Archive for July 29th, 2013

PDVSA Creates Privatization-Like Program To Increase Oil Production

July 29, 2013


Oil rigs are seen on Lake Maracaibo from the shore in Cabimas

In one of the most intriguing, and positive, news to come out in Venezuela in quite a while, PDVSA presented a project to reactivate more than 1,000 oil wells in the Lake Maracaibo area, by asking for bids form private service companies interested in activating and running this old wells.

While details are not available on the conditions, the private companies will reportedly bid on single wells, which they will reactivate and run. Pdvsa would sell the oil and the money would go into a trust, where the private company would receive a certain percentage per barrel sold, with some incentives based on increased production.

The companies will receive historical and geological data on each well, so that they can present bids for their operation according to what they expect can be produced. Most of these wells were shut down at least ten years ago and have production levels in the hundreds to low thousand bares per day.

The proposed model is not too different from the so called “service contracts” that Hugo Chavez cancelled based on ideological reasons six years ago, claiming this was a privatization of the country’s oil wealth. But times have clearly changed and this, a privatization by any name you may think of, is the new proposal.

Clearly, this shows that PDVSA is worried about declining production and/or prices and has set aside ideology for the sake of increasing future production. The project name is “Oil well connection project by service companies”, clearly a name invented to make it look like it is only about interconnection of wells by pipes. But in reality, companies will have to work on interconnections, pump stations and platforms, as well as running the wells.

We should have more details in the upcoming days, but for now it looks like the most positive news to come out of PDVSA in a long time, with a potential to have a very positive impact on the company’s production in a very short time. In fact, it has similarities with the proposal of a certain candidate on how to jump start PDVSA’s oil production.

This could have been done at anytime in the last ten years, but ideological baggage blocked it from happening.

We welcome the change.