PDVSA EXPANDING DOWNSTREAM, TANKER FLEET

Petroleos de Venezuela continues to press efforts to expand its downstream and transportation infrastructure.

A key part of that effort involves the Venezuelan state oil company's downstream investments in other countries, notably key importing countries.

At the same time, the government of Carlos Andres Perez has taken steps to make Venezuela's refining sector more attractive for foreign investment.

Strengthening the crude export/foreign refining investment link is crucial for the Western Hemisphere's biggest oil exporter in its efforts to position itself as oil supplier of choice in the wake of another Middle East crisis (OGJ, Aug. 19, p. 14).

The sudden upheaval in the Soviet Union (see story, p. 27) has focused even more attention on Venezuela's oil supplies. But Pdvsa's ambitious goals and aggressive spending plans have sparked more political controversy, blurring that spotlight (see story above).

With expected growth in crude and products exports, Pdvsa also has outlined a major tanker fleet expansion program.

And Pdvsa's petrochemical unit Pequiven SA has updated its 1991 spending plans.

Meantime, Pdvsa has outlined its 1991 operating plans and 1990 financial and operating performance.

MORE EUROPEAN INTERESTS SOUGHT

Pdvsa is making fresh efforts to increase its presence as an investor in European oil refining and marketing sectors.

Already an equity partner in refining and distribution systems in Germany (Ruhr Oel AG), Sweden and Belgium (AB Nynas Petroleum), and the U.S. (Citgo Petroleum Corp., Champlin Petroleum Co., and Uno-Ven with Unocal Corp.), Pdvsa recently signed letters of intent with British Petroleum Co. plc, Ste. Nationale Elf Aquitaine, Ente Nazionale Idrocarburi, and Veba Oel AG calling for increased cooperation in a variety of areas.

A key element in those agreements is the determination of Pdvsa and the European companies to seek new joint venture business opportunities in refining and distribution systems in Europe. The accords also call for studying the development of heavy oil deposits and construction of refineries in Venezuela.

New investments in Europe could involve purchasing interests in existing refineries or building new ones.

The agreements with European oil companies are part of Pdvsa's global plans to ensure new markets for its exports. But this search for new markets puts Venezuela up against fellow members of the Organization of Petroleum Exporting Countries. Saudi Arabia has downstream investments in the U.S. and recently implemented new ones in Japan and South Korea. Kuwait has a strong retail presence in Europe through its Q-8 chain of gasoline stations.

GOOD START IN EUROPE

Pdvsa has made a good start in Europe. It holds 50% interests in refining companies with Veba Oel (Ruhr Oel) and Finland's Neste Oy (Nynas).

Pdvsa and Veba are among international oil companies looking into investment possibilities in refineries in what was formerly the Soviet dominated East Bloc.

In Venezuela, Pdvsa and ENI are partners in large petrochemical ventures. BP and Elf are also working with Pdvsa in other businesses.

One of Venezuela's main interests in buying or developing new refining capacity in Europe is to use its large reserves of heavy oil and to offer European clients long term oil supplies from a producer outside the volatile Middle East.

Pdvsa has large reserves of conventional crude oil-more than 60 billion bbl-and the world's largest reserves of extra heavy crude and bitumen in the Orinoco belt. But to exploit those heavy oil deposits on a commercial scale, Pdvsa needs to find foreign investors to help build upgrading and refining facilities either at home or overseas.

JAMAICAN INVESTMENT?

Meanwhile, Venezuela's government is studying the possibility of Pdvsa taking an equity interest in Jamaica's 34,200 b/d capacity Petrojam refinery at Kingston.

Such a move would strengthen Venezuela's strategic refining position in the Western Hemisphere and allow the company to make expansions in export refinery capacity without facing the environmental opposition common in the U.S. and Europe.

Venezuelan investment in Jamaica's oil industry also would be a boon to Jamaica's struggling economy.

The investment possibility was broached while Jamaican Prime Minister Michael Manley visited Caracas earlier this year.

LOWER TAXES ON REFINING

In an effort to attract foreign investment to Venezuela's refining sector, the Perez government plans further steps to cut corporate taxes, now viewed as much too high.

Venezuela's Minister of Energy and Mines Celestino Armas earlier this year said the administration is considering a special reduction that would leave taxes on refining activities at about 35%. That would be about in line with the current tax rate on Pdvsa petrochemical operations and the rate for Pdvsa's joint ventures with foreign investors that Congress recently approved.

Pdvsa recently announced it plans to build a joint venture plant with Germany's Veba Oel to upgrade extra heavy crude from the Orinoco belt.

ENI also will carry out a feasibility study with Pdvsa on building a refinery in Venezuela to process heavy crudes. Those and other potential foreign investors have made it clear the tax situation must be changed before any real progress is made on future projects.

MARAVEN'S CARDON PLANS

Maraven SA, an operating unit of Pdvsa, plans outlays totaling $1.8 billion for four projects at its Cardon refinery on the Paraguana Peninsula in western Venezuela.

The investments, to be made the next 5 years, are intended to hike the refinery's capacity to process heavy crudes, produce a slate of higher quality products for export, and meet new environmental rules for refined products in the U.S., the most important foreign market for Venezuelan petroleum exports.

The Cardon projects are a:

• 60,000 b/d delayed coker scheduled to go on stream at the end of 1994. The unit is intended to slash output of residual fuel to a minimum level accommodating domestic needs and converting the bulk of Cardon resid to higher value products for export, including medium distillates, gasoline components, and fuel grade coke, to be sold mainly to cement producers in Europe.

• 15,000 b/d hydroprocess unit slated to start up in early 1996. It will use the HDH (hydrogenation and hydroconversion) process developed by Pdvsa's research arm Intevep. The company claims HDH substantially reduces sulfur and aromatics contents in diesel fuel and upgrades cracker feed from deep conversion units. Pdvsa hopes to use the HDH unit at Cardon to help sell the process internationally.

• 45,000 b/d capacity naphtha reformer, to begin operation at yearend 1994. Once this unit is working, it will allow Maraven and affiliate Pequiven to later build an aromatics plant at Cardon.

• 15,000 b/d isomerization unit, to start up at the end of 1994, to boost gasoline octane levels.

Meantime, Maraven will spend $6.4 million to repair and upgrade its Muelle II crude oil and products loading terminal at the Cardon refinery. Work includes replacing 1,500 m of 3-20 in. pipeline, revamping liquids metering and control systems, and general maintenance.

TANKER ACQUISITIONS

Pdvsa plans to spend $1.3 billion through 1995 to acquire 22 new seagoing tankers for its fleet.

The first step in this expansion program was announced earlier this month when Pdvsa unit PDV Marina said it reached an agreement to purchase eight 85,000 dwt, double hulled crude oil tankers from South Korea's Hyundai Heavy Industries for $61.9 million each. They will be Pdvsa's first double hulled tankers.

Pdvsa recently established the new unit PDV Marina to handle the company's domestic and international marine traffic.

The tanker deal, totaling more than $495 million, will be fully financed by Mitsubishi Corp., say PDV Marina officials. The financing will be spread out over 12 years, with a 2 year grace period.

Hyundai is expected to deliver the first tanker by the end of 1993, with additional tankers completed every 6 months.

PDV Marina began the selection process for the tankers in 1988 and invited 59 international shipyards to participate in the competition. The final selection was made recently from a short list of 10 companies.

In addition to the eight crude carriers, PDV Marina plans to acquire another 14 ships: two 20,000 dwt asphalt carriers, a lubricants carrier, five 35,000 dwt refined products tankers, four 60,000 dwt tankers for shipping the new boiler fuel product Orimulsion, and two LPG tankers. The company has begun looking for shipyards to build some of these vessels.

Pdvsa currently has a seagoing tanker fleet of 19 vessels totaling 768,000 dwt. The average age of these vessels is 13 years, and the company wants to add new tankers as it phases out some of its older ships. Once Pdvsa acquires 22 new vessels, its wholly owned tanker fleet will total about 1.9 million dwt.

The goal of the Venezuelan oil company is to have its own tankers handle about 30-40% of its total international shipments, up from 12-13% today.

The eight new ships Pdvsa is buying from Hyundai will be used mainly to carry crude oil from Venezuelan oil ports to Pdvsa's subsidiaries on the U.S. East and Gulf coasts.

PETROCHEMICAL PLANS

Pequiven estimates investments for Venezuela's petrochemical sector will reach $1.3 billion this year.

Hugo Finol, the president of Pequiven, said his company will make direct investments of $820 million in 1991, while private sector companies from Venezuela and overseas are scheduled to invest an additional $480 million in joint venture projects.

Pequiven is building complexes at three domestic sites to produce plastics, industrial chemicals, and fertilizers.

The company is planning a major expansion the next 5 years, with most new production aimed at export markets. Finol recently estimated investments in Venezuela's petrochemical sector will total about $5.7 billion in 1991-96. Pequiven is to account for 40% of that total, with the remainder to come from private foreign and domestic investors, supplier credits, and other types of financing, including public share offerings on the Venezuelan stock market.

In most of the projects, Pequiven will take a minority interest of as much as 33%. In others, the joint venture companies will be fully owned by private investors.

Pequiven in 1990 produced 2.5 million metric tons of products, posting a consolidated net profit of about $37 million on total revenues of $330 million. Its 1990 exports were valued at $72.1 million vs. $68.4 million in 1989.

Joint venture companies in which Pequiven is a partner produced another 1.1 million metric tons of products in 1990.

1991 SPENDING, GOALS

Pdvsa plans to invest a total of 250 billion bolivars ($5 billion U.S.) this year for exploration, production, refining, transportation, petrochemicals, domestic marketing, and coal.

This is the largest amount invested by the Venezuelan petroleum industry in a single year and forms part of a $34 billion investment in 1991-96.

Pdvsa also expects to invest $860 million this year in U.S. and European refineries where it is owner or a partner.

Pdvsa's main targets for 1991 are crude production of 2.5 million b/d and export revenues of $16.5 billion, working out as an export volume of 1.9 million b/d at about $20/bbl.

The company plans to maintain its proved reserves of crude oil this year at 58.9 billion bbl, about the same as in 1990. Proved natural gas reserves are expected to reach 21 billion bbl of oil equivalent by yearend.

Other targets for 1991 are crude productive capacity of 2.97 million b/d-up from the current 2.75 million b/d-Orimulsion production of 34,000 b/d, average refining runs of 1.04 million b/d at Venezuela's six refineries and 195,000 b/d at the unit Pdvsa leases in Curacao.

Maraven plans to drill nine wildcats this year and 352 delineation and development wells and conduct 313 workovers. Work is to be concentrated in western Venezuela, notably in extending Ceuta field in Lake Maracaibo (Ceuta-Tomoporo), the North Andean flank, and the Perija region near the Colombian border.

The company projects it will need a total of 31 rigs this year. For 1991-96, Maraven plans 101 wildcats and 16,000 line km of seismic lines.

Pdvsa production the first 4 months of 1991 averaged 2.484 million b/d, including condensate and natural gas liquids. This is the biggest volume since 1976 and compares with the full year 1990 average of 2.249 million b/d and 2.015 million b/d in 1989.

Crude production alone the first 5 months of 1991 averaged 2.326 million b/d, compared with crude production of 2.098 million b/d in 1990 and 1.747 million b/d in 1989.

1990 PROFITS, PERFORMANCE

Pdvsa earned a net profit of 106 billion bolivars ($2.36 billion U.S.) in 1990, up from 1989 earnings of $2.11 billion.

Pdvsa last year had exports valued at $13.5 billion, compared with $10.5 billion in 1989. Sales totaled $14.1 billion, including domestic sales.

The Venezuelan government ordered Pdvsa to place $850 million of its 1990 revenues in a recently created macroeconomic stabilization fund to be used as a buffer against future swings in international oil prices and to finance major projects. If not for the new government fund, Pdvsa profits for 1990 would have been considerably higher.

Pdvsa's consolidated sales, including overseas subsidiaries, reached $23.1 billion.

In the company's 1990 operating performance:

• Production of crude averaged 2.098 million b/d, while production of NGL was 114,000 b/d. Crude production rose from 1.974 million b/d in July to a peak of 2.391 million b/d in December. If gas liquids are added to the production figure for December, the total was 2.5 million b/d.

• Production potential was 2.779 million b/d at yearend 1990, up 55,000 b/d from the previous year.

• Proved reserves of crude oil reached a record 60.05 billion bbl at yearend 1990, up 1.7% from 59 billion bbl at yearend 1989.

• Natural gas reserves rose by 15.4 tcf to a total of 121 tcf.

• Venezuela's domestic market absorbed an average 534,000 b/d of oil equivalent (bdoe) of refined products and natural gas, up 4% from 1989. Of the 1990 total, 330,000 bdoe were liquids and 204,000 bdoe natural gas.

• Exports of oil and refined products averaged 1.881 million b/d, up 257,000 b/d from 1989. That breaks out to 1.242 million b/d of oil and 639,000 b/d of products. The average export price was $20-33/bbl, up $3.46/bbl. During second half 1990, Venezuelan exports topped 2 million b/d.

• Pdvsa's domestic refineries processed an average 917,000 b/d, while its worldwide system including the U.S., Europe, and Curacao, processed 1.839 million b/d.

Copyright 1991 Oil & Gas Journal. All Rights Reserved.