Venezuela: When having the largest oil reserves in the world is basically useless

July 15, 2010

(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!

12 Responses to “Venezuela: When having the largest oil reserves in the world is basically useless”

  1. […] (Läs mer här, här och här.) […]

  2. […] Venezuela: When having the largest oil reserves in the world is basically useless […]

  3. Aristo Says:

    Oil spills. Poverty. Corruption. Why Louisiana is America’s petro-state.

    “…In the 1970s, Venezuela’s oil minister predicted that oil, which he called “the devil’s excrement,” would lead his country to ruin. More than a generation later, the nation is ruled by a mercurial leader who doles out cheap gasoline in an effort to paper over persistent social inequality.

    While Louisiana is a far cry from Venezuela, does it have any better chance of breaking free from its oil addiction?…”

  4. SJ Says:

    It’s not just heavy oil in Alberta. Venezuelan engineers are helping with oil and gas production, refining, petrochemicals, etc, in oil-producing regions around the world. There’s lots in Houston and the Gulf of Mexico; I met a few in Equatorial Guinea, Mexico, and have heard about others in the North Sea, Colombia and other places.

  5. henry stone Says:

    Any comment regarding Peña Esclusa’s incarceration?

  6. Gringo Says:

    Roger: it [heavy oil] will cost many times more than if Venezuela [had] planned ahead and trained Venezuelans to work with cutting edge science.

    Many of the Venezuelan engineers and scientists who could be working on heavy oil in Venezuela are now working on heavy oil in Alberta. This loss of engineers and scientists didn’t occur just during the time from the PDVSA strike to the Recall Referendum. I recall reading when Thugo took over some of the Orinico properties several years ago, of a Venezuelan engineer who had been working for a multinational in heavy oil got fired when news of his politics reached the new owners.

  7. Roger Says:

    While Heavy Crude production might not have the disaster element that deep water drilling disasters like the one going on in the
    Gulf, the complexity of the task for Petroleum Engineers working with Orinoco Heavy Crude is no less daunting. Also, just like we see in the Gulf disaster, if procedures are not followed, there will be problems. Even if you hire non-Venezuelans most of the work has to be done exactly, on time for the procedure to work and it will cost many times more than if Venezuela a planed ahead and trained Venezuelans to work with cutting edge science.

  8. A_Antonio Says:

    They will have to do things easy way.

    They should learn and adapt their stomach to eat oil.

    Their first step is to practice with rotten food.

  9. Nunne Says:

    Sorry for going so off topic.

    But traveling back to Caracas next saturday. And since they shut down the brokage houses the REAL black market seems to have gone hay-wire?! says it’s at 14.83bsf per dollar. is it really that bad? is that the price you can ask for on the street?

    Or do anyone know what the real selling price is on the “street”?

    And something I have been pondering awhile.. How does the interest rates look on a loan for an house/apartment? I mean, with inflation rate well over 30% … How does a loan like that look like?

    Not that I think anyone dares to buy a property now that the fatman probably just will steal it. But anyway. Just wondering.

  10. Nit the Picker Says:

    “even if PDVSA holds 60% of the shares in the joint project, a minimum of 896% of the decisions of the Board…”


  11. jsb Says:

    “But in the end, the biggest problem is where could/would Venezuela get the money required…”


  12. A_Antonio Says:

    It is not the subject ofthe post, but, it’s sad seeing how Chavez disrespects the Bolivar rest, only to satisfy his deviated mind.

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