Badly damaged PDVSA should be replaced, founding board member says

Venezuela’s national oil company was so badly damaged during Hugo Chavez’s regime that it will need to be replaced, a founding board member of Petroleos de Venezuela SA (PDVSA) declared.

“PDVSA is very badly managed, very corrupt, and has deviated into a company that builds houses, manages livestock, and does other activities that have nothing to do with oil and gas,” said Gustavo Coronel, who was elected to Venezuela’s Congress in 1998 and served there until Chavez dissolved it when he came into office a year later.

“My opinion is that this company cannot be saved,” he continued during a Mar. 13 teleconference hosted by the US Energy Security Council. “I think it’s very deeply damaged. It’s not going to be politically easy because Venezuelans are very much in favor of state ownership and will fight tooth and nail to keep a national oil company.”

Only two multinational oil companies—Chevron Corp. and Repsol SA—have stayed in Venezuela since Chavez came into power, Coronel said. Any replacement for PDVSA would need to offer terms that would bring ExxonMobil Corp., BP PLC, and Total SA back to attract the investment necessary to meaningfully develop the Orinoco heavy oil deposits, he indicated.

“I think the Brazilian model would be good: an oil regulating agency that controls a mixture of concessions and production sharing contracts through a small, moderately sized Venezuelan national oil company—certainly not the monster we have now,” Coronel said.

Chavez’s handouts

He said Chavez based much of his popularity on handouts to the poor, but this has weakened as Venezuela’s oil income dropped. Production has declined about 600,000 b/d since Chavez became president for the first time in 1999, Coronel said. If the government had executed the plan PDVSA inherited from pre-Chavez management, it would have been producing 5 million b/d, he maintained.

“PDVSA has about 115,000 employees, up from about 30,000 in 1999; is losing production; and is not investing properly,” Coronel said. “Its refineries are at about 60% of capacity, and its debt has grown from $2 billion in 1998 to $85 billion now. It also heavily depends on the Chinese for financial support, and the Chinese are becoming disenchanted because PDVSA isn’t able to meet its supply commitments.”

He said Chavez’s successor as president, Nicolas Maduro, “is totally divorced from how an oil company should operate,” adding, “He is totally committed to one that is socialist and favors economic friends. Chavez promised about 16 refineries across the planet, yet did not build one in Venezuela in the 14 years he was in power.”

Coronel said opposition leader Henrique Capriles, who is challenging Maduro in an election next month, almost certainly would abandon Chavez’s agenda and begin to institute changes at PDVSA. “He believes in a more commercial and professional approach. He would bring back the big private oil companies—the true professionals in the field that have left the country,” the former PDVSA board member said.

“If a democratic government comes to power, the problems will disappear very slowly,” Coronel said. “A new government with a different approach should bring international oil companies back and mop up development of this heavy oil as soon as possible, particularly with the shale oil and gas boom in the US, Mexico, and Argentina which is making Venezuela less and less relevant.”

Contact Nick Snow at nicks@pennwell.com.

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