If there’s anything like an essential characteristic needed for the oil and gas industry, it’s a sense of humor. In fact, when things get beyond anyone’s control, the ability to laugh may be the best remedy.
That’s how things are shaping up when it comes to Venezuela these days.
In fact, Venezuelan President Hugo Chavez has vowed that his brand of 21st century socialism would triumph—even if the price of oil plummeted to zero. But now, even El Presidente is facing a hard truth.
“Oil prices are very low,” he acknowledged in a speech at a recent military parade in Caracas. “For Venezuela, this is tough and difficult. But even so, I will stick to what I have said: We are not going to cut spending on the missions…food, health, education and housing.”
How will that happen? Enter Venezuela’s oil minister Rafael Ramírez, who also serves as head of the state-owned Petroleos de Venezuela SA, to announce that the firm will cut spending to help the country.
Ramírez the cost-cutter
Saying there had been “excessive spending” in recent years, when oil prices were high, Ramírez said, “We [PDVSA] have to adjust to a situation that does not allow for waste, spending that is not a priority.”
“It’s clear that we can’t have the same level of spending as last year,” said Ramírez, whose spending cuts come down to renegotiating deals with 250 contractors that were reached last year as prices climbed to record high levels.
Such cuts will enable PDVSA to drop production costs by 40%, Ramírez said.
Meanwhile, debt payments to some 91% of the company’s 5,726 contractors began on Mar. 2. But don’t get your hopes up. According to Ramírez, not everyone will be treated alike as “there is a segment with which we must sit down to discuss” new terms.
“I must defend the interests of the nation,” he said, arguing that he could not pay, for example, for drilling services at last year’s going rate.
The Emperor’s new cushion
Despite the need to tighten spending, Ramírez claims PDVSA has a financial “cushion” and can still maintain its planned investments of $125 billion for 2009-13.
The cushion of resources is so solid that “we can withstand and keep ourselves going in any situation.” And echoing the president he serves so assiduously, Ramírez said, “We can work (even with) zero oil income.”
Despite that cushion, though, Ramírez has been touting investment in Venezuela, saying that production costs in the Orinoco heavy crude belt are $1.50/bbl, making investment attractive despite the collapse in world oil prices.
“It’s a huge opportunity right now, especially when they are canceling projects in Canada’s heavy tar sands because of the higher costs,” the minister said. “We’re currently offering six blocks in the Orinoco, and we will remain open to foreign investment,” Ramírez said.
Are you laughing yet?
