PDVSA launches strategy to attract private sector

Realignment sets stage for increased development

William Furlow
Technology Editor

The realignment of PDVSA will do away with Corpoven, Lagoven, and Maravin in favor of a more traditional corporate structure defined by operations rather than geography.[13,035 bytes]

Petroleos de Venezuela (PDVSA), the national oil company of Venezuela, is in the midst of a realignment designed to attract private dollars and help finance an expansion of production even as lower oil prices eat away at the value of the company's reserves.

According to PDVSA, Venezuela surpasses even the giant Saudi Arabia in its amount of proven oil reserves (308 billion bbls, compared with Saudi Arabia's 262 billion bbl).

The country has gas reserves that amount to 28% of all the reserves of North and South America combined - 146 Tcf. While these are impressive figures, the country's production capacity for crude languishes in the middle range of world producers - 3.8 billion b/d.

The company recognizes a worldwide growth in demand for oil and is seeking the opportunities this expansion offers by planning an aggressive expansion campaign that would catapult its production capacity to 6.2 million b/d over the next 10 years. How will this be done? With private investment through operating agreements, profit sharing agreements, strategic associations, and outsourcing.

While the company insists this program will be mutually beneficial it is obvious that PDVSA needs both financial and technical assistance to reach this ambitious goal. PDVSA pegged the cost of this expansion at US$5 billion.

Opening up Venezuela

In the first and second rounds of Operating Agreements PDVSA attracted 27 companies from nine countries.

These agreements had an immediate impact on the country's out look, boosting production from 285 million b/d in 1996, and to 373 million b/d in 1998. In the third round of Operating Agreements, PDVSA awarded 18 agreements to 26 companies, receiving a total bidding bonus of $2.176 billion.

This round included several properties in the lake and off the Western coast in the Caribbean Sea, the Gulf of Paria East, and Gulf of Paria West. These Gulf properties are shallow water fields (20-25 meters deep).

Operating agreements

The way the new deals are structured, PDVSA does not invest anything in the first phase of exploration, which lasts 3-5 years. If a commercial discovery is made, then PDVSA will cover part of the exploration costs and share in the development cost (1-35% participation). The amount of participation is determined by PDVSA.

PDVSA is given access to the well data that is furnished by the operator. If a commercial discovery is made, there is Phase II exploration which covers 3-4 years, giving the operator a maximum of nine years to explore these 2,000 sq km blocks. Once a commercial discovery is made, the operator has up to 20 years to develop it. This development period can be extended by 10 years in some cases.

Gulf development

There were several competing bids for the Paria properties, because the Gulf is known to be rich in oil. Although the formation geography is complex, the leases are near shore and there is plenty of available infrastructure onshore for transportation, storage, and refining.

If a large find is made on one or both of these leases, a decision will have to be made regarding transportation. Though there is substantial infrastructure onshore, offshore is rather thin. Such a find would need to be shuttled by tanker initially.

If the find warrants it, PDVSA might consider building an offshore facility. Also, a new pipeline is in the works to carry production from the limited facilities at Caripito, in San Juan, to Guiria in the Sucra state. In Sucra, PDVSA is building a new processing facility with greater capacity that will be available to all the company's partners.

New markets

A large part of PDVSA's downstream production is sold in the Venezuelan market, what the company calls its "second largest client." Although national law reserves most of the activities related to oil production and marketing to the state, the private sector participates through contracts with PDVSA's retail marketing unit.

This participation is in activities such as storage, transportation, distribution, and retail sales of hydrocarbons. The private sector also participates in the industrialization of manufactured products such as asphalt, kerosene, basic oils, and solvents.

PDVSA's Business Plan calls for a rational use of hydrocarbons in the Venezuelan market and emphasizes the need to establish a pricing system based on the alternate export value, a big step toward opening competition. Through this scheme, the private sector should be able to market PDVSA's products in the national market.

In its Third Round of operating agreements, PDVSA has signed profit sharing agreements with 14 companies in eight exploratory blocks. These agreements are expected to yield an overall investment of $5 billion and tap reserves of 7 billion bbl, producing an estimated 540 million b/d by the target date of 2007.

PDVSA has identified a total of US$3.7 billion in opportunities, including gas pipelines, ethane recovery, gas compression plants, NGL field plants, gas injection projects, and gas compressors. Not only do these projects provide investment opportunities they are expected to increase natural gas production 6-13 Bcf/d by 2007. This increase relies on increased gas transmission and increased NGL production.

Re-aligning PDVSA

To administer this new, open policy, PDVSA is in the midst of a massive corporate realignment. The company will make most of these changes in its relationship with subsidiaries.

While the idea of a national company made up of competing subsidiaries in separate geographic regions worked for a closed market, this realignment replaces the internal competition with competition from the world market.

The new companies will each handle a number of related operations that cover all the company's fields. These companies will be aligned along the traditionally understood industry delineations of upstream, down stream, and retail service. The new groups will be called PDV Exploration & Production, PDV Manufacturing and Trading, and PDV Service.