The Devil's Excrement

(For the first time the production of diarrhea is larger than that of oil)

A recent study by scientists at the US Geological Survey suggests that Venezuela may have double Saudi Arabia’s oil reserves, holding about 500 billion barrels of “technically recoverable” oil. To give you an idea how large that is, if Venezuela produced 10 million barrels a day, that amount of devil excrement would last about 137 years of production and at the current rate of 2.4 million barrels a day, we would be talking about some 570 years.

But don’t get too excited or break the champagne (Or the Scotch!)

Because this is a practically useless factoid for a Venezuela run by the Bolivarian revolution, even if you believe the numbers.

Because, as Gustavo Coronel points out in the same article, a 40-45% recovery rate is beyond what anyone believes is possible. Furthermore, there is also the problem of the recovery being economically feasible at current prices.

But in the end, the biggest problem is where could/would Venezuela get the money required to exploit these oil reserves at current prices. With both the country and PDVSA having cash flow problems, having all of this is practically useless at this time.

You see, by changing how the Orinoco Oil Belt is being exploited, Venezuela will not be able to have the money to extract any of this. The Chavez Government by now realizes this problem, but it is not easy to backtrack on revolutionary promises and slogans. But, while you were not looking, PDVSA and the Government made some very substantial changes to the conditions for the exploitation of the Orinoco Oil Belt, from what they claimed a few months ago.

Rememebr all the BS about Sovereignty? That is all it was.

To begin with, while the contracts for the bidding did not allow international arbitration, the contracts for the joint projects do allow for the much maligned international arbitration clause, something which has been previously demonized by the Chavez administration.

Funny, no?

Additionally, even if PDVSA holds 60% of the shares in the joint project, a minimum of 96% of the decisions of the Board of the companies have to be made with the agreement of the foreign partner.

And while the Venezuelan Government has criticized that ExxonMobil and ConocoPhillips used jurisdictions for their partnerships which were different from those of the original company, which allowed them to take advantage of treaties to protect their investment, Chevron is registering as a Danish company and a Japanese company is using a British registration for the same reason. But please, don’t tell the rank and file of PSUV, they may realize we are giving away a big chunk of our sovereignty.

In fact, they are truly giving it away. In the much criticized joint partnerships and service contracts of the IVth. Republic, partners could not use or count as reserves what they had in the projects. Under the new revolutionary contracts, they will be able to count them in their balance sheets, but they can not be pledged.

But where the whole thing becomes useless, is in the PDVSA-centric model.

You see, PDVSA has 60% of all the projects. This means PDVSA has to contribute 60% of the funding. For the Orinoco oil projects alone, our friend JB Lenoir estimates in a Veneconomy article in the June issue that PDVSA will need 75.6 billion US$ for the Orinoco projects in the next ten years as well as US$ 72 billion for the existing oil production and processing facilities. This totals US$ 147.6 billion in ten years, or US$ 15 billion dollars per year.

Given the lack of transparency of PDVSA’s financials, its lack of technical capabilities and the lack of trust in the current Government by international investors, this is essentially impossible.

In fact, this reaffirms the validity of the model used by the IVth. Republic for the same projects. In the old Cerro Negro, Petrozuata, Hamaca and Sincor projects, the foreign partner held just over 50% of each project and the development and upgrading plants were built by having the projects issue debt or borrow directly from banks under the name of the project.

It was a very clean structure. Project A would issue bonds to be paid by the proceeds of the sale of the oil through PDVSA. The balance sheet backing the project would be that of  project A, not that of PDVSA or the partners. The debt was registered abroad and the financial and operating results of each project backed its bonds.

This allowed for an almost unlimited number of projects possible, each with its own debt structure.

Under the current centralized and revolutionary structure, it would have to be PDVSA that issues debt for its share of each project, but PDVSA is almost a black box. In fact, it has yet to present its audited financial statements for 2009, which under Venezuelan law should be presented by March 31st. of the next year. It would be next to impossible for PDVSA to issue half of what it needs under its current operation conditions.

So, it is great to have so much devil excrement around, but it is essentially useless for us Venezuelans, as long as the conditions set by the revolutionary Government remain as they are and the price of oil is where it is.

So, we are very wealthy, except we did nothing to deserve it or earn it and on top of that we insure that we will remain poor by appealing to pseudo-nationalist and ideological issues.

It is indeed the Devil’s Excrement!

What a waste!

This entry was posted on July 15, 2010 at 10:18 pm and is filed under Venezuela.