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.

30 Responses to “PDVSA Creates Privatization-Like Program To Increase Oil Production”

  1. […] Opening bid round to let service companies revive old, low-production wells. (via) […]

  2. Luis A. Pacheco Says:

    Most of these wells are closed for a reason: either unproductive or uneconomical…I do not foresee this as more than a ripple in the pond. But then again that is only my opinion

    • moctavio Says:

      And your opinion is one I respect a lot!

    • sapitosetty Says:

      I’m with Miguel. You probably know more about this than 99.9% of those of us who might comment on it. So it’s an important opinion. Indeed, if your current company is looking at this opportunity with such a high level of skepticism, one can only imagine how a company less familiar with Venezuela might approach it.

      One thing that strikes me is that companies — especially internationals — will only get involved in new projects if it looks like there is a chance of ever getting paid. I wonder if this will put a fire under PDVSA’s butt to pay some of its invoices and dividends to companies now operating in Venezuela. ($HNR, $CVX, $SLB…)

      On the other hand, there is a chance that this is all an opportunity for new guisos. Imagine the commissions available to those who will evaluate bidders.

  3. […] PDVSA Creates Privatization-Like Program To Increase Oil Production […]

  4. Kepler Says:

    Very OT: two European friends are planning to go to Sucre State (Mariquitar) in a couple of months and I need some information on how they can get there. They haven’t bought the tickets yet so I just want to know what someone who knows the region now would recommend: from Maiquetía (they might come from Maracaibo, had to go there) to Barcelona and then bus? I am a bit worried because they had never been to Venezuela and they are female. One speaks fluent Spanish but her reference is Chile.
    Venezuela is right now a complete mess, also with booking/planes.
    As OT, thanks for writing to desarrollo.sostenible.venezuela@gmail.com

  5. m_astera Says:

    I’m totally skeptical on this. Dealing with PDVSA and the government, here’s how it would probably work:

    Oil price $100 barrel
    Pump 1000 barrels (in theory, $100 000).
    PDVSA charges you to pick it up, transport it, do the initial cracking, selling and further transport to the refinery.
    Probably 80% them, 20% you.
    Your gross income on that, $20,000.
    Then you will get paid at 6.3 Bs per $, maybe a year later.

  6. Roanldo Says:

    Regardless if the companies are privatized, they will still have Chavista oversight, must still follow Chavista labor laws, must still get tightly-controlled foreign exchange through the government, cannot act contrary to or defame the Chavista government, and above all they have to payoff corrupt Chavista officials to stay in business. Given all this plus the high probability of expropriation if they become too successful, why would anyone take a chance?

    • Roger Says:

      Continuing what I said above. Do they what to play that game with Brazil?

      • Noel Says:

        I was thinking more about Venezuelan companies rather than foreign ones as the former can operate in local currency and have a healthier impact on the economy and society. As to what Brazil would do in this regard, it seems to me that Brazil is undergoing its own post revolutionary inspirational leader (Lula) assessment and the PT is starting to feel voter backlash.

  7. Noel Says:

    Miguel,is this a test balloon to reactive several sectors of the economy? Can we see management contracts for private firms to re activate nationalized industrial companies without changing their public ownership? What about the agribusiness and food sector?

    • Roger Says:

      The other day I saw a story about China wanting to develop agribusiness in Venezuela. Im not sure if its real as they have found Venezuela hard to deal with but Im sure there is a plot to it.
      At this point in time, the only outside investment that would have a chance would be from another Mercorsur country that would have treaty protections of their investments?
      One thing we do know is that after14 years of importing Iranian and I suppose Chinese tractors the bolivarians can’t make it happen no matter how big the commissions were!

  8. Douglas Says:

    What private companies? Didn’t Chavez “nationalize” most of the service sector a while back?. I remember well that when the “Apertura” came in the mid-90s several of the major oil companies that came assumed there would be a robust service sector to rely on. Nothing further from the truth. It took more than 2 years to bring up the service levels, (principally by bringing back the multinational service companies that had been driven away or reduced to a minimum expression back then). Who are they going to call now? The Ghostbusters?

    • VJ Says:

      Ghost towns in the Bolivar Coastal Field.

      Hora del almuerzo y los restaurantes casi vacíos . Jueves 21 y las licorerías de las localidades de la Costa Oriental del Lago de Maracaibo en su mayoría desiertas, cuando usualmente las personas abarrotan las calles y congestionan el tráfico.
      Las deudas de las contratistas petroleras con sus trabajadores, por los incumplimientos en el pago de Petróleos de Venezuela con éstas, ha generado los últimos meses un descenso en la actividad económica en esta zona.
      Ahora, con la expropiación de las empresas por parte del Estado, los habitantes vislumbran un “futuro negro”, lleno de desempleo, desinversión y una recesión total.

  9. Paul Says:

    Good luck in finding partners. I would be shocked if any other “gringo” company, other than maybe Chevron, would be interested in having their assets eventually confiscated.

  10. Lazarus Says:

    Is there a link to this announcement?

  11. --Rick Says:

    Considering the way Chavez confiscated private oil company properties without compensating them for their losses, good luck to those who venture into this “new relationship”.

  12. Mike Says:

    Reaction to the fracking threat? The US potentially becoming a net exporter of energy by 2030? Nah, this bunch of ignoramuses don’t know anything about long term strategizing.
    Saudia Arabia sure is concerned and looking to diversify asap into non-oil based wealth creating industries.

    • CARLOS Says:

      The worst for the US is the increased domestic oil reserves depletion through fracking and other new technologies. They are burning today the energy for next century. It would be better to have expensive oil, support energy austerity, burn other countries oil, and grant incentives for alternative energy deployment.

      • HalfEmpty Says:

        Better to enrich the oil ticks, spend money on unicorn farts and ease Big Al Gores retirement than it is to change our balance of payments, why? Because we’re running out of oil? Again? Much like McMutry, we will always be leaving Texas.

        • CARLOS Says:

          Yes… the US printed trillions of monopoly money to help distressed homes, defaulted mortgages, banks and home owners. The US have the unique privilege to print fiat money accepted worldwide as “reserve currency”. So, keep printing it at use it to pay real hard assets (like oil) and leave more valuable oil down in the ground for next century US citizens. Do not worry about oil mid east tycons.. they will leave the money in US Banks.!!

  13. concerned Says:

    Or they could let the private companies reactivate the wells and then take them over again after they are producing. If you don’t learn from your history…

    There is a reason why they wear red. You are dealing with the devil.

  14. Pedrop Says:

    Anything that makes money for this regime is a negative.

  15. TV Says:

    I don’t want to be overly negative, but we must stay realistic. Boliborguesque has a nasty tendency to screw every good idea. If the dollar auctions are any indication, the wells will simply be transferred to whomever is best connected. Don’t expect the country to benefit much from increased production, if that by some miracle happens.

    This is potentially very positive, but could also be very negative.

  16. Boludo Tejano Says:

    Leaving the lower production wells to smaller companies is also a practice that oil companies practice in the US. Over the last 30 years, the majors have sold off many of their producing properties in TX and other places to much smaller operators. The majors then accumulate capital for the big buck investments needed offshore or overseas.

  17. Roger Says:

    100 Bls a day that’s 10,000$ a day. Even at 50% royalty thats a tidy sum. Around here there are people who run strings of stripper wells that do less than 10 Bls a day (1000$ less discounts and BLM fees) and do quite well now that the price of oil is high. At these production levels pipelines are not important. Most pump into a tank and call a tanker truck to haul it when its full.
    Years ago, I commented here that, when oil production drops off below non commercial levels, that the wells would be invaded and the pumps operated by 1972 Chevy’s jacked up and one of the tire rims driving the pumping unit! At 110Bls a day or more I don’t think were there yet! But, If I was a smart Chavista invader, one of these wells would be on the top of mi list! Screw growing Mangos!!!

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