The decrepit state of aging oil fields is a crucial reason why Venezuela’s output is falling faster than that of any other major oil producer bar insurgency-riven Nigeria, despite having the world’s largest reserves.
Great article from Anatoly Kurmanaev on the sorry state of Venezuela's oil fields.
Venezuelan Oil Is Largely Staying in Ground or Going Up in SmokeAnatoly Kurmanaev | Photographs by Miguel Gutiérrez for The Wall Street Journal
PUNTA DE MATA, Venezuela—This fading oil town has an eerie glow at night, illuminated by dozens of oil wells burning off precious oil and gas for lack of functioning equipment to process it.
Making matters worse, for every barrel of light crude burned off at Punta de Mata’s wells, Venezuela needs to spend dollars importing a barrel of diluent to mix with the very heavy oil produced in the country’s south.
“This is pure mismanagement,” said Carlos Bellorin, an oil analyst at IHS Inc. in London. “There’s no other rational explanation for such waste.”
The decrepid state of aging fields like Punta de Mata, which provide the bulk of Venezuela’s revenues, is a crucial reason why the country’s oil output is falling faster than that of any other major oil producer bar insurgency-riven Nigeria.
Venezuelan crude production shrank 11% to 2.3 million barrels a day in a year to September, according to government figures, and the consulting firm Medley & Associates expects the fall to accelerate in the next 12 months.
Overall, the number of working oil rigs in Venezuela declined by a quarter in the 12 months to September, according to Houston-based oil-field-service company Baker Hughes Inc. There are now more rigs drilling in Oman, where proven reserves are just 1.7% of Venezuela’s.
“I don’t think this government will be able to stabilize production even if the oil prices start to rise,” said Luisa Palacios, Medley’s Venezuela analyst....
Oilmen in Punta de Mata, once Venezuela’s major oil-producing hub, blame Venezuela’s production decline on government expropriations, corruption and collapsing wages that left state oil company Petróleos de Venezuela SA, known as PdVSA, increasingly hobbled.
The international oil service companies including U.S.-based Schlumberger Ltd., Halliburton Co. and Baker Hughes, which once drilled Punta de Mata’s wells and managed the flow of associated gas, are almost all gone, either squeezed out by billions of dollars of unpaid invoices or their local assets expropriated by the government.
As foreign companies began to idle drilling rigs and skilled workers left, output at the Northern Monagas Basin, which includes Punta de Mata, plunged two-thirds in the past decade, the steepest decline in the country, according to PdVSA’s regional managers.
Hit by the cash crunch, PdVSA is now trying to postpone $5-billion-worth of maturing bonds for three years, a move rating agency Standard & Poor’s said is “tantamount to default.”
PdVSA has already practically defaulted on its domestic debts. The company owed $19 billion to contractors—who provide everything from rigs to lunches—at the end of last year, according to its latest annual report.
After writing off $500 million in the country, Schlumberger, the world’s biggest oil-services provider, began to wind down operations at mature fields in June. It fired hundreds of workers, mothballed some rigs and said it would only work with PdVSA when prepaid in cash.
“Schlumberger just threw in the towel,” said Hector Navarro, a PdVSA production manager in Northern Monagas. “They left us to fend for ourselves.”
Earlier this year, a services subsidiary of Italian oil giant Eni SpA, called Saipem, removed its rigs from Northern Monagas and dismissed about 300 workers, according to the national oil union FUTPV. Saipem’s finance chief told investors in July that the company had “reduced almost to zero our operating exposure to Venezuela.”
As of this year, Halliburton will only drill for PdVSA when it is partnered with a foreign shareholder and has a better chance at getting paid, according to two company engineers in Venezuela.
Read the article online here:Venezuelan Oil Is Largely Staying in Ground or Going Up in Smoke - WSJ