and 80 percent interest in each of Collins Pipeline Company and T&M Terminal Company. ExxonMobil operates Chalmette Refining, LLC and Mobil Pipeline Company, an ExxonMobil affiliate, operates the logistics infrastructure.

“This decision is the result of a strategic assessment of the site and how it fits with our large US Gulf Coast Refining portfolio,” said Jerry Wascom, president of ExxonMobil Refining & Supply Company.

“We regularly adjust our portfolio of assets through investment, restructuring, or divestment consistent with our overall global and regional business strategies,” said Wascom. “ExxonMobil remains committed to doing business in Louisiana through ongoing operations at the Baton Rouge refinery and chemical plants, the development and production of oil and natural gas resources, and sales of fuels and lubricants. All of these businesses are unaffected by this agreement.”

Subject to regulatory approval, change-in-control is anticipated to take place by the end of 2015. Details of the commercial agreements are proprietary.
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