Analysis: Chavez win means more of the same for Venezuela oil

Reuters News
Posted: Oct 08, 2012 1:45 AM
Analysis: Chavez win means more of the same for Venezuela oil

By Daniel Wallis and Marianna Parraga

CARACAS (Reuters) - President Hugo Chavez's re-election on Sunday means Venezuela's state oil company PDVSA will remain highly politicized and will continue its discount supply deals with his socialist allies.

Chavez, 58, won a new six-year term with more than 54 percent of the vote against opposition rival Henrique Capriles, a young state governor who sought to end his 14-year, self-styled revolution.

Critics say Chavez has hobbled PDVSA with the weight of his government's financial demands - it helps pays for everything from sports teams to health clinics and home building - meaning it has neglected to invest enough in the oil business.

The industry brings in more than 95 percent of the OPEC nation's hard currency revenue. PDVSA produces almost 3 million barrels per day (bpd) and boasts the biggest crude reserves in the world.

But the company, which has more than 100,000 employees, has repeatedly failed to hit its own production targets and has suffered a string of sometimes-deadly accidents in recent years.

Following Chavez's comfortable victory, his government will seek to push forward a raft of ambitious joint ventures with foreign partners in the huge Orinoco extra-heavy crude belt - one of the planet's biggest, mostly untouched oil reserves.

Venezuela's crude production fell in 2010 to its lowest level since a months-long strike at PDVSA a decade ago, and Orinoco is key to the government's hopes of increasing output by as much as 2 million bpd or more over the next few years.

In total, the Chavez administration - which has repeatedly raised taxes on the oil industry while requiring that PDVSA have a majority stake in all projects - expects investment of more than $80 billion in the Orinoco belt over the next several years.

It has signed deals for projects there with foreign companies including Chevron of the United States, Spain's Repsol, Italy's Eni and a consortium of Russian companies, including Rosneft.

Executives from foreign companies in some of those joint ventures say they have suffered delays because of late payments by PDVSA, lack of infrastructure and uncertainty over tax rules.

Those delays are likely to continue, but the Russian joint venture began pumping its first oil last month, and others are due to come onstream soon.


Under Chavez, China has become a key source of funding, providing his administration with loans totaling $32 billion over the last few years. PDVSA is sending 430,000 bpd of crude and products to China in repayment.

The importance of Beijing to Caracas's finances is expected to increase under Chavez's next government. His administration often says it wants to boost exports to China to 1 million bpd.

The new Chavez government is also expected to prioritize efforts to tap its offshore natural gas. Venezuela is among the world's top 10 nations in gas reserves but has yet to begin any commercial gas production. Instead it imports supplies from neighboring Colombia.

Electricity shortages are a pressing domestic issue, and the development of Venezuela's natural gas reserves would help the government produce more power.

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All eyes are on the Perla gas field and its reserves of more than 15 trillion cubic feet. Production is due to begin there early next year at a partnership between PDVSA, ENI and Repsol.

Chavez is also expected to continue and possibly widen the politically driven oil-supply deals with ideological allies such as Cuba, Belarus, Iran, Syria and more than a dozen Central and South American countries.

Under these agreements, Venezuela is often paid for its oil in goods or services - sometimes with food or livestock - which puts even more pressure on PDVSA's cash flow. The company was not paid directly for almost half the crude it pumped last year.

Ramirez is expected to remain in his post following Chavez's victory, at least in the short-term. He once described PDVSA as "red from top to bottom" in its support for the president.

While there is discontent within the company's ranks - some workers resented being bused to rallies during the election campaign, for instance - the creation of a single workers' union has limited criticism of PDVSA's management.

"It is an honor for us to take part in Chavez's government," Wills Rangel, president of the oil workers' federation, told Reuters last month.

(Editing by Kieran Murray and Philip Barbara)