PdV oil production slipping as tensions escalate
OREANDA-NEWS. Venezuela's state-owned PdV is focusing its diminishing resources on maintaining crude production from the giant Orinoco extra-heavy oil belt, but persistent power outages, a dearth of specialized services and a lack of cash are eroding critical light and medium crude flows from mature fields in the company's eastern and western divisions.
An overall decline in the Opec country?s oil production appears to be accelerating amid rising political tensions in Caracas, where pro-democracy demonstrators clashed with security forces this week. A government crackdown is intensifying.
The 8-10° API Orinoco crude requires diluent for transport and marketing. PdV has traditionally utilized imported naphtha to transport the crude to four upgraders at Jose, stripping it out and re-using it at the wellhead. The company subsequently inclined toward more blending of Orinoco crude with light crude, a "natural diluent", partly because of capacity limits at the upgraders, but also because the upgraders themselves have faltered as a result of insufficient maintenance and power cuts.
Last year PdV imported light crude including Algerian Saharan Blend and more recently US WTI, but a cash shortage and terminal bottlenecks have forced the company to rely on domestic 32°API Mesa instead.
The Orinoco-Mesa blend results in 16°API Merey, which the company exports to Asia-Pacific buyers, mainly China.
Orinoco production is holding steady at 1.3mn b/d, including around 84,000 b/d from new PdV-controlled joint venture projects, principally PetroIndependencia with main partner Chevron and PetroCarabobo with Spain's Repsol, a senior PdV executive tells Argus.
Venezuela?s official production statistics are notoriously opaque. The Orinoco figure, for example, may include Mesa, which is blended in situ to make Merey, as well as naphtha. Regardless of the figures, Orinoco production cannot be sustained without incremental volumes of light or medium crude. Because the cash-poor company can no longer afford to import all of the lighter crude it requires, it is dependent on Mesa from Jusepin in the eastern state of Monagas, one of what the company calls "conventional areas" where output is declining.
PdV?s eastern and western divisions, dating back more than a century, are subject to rapid reservoir depletion rates of 20-25pc annually, a trend that requires continuous investment to keep from accelerating. Last year the company said it was producing around 600,000-700,000 b/d in each division, bringing overall official output, including the Orinoco oil belt, to up to 2.7mn b/d. But the potential for double counting production, which may include naphtha, light crude and synthetic crude from the upgraders, raises doubts about the figures.
Argus estimates that Venezuelan production is trending down toward 2mn b/d, a third of PdV's official 6mn b/d target in 2019.
The decline is a function of multiple factors, including the 2014 collapse in oil prices, but also the central government's channeling of dwindling revenue to social spending rather than upstream investment since late president Hugo Chavez took power in 1999. Shortages of spare parts, theft and PdV?s reliance on the crippled national electricity grid have also contributed.
"PdV's production is at risk of falling up to 200,000 b/d by the end of 2016 if its average export price doesn't at least double soon," one Venezuelan official told Argus.
PdV's average export price was $35.28 during the week ending 13 May, according to the energy ministry.
The company issued a rare statement yesterday denying that it is having upstream operational problems.
"Crude production levels have remained stable for the first quarter of 2016, despite the strong financial impact of falling oil prices for more than 18 months, and an ongoing economic war that we have been the target of for the last two years," PdV said.
"These production levels have been achieved due to continued production growth at the Hugo Ch?vez Orinoco Oil Belt by incorporating new drilling rigs and continually improving their logistics," PdV added, without specifying current output.
But PdV's statement also hinted that output is dropping in its traditional areas. "We have limited impacts on production in conventional mature fields in the east and the west because of the length of exploitation of these fields," PdV said. "The difference in production is linked to the rate of decline."
The "economic war has affected all of our procurement processes for the execution of our core activities, to the extent that a multinational services company has unilaterally decided to reduce its own services," PdV said. The government regularly blames the oil-based economy's malaise on an "economic war" waged from abroad.
US oil services giant Schlumberger wound down its Venezuelan operations at end-April because it is owed over $1.4bn and has booked over $600mn of exchange losses since end-2013. Halliburton also said last month that it would draw down its operations in Venezuela because of PdV's arrears.