It’s the kind of number that gave even seasoned oil-industry watchers whiplash: according to OPEC figures, PDVSA’s oil production fell by 120,000 b/d last month alone. Wanna know how dire a figure that is? Venezuela’s oil production just declined by an amount similar to an entire (if small) petrostate’s production, in just one month.

Let’s not mince words, 120,000 b/d/month is a crazy rate of decline. For the last six years, industry watchers had been seriously concerned that PDVSA’s production had been falling by around 50,000 b/d per year. Not too long ago, we were reading analysts express concern out loud that production could decline by as much as 200,000 b/d this year. It just dropped by more than half that amount in a month!

Worse, last month drop represents a 30-fold increase in the rate of output decline, and the first time output has declined in all three main production regions (West, East and Faja) all at the same time.

The Wall Street Journal picks up the tale:

The decline of 120,000 barrels a day, to 2.37 million barrels a day, underscores the inability of state energy company Petróleos de Venezuela SA to maintain oil-industry investments, as the region’s largest petroleum exporter suffers from a debilitating cash crunch, widespread food shortages and civil unrest.

In recent months, major oil services companies, including Halliburton Co. and Schlumberger Ltd., said they were cutting back on operations in Venezuela as the country struggles to pay multibillion-dollar debts with partners.

“This is very surprising,” said Francisco Monaldi, a Latin American energy policy fellow at Rice University in Houston, who closely tracks Venezuela’s oil industry. “If you want to point to the biggest problem, it is cash flow, which for PdVSA now looks worse than we had imagined.”

The takeaway here is that PDVSA is just as cash strapped as every other part of the Venezuelan state. The result is a real emergency: production declines on this scale, if sustained, would leave Venezuela with zero oil production within just a couple of years.

I’m not saying that that’s what will happen. But until and unless the government shows a credible plan for injecting adequate resources into the industry it’s hard to see what would lead the pace of decline to slacken.

33 COMMENTS

  1. Oil fields normally decline their production at a steady and unstoppable rate unless new investments are made to maintain their production , where no investment is made (for lack of funds or out of sheer neglect or incompetence) their production fall steeply the longer the investments are delayed , with the compounded problem that the amount of any needed new investment grows larger the longer the investment is delayed.

    Pdvsa for a long time now has seen falling investment in the upkeep of existing oil fields because the funds it produces are increasingly channeled to meet other prioritized demands of the regime leading to a gradual deterioration in their productive capacity.

    There is of course a mismatch between actual production and reported official production, the former being much smaller than the latter, the regime reports the production of about 2.8 mbd while actual production as reported by independent sources varies between 2.3 and 2.5 mbd .

    Making it worse is that traditional oil fields have undergone both a natural and an avoidable decline in their productive capacity requiring their production to be substituted with added production of extra heavy oil from the Faja which as well known by now requires to be blended with imported lighter crudes or refinery diluents to be made into a saleable product causing the per bl yield to fall ……this in turn makes Pdvsa financial situation more difficult .

    The fall in oil prices and the mismanagement both of Pdvsa’s operations and marketing activities have also contributed to making Pdvsa’s finances incapable of maintaining production at former levels…..

    The first order of business once a balanced political order is restored will be the recovery of Pdvsa as a well functioning business operation , any transition plan must take account of this …., it wont be an easy task.!!

  2. Not to worry. Maduro or some other appointed lackey will be on the television later today to point out that there has been no drop in production… only lies spread by Imperialist interests bent upon the destruction of the Glorious Revolution. And should there be any drop in production, it will be blamed upon vile Capitalists who are waging their economic war upon the sovereignty of Venezuela.
    Sun rises in east. Sun sets in west….

    • It verges on the comical –if the situation weren’t so sad–, that outworn scapegoat of the romanticlittlebourgeoiscontrarevolutionaryattheserviceofyankeeimperialism spreading lies…

  3. Now just join the other article with Francisco thinking about a future MUD government with this. Hey, we ousted the chavistas and inherited a run down, broken oil industry in free fall!

    • So the only logical choice is to leave chavistas in power for another 20 more years, so the industry might magically recover, right?

  4. And how much of the “remaining” oil production is still being given away to the Cubans? Or sold at discounted prices to PetroCaribe? Not even mentioning that most of the domestic production is given away for free! What’s a 125,000 barrel loss compared to selling 1.2 million barrels monthly for next to nothing?

  5. Lamento decir que prodavinci informa sobre esto mucho mejor que que ustedes y que el Wall Street Journal. Además lo hace gratis. Ustedes básicamente también pero ese periódico no y para leer la noticia por la cara, como decimos en España, se necesitan tres clicks más. Si no quieren citar a la “competencia” yo tampoco lo haré pero citen al menos este informe donde se dan muchos más detalles al respecto: http://ipdlatam.com/venezuela-crude-production-decline/ Creo que no tiene sentido poner en su artículo un enlace para que sepamos la cotización de hoy de Halliburton pero no uno para acceder a información como esa.

    • El articulo citado admite manejar estimados de produccion superiores a los muy confiables del Energy Information Agency y los que la propia Opec recaba (y publica) de fuentes independientes , La presuncion que los pagos bajo el Fondo Chino ( que conciernen a la Republica y no a Pdvsa) al prorrogarse implican una reduccion en las entregas a China entiendo que no es necesariamente correcta …….las entregas siguen iguales pero el dinero que generan se destina al pago de otras acreencias Chinas distintas al Fondo Chino (p. ej. las que Pdvsa tiene con distintos organismos financieros de la China ) . Esto implica que los 1.8 mil millones de $ no quedan liberados para su uso en aumentar el abastecimiento de nuestra sufrida poblacion sino probablemente para pagar a acreedores Chinos otros montos que se le adeudan …!!

      • Seguro que todos los datos aportados en ese artículo no son correctos, hay demasiado empeño en ocultar la realidad por parte del gobierno y es difícil hacerse a una idea pero creo que sigue siendo mucho más completo que este post. Mi crítica iba dirigida al señor Toro. Gracias en cualquier caso por el comentario (me gustó por cierto uno suyo de hace unos días cuando puso el dedo en la llaga al decir que si no se informa sobre quienes van a hacer los informes que ahora van a vender en Caracas Chronicles la cosa les va a quedar más bien coja)

  6. I have a relative who works in the oil fields in Venezuela and I asked what PDVSA’s lack of money actually means in terms of output? That is, what real world problems would be addressed with ready cash? What does the lack of money really mean per production?

    The answer is a matter of maintenance and incompetence brought on by a ruinous production strategy. Each sector competes against each other to see who can pump the most oil per month relative to their normal output. Outfits that pump a percentage more than normal are rewarded – a little dinero is kicked back to the jefes in charge of the output. Outfits that fall below the average are given nothing or the management is replaced. In order to get someone else in there who can boost the yield.

    The problem is that there are production codes (read: rules) that are supposed to be perfectly observed in order to keep the rig running and not trash the equipment. These are totally ignored and very risky strategies are used in order to get a little more oil out of the ground. And in the process, shit breaks.

    Once a rig is up and running, it can keep going pretty well with just standard maintenance but if you always red line the equipment it will always break down – eventually. Even perfectly maintained rigs break down from simple use. The problem is, PDVAS’s ability to fix anything is almost zero at this point owing to brain drain. There is no cash to buy spare parts and no money to pay the Slumbergers and other outfits (already owed millions) to come in and fix the mess. So production dives.

    The point is, the PDVA could have all the money in the world but so long as they ignore standard operating procedures, the rigs will keep breaking down and output will keep diving.

    As usual, the Chavistas have ignored the rules for the short dollar. The longest dollar in the world cannot fix a situation running on a strategy that guarantees the equipment will eventually fail. So yes, dinero is needed, but without a sane extraction policy in place, they will only be throwing good money at a bad situation.

    • The lack of maintenance has been an ongoing story ever since Chavez took over PDVSA in 2002 and used PDVSA as a cash cow for various social programs. In 2007, CC had a story on a burned down drilling rig near Anaco. [Unfortunately, the comments got erased during one of the software updates.]To get more input, I contacted a petroleum engineering consultant I knew. He replied that in his periodic inspection trips to Venezuela, he had seen a progressive deterioration in PDVSA equipment since 2002. And this was 9 years ago!

  7. Chavismo’s real kryptonite is complexity. The reality that managing a complex system (like a country) is hard is finally coming home.

  8. How much goes to China to pay off loans?
    How much goes to PetroCaribe for lip service?
    How much goes to Raul to keep his country afloat?
    How much is going into the black market?
    How much is being siphoned off to keep high living standard for Chavista big shots?

    It would be interesting to see how much actually ends up at US refineries.

    BTW, I can’t help but notice that no one publishes water level of Guri anymore? I’ve searched for it and can’t find it anywhere. Has that also become a state secret?

  9. Who would have thought that replacing 20000 engineers, geologists and managers with 120.000 luchadores sociales and perrocalenteros could result in that.

  10. It’s worth noting that according to my petro engineering relative, Slumberger and others maintain a “zero tolerance” rule for workers who do not follow operating code. Break the code and you go home that minute. No exceptions. Because most workers are foreigners, getting sacked in Venezuela is an ordeal, and involves all kinds of shenanigans to even find a flight OUT of the country, especially with little notice.

    I am told that the reverse of the zero tolerance rule is usually at play at PDVSA facilities. That is, the code is given zero attention. This must be an exaggeration but the point is that standard operating procedures are not standard and are often ignored. I believe that this dynamic – of following no rules but your own – has poisoned the Maduro government’s ability to get anything done. The final destination of following no path, of using no proven map, or ignoring all compass bearings is that you are left wandering in no-man’s land. Eventually you tire from all the circling and simply collapse.

  11. Haha! Let’s not kid ourselves… that rate of decline is so unbelievable that I’m willing to bet it’s just been earmarked as “lost” in paper when in reality 120,000 barrels worth of petrodollars are being sent to some Chavista pool of “investors’ ” accounts somewhere over a fiscal paradise rainbow….

  12. Within a couple of years, Guyana will be producing 10x its GDP. Exxon is fast tracking even at current oil prices. They are even discussing doing everything offshore. All the majors are in.

  13. Equipment breakdown is the least of the problems with overproduction. Something much worse happens if a well is pumped significantly beyond its capacity over an extended period of time : the field porosity around the well collapses.

    The pressure falls down hole and the pores in the oil-bearing stratum around the well can no longer support the geostatic pressure – the weight of the rock above them – and they get crushed.. And it’s those pores that allow oil to seep progressively towards the well during proper production. Once they collapse, they cannot be reopened and the well is shot, done for. You need to drill a new well beyond the crush zone to restore production, and the oil in that zone cannot be recovered. It’s lost forever.

  14. It is likely that May’s one-month 120m bbl production decline is more a recognition of independent/IEA estimates of real 2.3-4mm bbl/da. Venezuelan production, than a real one-month decline, although Hubbert’s curve states that, all things being equal, older wells/fields, such as Venezuela’s non-heavy oil, are now on the far side of a bell curve exponential decline, even if this decline may be slowed somewhat by restorative technology, which, in Venezuela, is applied spottily, at best.

  15. […] PVDSA’s Garish May Production Collapse – Caracas Chronicles Petróleos de Venezuela, S.A., Venezuela’s state-owned petroleum and gas company, has taken a hit to their daily oil production to the tune of 120,000 barrels. As the article states, this means that they “just declined by an amount similar to an entire (if small) petrostate’s production, in just one month.” The country is in crisis mode, complete with food shortages and rioting. At this rate, Venezuela could run out of oil within a few years. […]

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