Labor Disputes, Oil Drill Shortage: Problems for Venezuela’s Oil Industry

Industrial unrest, technical challenges and corruption claims have recently plagued Venezuela’s state-owned oil company Petroleos de Venezuela, (PDVSA). On July 18, Luis Vierma, the exploration and production vice president PDVSA, the state oil company, told Venezuela’s National Assembly’s comptroller committee, that PDVSA is in a state of “significant operational emergency.”

PDVSA accounts for about half of government revenues and three quarters of export revenues and has been the backbone for funding the Chavez government’s social programs.
In May PDVSA took over operations of major oil projects that had been run by ConocoPhillips, ExxonMobil, Chevron, and Total. The projects are in Venezuela’s oil-rich Orinoco River basin. Also nationalized were 46 oil rigs, most of which are also centered around the oil rich Orinoco River basin.

PDVSA’s annual plan for 2007 set a target for 191 active oil rigs to produce a projected 3.3 million barrels per day of crude oil. However, Vierma told the National Assembly that only 112 oil rigs (33 of which belong directly to PDVSA), are currently operational and it is estimated that only 120 will be up and running by the end of the year, a deficit of 36%.

“Venezuela is moving toward technological independence, but it will take a long time,” Vierma continued.

A new law requiring contract winners to put 10% of the contract value towards social programs, and increased international demand for oil rigs are factors thought to have contributed to a reduced number of contract applications through PDVSA’s bidding process.

The Minster for Energy and president of PDVSA, Rafael Ramirez, told the newspaper El Universal last week, “There’s an international shortage of rigs. The cost associated with oil in OPEC countries has risen 40 percent and an offshore rig is being hired at no less than 400,000 dollars per day; double that of last year.”

In an effort to combat the shortfall, PDVSA announced on July 20 it would invest US$3.5bn in new drilling rigs. The statement also said that PDVSA has reached an agreement with China for the acquisition of new rigs – an initial thirteen rigs to be imported directly from China and future Chinese rigs to be assembled in Venezuela.

While the Paris-based International Energy Agency, which analyzes the international oil market, estimates that that oil production in Venezuela has fallen to 2.37 million barrels a day, Ramirez maintains that production remains steady at 3 million barrels of crude per day. At least part of the discrepancy can be traced to differences in the type of oil being included in the totals.

Venezuelanalysis