Oil-Black Future: What if Oil Output Keeps Dropping?

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Photo: RunRunes

I was asked in a conference:

“What happens if the U.S. decides to apply sanctions to oil purchases from Venezuela?”

I replied:

“What happens if Venezuela runs out of oil to export to the U.S.?”

Sounds crazy, but let’s see what has been happening thus far:

When president Chávez took power in 1998, Venezuela produced some 3,400,000 oil barrels per day. If the ongoing oil opening had been completed, oil production would have reached five million barrels per day in a few years. However, the Revolution was against the process and did everything it could to stop it. They succeeded.

Instead of five million barrels per day, OPEC reports that, according to “direct contact with the government“, Venezuelan oil production for December 2017 was just 1,621,000 bpd. The same report shows an output drop of 216,000 bpd in December, 118,000 bpd in November and 130,000 bpd in October.

The aforementioned figures show a catastrophic situation in our main industry. Throughout 2017, oil output in Venezuela dropped by 649,000 bpd, which represents almost 40% in a single year. To understand the magnitude of the drama, it’s enough to say that after nationalization Venezuela took approximately 20 years to increase oil production to the levels “rojos rojitos” destroyed in our year. Dear God!

On the other hand, oil prices recovered throughout 2017, which could ease the gravity of the situation. In fact, Brent Crude prices rose from $55 to $68 per barrel. The Venezuelan offer reached $61.35 per barrel, some $5 more.

There are two sad considerations to make in this respect. The first is that the aforementioned price hike is largely a consequence of the fact that markets believe OPEC to be complying with the output cuts they’ve promised. Sadly, the top output cutter in OPEC is essentially Venezuela. An example suffices: in December, when our production dropped by 215,000 bpd, Saudi Arabia (the biggest OPEC producer) increased their own by 80,000 bpd. The vacancy we’re living in the market is being filled by others.

The aforementioned price hike is largely a consequence of the fact that markets believe OPEC to be complying with the output cuts they’ve promised.

The net effect of the price hike in our case is negative: assuming that we were selling our entire production (which we aren’t) we’d be getting $5 more on those 1,621,000 bpd we still produce, an additional $8,105,000 in daily revenue. But we’d stop getting $61 on those 649,000 bpd that we stopped producing, a drop of $38,816,150 in daily income. If we multiply it by 365 days, we’ll understand the magnitude of the debacle.

But let’s get back to the original matter, our oil exports to the U.S. By 1998, when Chávez won the election, our shipments to that nation amounted to approximately 1,750,000 bpd. We were the first foreign hydrocarbons supplier in the U.S., and historically the surest one too.

Now, according to figures from the EIA (U.S. Energy Information Administration,) Venezuela’s oil exports to the U.S. dropped to 416,000 bpd in 2017, in other words, more than 76%; but the bulk of the dollars we still get comes from there. Venezuela changed the American market for other markets in Asia (specifically China) where, by the way, it’s hard to compete due to a simple matter of geography and distance.

If the massive collapse goes on, we couldn’t discard the likelihood that our oil production could drop by another 600,000 bpd. I doubt such a drop can be stopped by military maneuvering. We’d then have to ask ourselves the worrisome question opening this article:

What happens if Venezuela runs out of oil to keep exporting to the U.S.?

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72 COMMENTS

  1. Interesting, but not news for those who know, know this has been going on since ‘07 even if it started in ‘03. Not even considering the ongoing purge in Petrocedeño or Petropiar.

    So how are those direct cash disbursements working out for el pueblo?

  2. “The net effect of the price hike in our case is negative: assuming that we were selling our entire production (which we aren’t) we’d be getting $5 more on those 1,621,000 bpd we still produce, an additional $8,105,000 in daily revenue. But we’d stop getting $61 on those 649,000 bpd that we stopped producing, a drop of $38,816,150 in daily income. If we multiply it by 365 days, we’ll understand the magnitude of…”

    ——————————

    While I appreciate the fancy math, not exactly.

    Oil drilling is very capital intensive, requiring LOTS of bucks in maintenance/hardware to keep those drills working. Not to mention paying real wages (in today’s VZ?)…to qualified personnel (any left in VZ?)…without the skimming and robbery every step of the way.

    So that $38,816,150 drop in daily income is a figure that doesn’t mean anything if all you’re looking at is the barrel price.

  3. Your are only looking at one factor in the equation. You need to look at and consider other factors to see the total impact on VZ. Its is not just the amount being produced but the type for oil, the quality of the oil, and even more the competition in the market place. It is not just that export to the US has gone down t…. the US has less of a need to import due to the increased production inside of the US. There is also more competition and more supply of higher quality oil available the world market with new sources being added. So even if the production levels were not dropping like a rock the demand for VZ would be dropping and the price that buyers would be willing to pay would be less.

    • The difference in quality is covered by the price differential. USA gulf coast refineries are equipped to process heavy crudes, therefore they bid to buy heavy cargoes. They bid less for heavy because it yields less dollars when refined, but do bid as long as the oil isn’t trash or the quality is very variable. Load variability is probably impacting the Venezuelan cargoes because they lack volume, equipment, chemicals, and quality personnel to make sure the product is what was promised.

  4. “If the ongoing oil opening had been completed, oil production would have reached five million barrels per day in a few years. However, the Revolution was against the process and did everything it could to stop it. They succeeded.”

    I seem to recall Chavez himself talking about reaching 6 million barrels a day. And I think when he said it he was talking about doing so with existing profit-sharing agreements with multi-national E&P companies, though I could be wrong.

    • “–Carabobo 1 was awarded to a consortium involving state oil company PDVSA (60%), Spanish Repsol (11%), Malaysian Petronas (11%), and India’s ONGC (11%), Indian Oil and Oil India Ltd (7% together).

      –Carabobo 3 was awarded to a consortium including PDVSA (60%), U.S.-based Chevron (34%) and Japanese Mitsubishi, Inpex, Japan Oil and Gas, and Japan Metals National (5%).

      –Carabobo 2 was not awarded.

      Details have yet to emerge, but it appears each of these consortia will be investing some $15 billion, large commitments even by oil industry standards. If these investments are added to what might be invested in the separately negotiated Junin blocks, total new investment in heavy oil projects could exceed $75 billion. Each of these consortia is likely to have to spend $6 billion to $8 billion on specialized refineries to upgrade the heavy oil to marketable specification and quality.

      –Doubling production. The government has stated that this suite of projects will increase the country’s oil production from 3 million to 6 million barrels per day (b/d) by 2016, with first oil being delivered by 2013, an aggressive pace.”

      https://www.forbes.com/2010/04/03/venezuela-oil-auction-orinoco-business-energy-oxford-analytica.html#756fb0bf3c00

        • Very little. pdvsa promised to build the infrastructure (condominiums) between the various Faja mega projects to include expanding electric grid, rail train for shipping sulfur and coke, promised new export facilities on the Araya peninsula reducing congestion in Jose, new interconnecting pipelines, etc. That never happened.

          Partners developed plans including accelerated production (at request of regime and to improve thin economics), new upgrader technology, lots of improvements, and asked for a change to contract of less than 2% to make project economics competitive with other worldwide project opportunities. Note project costs had jumped from $5 billion for previous projects to ^$25 billion. There was concern of need to import expat welders because there was no local talent, constructing light crude import facilities due to no confidence that pdvsa would come through with condominiums. Nothing happened. Consider this is when they were “developing “ servicios de pdvsa, competition was being crushed, going unpaid.

          Regime said no to partner plans. pdvsa drilled a few wells, made some oil, partners are still “in” but with no influence and paying minimum costs. Everyone laying laying low waiting for regime change. The collapse can be attached to a few names, heard here before RR, EdP, etc. and dozens or hundreds of enchufados, but yet to be named is the head of the Faja in CVP.. corrupt as they come. and worse yet, he knew better but wanted to line his own pocket.

          • Thanks for that summary, fellow Gringo. Laying low and waiting for regime change reminds me of this movie scene:

    • Yes, Chavismo did from time to time claim that a BIG increase in oil production was in the works. Just you wait and see. For example, consider this statement from 2004. Statement of the Embassy of Venezuela Before the U.S. Senate Committee on Energy and Natural Resources.
      We are extremely proud that our exports of crude oil to the United States reached their highest level in December 2003. With 1.44 million barrels per day exported to the United States, Venezuelan oil now accounts for more than 15 percent of all oil imports to the United States.
      Venezuela’s Plans for the Future
      Having made such a successful and complete turnaround in 2003, we are now ready to
      look to the future. PDVSA’s 2004-2009 business plan is both ambitious and realistic. The plan
      calls for an increase in crude oil production capacity from the current 3.8 million barrels per day
      to more than 5 million barrels per day by 2009.
      While this increase will be achieved principally
      from substantial investments by PDVSA, there will also be sizable investments by foreign oil
      companies- including U.S. companies .

      Chavismo was quite willing to make claims about increasing oil production, but was not so willing to take the steps to make that increased production a reality. This is far from the only example of Chavista plans that were never fulfilled. In fact, unfulfilled plans seem to have been to be the Chavista norm. Why should we have expected anything different from Chavista-controlled PDVSA? All hat and no cattle, indeed. 🙂

  5. Nice. This is what I’m expecting to happen: the gang will be out of money to pay the esbirros in few weeks and the Ceaceascau finale will be here.

    Remember that the oil production is not exported completely (some remains within the country to supply the local market and some even ends in Brazil and Colombia drained via contrabando). This really hurts the internal finance since the local market is supplied with basically gasoline and diesel, and to produce them pdv needs to buy the expensive compounds (i.e. alkylates) to blend with nafta.

    On the other hand, oil exported to Cuba and other countries is basically for free. And the one that goes to China is not paid at all since the gang already stole the money received in advance, especially during the 2012 campaign.

    As such, the gang is only receiving dollars basically from the export to U.S.

    Considering the gang has held power essentially because they control the once abundant oil money to fill the pockets of the gang and the esbirros, it will be very likely that the clashes between the members of the gang spike up to a level where it will implode. When that happens, there will not be enough “motivation” for the former esbirros to contain the people; starving people who will be protesting more and more closer to miraflores until the final chapter of this nightmare will be written for the good of the mankind.

    P.S. the way the gang has displayed during weeks the brutal force against Oscar Pérez and his relatives until today, it’s a message the gang is trying to send to their esbirros; esbirros who will starvate once the money is running out; and soon the gang will be isolated.

  6. I watched Godgiven Hair’s program last night since movistar was generally cratered and with it, my computer service.

    Watching that program always gives some clues as to what’s going on inside chavismo. Sorta like watching how Soviet leaders would line up in Red Square back in the old days.

    Last night’s theme was “staying unified”…..not only Godgiven exhorting the faithful to stay the course, but lots of old video of Chavez talking about how dangerous it would be for the revolution if chavistas didn’t maintain their composure, discuss their differences in private, and show only a unified face to the public.

    Things are not going swimmingly in Miraflores.

    • Así es, “Things are not going swimmingly in Miraflores” y esto lo corroboran los hechos: asaltan supermercados y luego les dan creditos, negocian mientras boicotean la negociación… algo parece estarse moviendo en el chavismo aunque todavía no se sabe como ni cuando reventará…

    • Epa MRubio, I have been hearing a rumor of a split between “Chavismo critica” and the Vampires.

      https://www.youtube.com/watch?v=9h2qg629Syw

      Yeah, thanks for watching that bullshit for us. I have a movistar corporate account and it goes to crap as well in the evening. I think it from everybody watching videos and social media of the news between those hours. You can feel it in the air. What is going on now is not sustainable.

  7. Let’s not forget the real guys that threw the monkey wrench in Chavista plans, and that would be the handful of Good Ole’ Boys up in Texas and Oklahoma who figured out how to wring oil and gas out of source rock. They just keep getting better at it, and this year, US production is expected to overtake that of Saudi Arabia:

    https://www.reuters.com/article/us-iea-oil/iea-sees-oil-markets-tightening-as-venezuelan-output-collapses-idUSKBN1F80UI

    I don’t know many of them personally, but have met a few that are working the Marcellus and Utica Shales in Ohio and PA. Having said that, I would bet the ranch not a whole lot voted for Hillary. Christian, conservative, right-wing, Trumpistas would be my guess.

    The Canucklehead’s favorite kind of people.

    • Lorenzo, before you get all misty eyed about the good Christian Patriots of the Utica Shales, I have to inform you based on personal experience that no politics or religion attaches to resource extraction. You have to understand science, the economics and risk, you have to be okay without the comforts of home, and you have to be practical. There is not a politics or religion attached. Really. And they’re not all boys anymore either.

      Yer deplorables are not so predictables.

        • It’s been a while, so you and the Canuck may be right, MRubio. And Texas and Oklahoma have way more than their fair share of the liberal intellectual types. Just ask Merle Haggard.

          • Please don’t drag Merle’s name into this. I met my wife in Bakersfield when I was in my youth working as oil file roustabout. (that was our title) in the early 1980s. In case any of you did time on Bakersfield, recall Norm and Edna’s Trout’s. Sorry, I know this is arcane, but many of you are oilfield vets.

          • Sorry, AG, but it is difficult to discuss the good ol boys in Oklahoma without giving credit to Merle and his big hit of ’69, “Okie From Muskogee.”

          • Ya gotta love it! Thanks, AG. Never worked in the Bakersfield (I know Merle was born there) but punched a few holes in the Palo Duro and got to know the good folk in the two panhandles (Texas and Oklahoma) pretty well.

          • “It’s been a while, so you and the Canuck may be right, MRubio.”

            I was kidding, but like you will defer to Canucklehead since he knows all there is to know about everyting. Don’t believe it? Just ask him.

        • MRubio

          I would be interested in hearing your thoughts regarding lift costs for PDVSA. The collapsing production divided by the overhead would wipe out any money if PDVSA is paying the lift costs on the oil used for debt repayment. I have not seen anything that makes me think that PDVSA is being reimbursed any costs. There are Chinese nationals working in some areas though.

          If PDVSA still has all of the employees they had before production collapsed, this would increase lift costs.

          Dividing production by overhead as production decreases and overhead remains the same should inversely increase lift costs per barrel.

          However I do not know what the actual wages are costing PDVSA. Possibly nothing if the regime provides worthless Bolivars to PDVSA.

          The lack of reporting by PDVSA makes my analysis an educated guess. You have a much better understanding of this than most contributors. I am trying to get an understanding of how much money is available to the regime to continue funding the military. Zero, Zilch, Nada seem to be the obvious answers.

          Vicky will call you ASAP if the packages are delivered today. Maria has told her to expect the delivery. I do hope that there is enough time to plant and harvest before the rainy season. It will be nice to finally get this “simple” process completed.

          It has been snowing all night. If the groundhog can dig himself out of his hole, it is so cold he may just die from exposure. 🙂

          • John, Vicky and I exchanged texts this morning. Apparently the pacakges have arrived at her house….she was at work. Step-son is already in the loop and will arrange pickup. Still time for planting and harvest before the rainy season as several producers already have their ground prepared and are waiting on seed. I’ll keep you posted.

            As for your questions about PDVSA lift costs, I’m not a good source of information. My experience with Venezuelan production is both dated and limited to the east side of the country versus areas like the Faja and Maracaibo where those costs certainly average much higher.

            I will say this though. When I see 30 PDVSA employees (male and female) with swingblades cutting grass along the highway in front of one of their installations, a job that could be done is less time by one man on a tractor with a bushhog, rest assured that they’re not concerning themselves with such trivial matters as lift costs.

            Enjoy the snow, or white mud as I call it.

      • I can not believe Canucklehead called them…..
        “And they’re not all boys anymore either.”
        You cant call boys, boys my little colonial, you should know that as you rewrite your national anthem.
        Pathetic liberals.

  8. Now, according to figures from the EIA (U.S. Energy Information Administration,) Venezuela’s oil exports to the U.S. dropped to 416,000 bpd in 2017
    That’s not what I got from the EIA. The latest I got was 505,000 BOPD.EIA: U.S. Imports from Venezuela of Crude Oil and Petroleum Products (Thousand Barrels per Day)
    Jan-2016 702
    Feb-2016 773
    Mar-2016 846
    Apr-2016 788
    May-2016 787
    Jun-2016 748
    Jul-2016 933
    Aug-2016 773
    Sep-2016 825
    Oct-2016 741
    Nov-2016 849
    Dec-2016 789
    Jan-2017 749
    Feb-2017 751
    Mar-2017 764
    Apr-2017 857
    May-2017 767
    Jun-2017 663
    Jul-2017 686
    Aug-2017 606
    Sep-2017 620
    Oct-2017 562
    Nov-2017 555

    Perhaps you found a Dec ’17 figure.

  9. Some additional facts to consider :
    1. production figures officially given to Opec were normally hiked up by some 200.000 b/d, real figures usually tallied Opec figures from ‘third party sources” ……the fall in production has been going on for quite some time now , but recently what we ve seen is a steep tail spin , the product of gross mismanagement and the central state taking in most of the money Pdvsa needed for maintenance repairs and generally to keep production going in order to spend it instead on clientelar social programs .
    2. Since the govt would like to be able to restructure its loans it might be preparing the ground for those by giving production figures as low as possible so as to be more convincing to the creditors in proposing a bigger hair cuts than otherwise they would want to accept .
    3. Big problem is that much of the production now consists of heavy faja crude which can only be made exportable by blending it with products or light crudes imported from abroad , and these of course cost money which Pdvsa hasn got , this is a hamper to Pdvsa’s exports . By the way most of these imports are of american crude and refined products ( Not usually Known is that Algerian crudes dont blend that well with faja crudes) , if the US were to restrict the SALE of US crude and products to Venezuela then the hit on Venezuelas oil exports would be very substantial ……NO need to restrict imports from venezuela to the US .
    4. Because some of supplies purportedly used to meet local demand is smuggled /syphoned of to Brazil and to Colombia or spent as fuel in local thermic power plants the amount of the production actually available for export is really smaller by some 200 to 300 thousand b/d …..
    5. EVen if exports to cuba (who pays next to nothing for those supplies) have dropped there is still a sizable volume sent to cuba to keep the regime there from going into an internal power crisis.
    6. While some percentage of the oil sold to China is used to pay existing loans or their interest (some say as high as 60% of the total) , the heavy cost of the transport probably means that what Venezuela gets from those is actually an amount lower than the average market price , Nornally the far east prices arent so great because they have to compete with the huge volumens of near eastern crude (much cheaper to produce) and geographically closer to the chinese market.
    7. While most of todays production comes not from Pdvsa fields but from fields owned jointly with international investors (including chinese investors) , and there is usually talk of them putting money in to increasing those fields production , Pdvsa has treated them so shodily in the past , refusing to allow them to get the dividends due to them from such fields production) that after all the announcements the international investors balk at making the investments , they dont trust Pdvsa , nor the govt , nor the general climate for working in the country, too much risk , too much corruption.

    Maybe they expect the country to live on the fumes from Maduros speeches and threats and promises and on the piles of phony monopoly money they hand out to the long suffering misfortunates who have no other means of keeping alive …………but at some point the starving country will demand to be fed and when that becomes impossible I wonder what will happen …….!!

    • 4. Because some of supplies purportedly used to meet local demand is smuggled /syphoned of to Brazil and to Colombia or spent as fuel in local thermic power plants the amount of the production actually available for export is really smaller by some 200 to 300 thousand b/d …..

      Yup. How many ways can you say DUMB?

    • Nice summary, Bill.

      I just want to point out that official US policy is to limit sanctions to individuals and not to trade. This is purportedly to spare the effects it would have on the common VZ citizen (and not for purely selfish reasons, as Canucklehead likes to think). I would suggest this policy is based, not in a small way, on Quico’s testimony at the Congressional hearings. It appears to be moot, as you point out trade between US and VZ is headed south at an accelerating rate anyway.

      Naky recently commented on the reduced flairing at the Amuay Refinery. I hope she or someone continues reporting on this. A good early indicator.

      • The sanctions are beign applied so as to both target regime big wigs guilty of human rights violation and other criminal activities and to limit the regimes capacity to refinance itself using western sources (which it had a hard time doing anyway) , the sanctions exempt all transactions which have as their purpose meeting the needs of the people , so its clear that the sanctions do not seek to harm ordinary people to import what they need to make ends meet …….moreover the govts applying the sanctions are in paralell pushing for the regime to allow the opening of humanitarian channels of food and medical imports to help people survive and sattisfy their eseential needs.!!……..

  10. “What happens if the U.S. decides to apply sanctions to oil purchases from Klepto-Cubazuela?”
    “What happens if Klepto-Cubazuela runs out of oil to export to the U.S.?”

    The shit really hits the fan. And real fast. So that would be a good thing: The less oil, the better for all Venezuelan vulgar vultures and vandals. But a combination of both sweet scenarios is much more likely:

    While the Criminal Regime’s oil production continues to decline, the US and the EU start applying various severe economic sanctions, including, but not limited to oil, imported and exported, and gasoline. Preferably right around the imminent, blatantly fraudulent ‘elections’, when the despised Masburro will be gloriously ‘re-elected’ for 7 more years of Chavista delights. Financial Default would also be great around that time, to be sure there’s zero int’l credit. Let’s call it the Tropical Narco-Tyranny’s Perfect Storm, hopefully by June.

  11. José Toro Hardy,
    Your math regarding lost production is a very small piece of the picture.
    Somewhere between 2/3 and 3/4 of oil production is already committed to debt repayment, Cuba and PetroCarib members and domestic consumption.
    This means that for every barrel of oil available for sale, 2 or 3 more barrels were lifted without any current cash flow being generated from them. The last lift cost numbers that I have been able to find are a few years old. $27.56 was the all in lift cost that is cited. The highest of any OPEC member. It would take $100 oil to break even on current costs, let alone debt service.
    PDVSA is bankrupt. The only money being realized is coming from deferred maintenance and reduced Capex.
    I do not believe that Venezuela is holding the foreign reserves that they claim. Common sense says that if that money was available, it would be used for imports. Most likely that has been gone from the country for a long time.

  12. If you look at the table from the link, you will observe that from 2012 on, the highest imports for the year tend to be July or August, which I interpret as gasoline for the summer vacation driving season. That is the explanation, I believe.

  13. What’s behind the recent strengthening of the Bolivare? Is there any change in the fundamentals? Has the regime come to its senses and stopped printing money?

    • Gonna try this again, until the Bolívar Fuerte is allowed to float freely there will be arbitrage opportunities. The regime and their cronies will be allowed the ability to take part at the expense of the country. If the regime seems to enact sane policies take a step back and have another sober look. They are criminals not humanitarians. If the BF is “stronger” it is because people have less cash, shortage, to buy dollars/euros. It is NOT because they figured out how to tame hyperinflation a month or two in.

    • MRubio tells us how much more physical cash is worth, does anyone think that the currency traders (whom I am sure are aligned with illegal armed actors) have not figured this out. If cash is unavailable and valued it can buy more contraband. Seems to me this has nothing to do with a “flattening” of exchange rates.

  14. One of the actions that Chavismo took after coming into power was to make a law requiring 60% PDVSA ownership for projects involving foreign ownership. This means that PDVSA has to pay for 60% of the capital and operating costs to exploit fields where a foreign partner is involved. That was fine 10 years ago with high oil prices, but now PDVSA can’t pay their 60% of project cost, so the projects either go on hold, or the partners carry PDVSA’s cost and get paid back with oil or IOU’s.
    Since the early 2000’s when PDVSA’s policy was to put all of their marbles into the faja basket, an additional problem presented itself. In order to transport the oil, you have to either use diluent (light oil or condensate) or pass the oil through an upgrader to increase the API gravity of the oil, reducing the viscosity; so that it can be transported by pipeline and finally by tanker. The country produces very little light oil and condensate, so the partnership has to purchase and import diluent from outside Venezuela. Otherwise they have to build an upgrader to pass the extra heavy crude through upgrader to lighten it up so that it can be transported. So now you have to either pay for diluent or a multi-billion dollar upgrader. This is an economic burden on PDVSA’s minority partners. Especially when PDVSA is broke, and the minority partners have to carry PDVSA’s 60% CAPEX and OPEX costs.
    The options if you are a partner; are either to go along if you have deep pockets, and view PDSA as a “down on your luck partner with better times ahead” , where eventually they’ll pay you back. Otherwise you can put your project on hold until times get better.

    By the way, I read a number of years ago (circa 1998) that the average well in Venezuela produced 250 BBls of oil per day, given the number of producing wells and the amount of oil being produced. Therefore, if production holds steady at 1.6 MBOPD (which it won’t), and you want to get your production up to 3 MBOPD, you’d have to drill about 5600 oil wells. At $5 million dollars per/well the total cost would be 28 billion dollars. At $10 million/well the cost is double, 56 billion dollars. The costs do not include the cost of infrastructure, facilities or maintenance costs, or if you in the Faja, upgrader or diluent costs

    Question: De donde carrizo vendra esta plata, si estan pelando?

    • Most of the undeveloped oil is in the Faja, where it’s possible to drill 2000 BOPD wells (the very best I saw records for produced 2800 BOPD). I don’t have details of what they’ve drilled recently, but I think it’s possible to drill average 800 BOPD wells, which can recover 1 to 3 million barrels each (depends on the sector and sand member). I worked out schemes to deliver oil to the USA using diluent which treated the nafta stock in a way similar to what we do with system and pipeline fill, and the scheme worked as long as the regime changed terms to a PSA designed like the ones we see in Angola.

      • Hi Fernando,

        I agree that initial production rates may be pretty high, but what about 5 years down the road, will that well still be producing 800-2800 BOPD or closer to the low 100’s with high water cuts? As I recall vertical faja wells in Hamaca iproduced 150-300 BOPD n cold with ~ 8-10 API oil. Horizontal wells in the same interval on downhole pumps produced the numbers your talking about.

        Heavy oil typically has a lower relative permeability to water, which results in producing high rates of water relative to oil after breakthrough, resulting in serious loss of oil production. Conoco experienced this with “catastrophic” production losses dues to water breakthrough.

        Oficina fields typically have ~5-10 sands, and have to be recompleted. Working your way up from the bottom, this requires intensive operations, where now you have to bring in workover rigs for recompletions. Rates here typically aren’t that great but the volumes per well add up over the years. The old operators here had refined the process and cut costs to the bone, and were making money at $4/bbl oil. I doubt if that will ever happen again. I read that some deep wells in the southeast lake area had taken over 2+ years to drill, with lost time due to strikes, lack of mud, valves pipe etc. We could drill these wells in 4 months.

        I guess I am thinking about what Gustavo Coronel spoke about the other day in a comment in this column when he mentioned the importance of maintaining production. Because all of those wells that you drill and put online now, at high production rates, will only be producing a small fraction of those rates in 5-10 years. The only way to keep your production up this is to drill and complete more wells adding to OPEX and CAPEX cost.

  15. Ive said it before , will say it again , the problem is not the amount of oil being produced but how much money you make from eah bl being produced and at what cost , the devotees of totalitarian ideologies are always enamoured with big figures but those real figures meant nothing is they didnt correlate with higher per bl income , maybe 1.7 MBD is enough provided the crude is produced at low prices and processed and marketed with optimal busines efficiency so as to get the maximum bang for the buck ………that was Maos dream to beat the production figures of the west , but the real problem was being maximally productive with the production you got …..and that means having the organizations and the people and the resources to make it happen ……!! Maybe its bad business to increase production by so much , maybe what we should do is to concentrate on those kind of oil activities and oil fields and markets that yield the most money with the least expense and effort .and in doing a good job of making big profits from the oil we process and market ….

    We also spend too much money on import not only because of the arbitrage delinquencies the regime permits and fosters but because the money is used in subsidies or because of its policy of persecuting and expropiating productive private businesses which could reduce the imports we depend on today .

    The mirage of huge production figures is childish and way of mark , what we must concentrate in is in producing the amount that we can get the maximum money from by operating the industry in the most business efficient manner !!

    • Bill you clearly know more about the oil industry than I do but is it not about production quantity and bringing down cost per barrel? Of course producing the most profitable barrels first is important but considering how many barrels will be stranded, why not produce every barrel that does generate an extra “dollar”?

      • Different oil activities and oil fields have different cost/benefit structures , some are more profitable while requiring less effort/ investment than others , your access to financing /other resources however is not infinite , so you prioritize , putting the resources you have or can get on those activities or oil fields which have the most profitable cost benefit structure while leaving the less profitable for later , big mistake to try and pursue all potential business opportuities at the same time just to get more production because an all out attempt at raising production may result in an unbalanced desoptimized use of your scarce difficult to get resources .You focus and prioritize your efforts on those specific business areas that yield the biggest bang for the buck and get better overall result that way ………!! Really rudimentary business approach if you think about it …..

        • Reducing cost is great, but the thing you can not control is the barrel cost in the market. With the US now exceeding 10 million BPD and looking at a huge increase in offshore drilling it doesnt look likely that the $ price per barrel is going to appreciate in cost anytime soon.
          This coupled with new oil from Iran at over 4 mil BPD negates totally any loss of production from Venezuela.
          And currently there doesnt look like any Middle Eastern conflict any day soon to raise the prices.

          • Opec won the gamble prices, are climbing and at a certain point will balance with new shale production (probably reaching 70 $ per bl) , they wont go back to their old heights but they will be enough to provide healthy profits to a well run operation , At least thats what I get from reading certain periodicals , still in the end one never knows !!

          • Crude oil and condensate production is running at about 83 million b/d. OPEC produces about 39 to 40 million (I’m focused on crude and condensate because that’s what counts in refining). Russia produces about 10 million b/d, and is going to hold steady. Therefore non OPEC minus Russia produces about 33 million b/d. If USA produces 10 million b/d, the rest of the world produces 23 million b/d. If we are kind and assume they have an overall decline rate of 6% (I’m generous), they have to add 1.2 million b/d of new production every year to hold steady. Therefore if demand remains flat there has to be new additions. Some may come from Brazil, Canada, etc. But the overall balance seems to be ok.

            The problem seems to be the “shale” drillers in Texas and North Dakota. They ramp up fast and appear to be a little nutty. Therefore I would expect prices to swing back and forth, until the Bakken and Permian sweet spots are nearly drilled out (that’s going to happen in a few years). At that time price should start a nice steady rise. I suspect Shell has a similar model because they sure got aggressive in Mexico.

  16. “I just want to point out that official US policy is to limit sanctions to individuals and not to trade. This is purportedly to spare the effects it would have on the common VZ citizen (and not for purely selfish reasons, as Canucklehead likes to think).”

    Hmmmm, tough one. As a US Citizen and after living in the great US over 27 years, I’d like to think the same: The US has avoided trade sanctions to protect the common pueblo-people. And I’m sure there’s some of those genuine, humanitarian good intentions. American people do mean well, even career politicians. They usually have strong moral values, proper education and principles, which is what makes countries great, or, inversely, in Kleptozuela’s case, miserable.

    Then again, the all-mighty Economic interests are always a strong influence in the US Senate, Congress and everywhere here in the US and Worldwide. And that’s where good humanitarian intentions and strong moral values often take the back seat. Even when the US in on the verge of becoming #1 world oil producer, when there are other emerging energy sources, the oil and gasoline trade with Klepto-Cubazuela still is an important chunk of change for Uncle Sam. Lots of US jobs are at stake (at least temporarily, Citgo, Shipping Industry, etc), and lots of profits, so there is, of course, a strong selfish $$$ consideration.

    Let’s face it: If it wasn’t in the US’s sheer economic interest, they would stop buying heavy Kleptozuelan oil, and selling light oil plus shitloads of gasoline. They don’t do it because it’s still PROFITABLE, compared to other alternatives. I don’t doubt that the US also has admirable humanitarian intentions at Congress, heck, even the lamentable Trump may have a little heart! but rest assured.. It’s the Economy, above all, and we cannot under estimate the powerful influence of Big Texas Oil business, Labor Unions, there are still billions of dollars at stake related to trade with Klepto-Cubazuela. Just shutting off the Gasoline they export to the Tropical Tyranny, how much would they lose per day, and to whom would they sell that gasoline?

    If you go by Trump’s silly motto, “America First”, that means $$$ first, then you can condemn Kleptozuelan atrocities in politically correct speeches all you want and look like you really care. They do, they are very good people here, but they care about their own Wallets first and foremost, which remains the real reason why they have not enacted solid trade sanctions against the narco-regime.

    Get Real, Lorenzo.

    That said, they are miscalculating, making a big mistake: We all know it’s in the US’s Geo-Political and Economical own interest for Chavismo to fall. Dangerous influence in the entire continent, drug trade, vicious alliances with economic rivals China, Russia, even India. Long term prosperity for the entire region.

    What the US Congress and Trump are probably not aware of, or convinced of, is that major trade sanctions would be very brief, a few weeks should suffice, especially now that the Kleptozuelan Economy went the hell, and keeps getting even worse, and after the huge, blatant Fraud to come, re-electing a despised Maduro clown. People will be really, really pissed off very soon, including some hungry military, ready for major revolts. A little, final economic sanctions push from the US, the EU and Latin American friends would suffice. No oil/gas cash, no credit, economy in flames: in 3 weeks Chavismo is kicked out. Then resume all trade, including new humanitarian help and new, profitable business!

    If Quico or other Venezuelans go to US Congressional hearings, (AND in Europe Macron is ready to strike!! AND in Latin America Macri with Canada and the Peru 12) they should emphasize the very brief, temporary nature of these oil/gas trade sanctions. Indeed, it would be a huge Geo-Political and Socio-Economic victory, with countless new $$ opportunities when Chavismo is kicked out by its own people, suffocated by an unbearable economy, hungry for Harina Pan, Batille Day style.

    I don’t think many people understand this, or trust that this important Temporary factor is true. Severe Trade Sanctions, from all US Allies, with Macron and the EU, with Macri, putting pressure on Chile, Brasil.. who are against the ruthless narco-disctatorship would be brief and highly effective, especially after the imminent April Elections Fiasco, and probably a financial Default. The Perfect Storm in Kleptozuela.

    It really is a win-win situation: the civilized world can act in a humanitarian way, caring for Venezuela’s people, ensuring a huge final blow to topple the Criminal Kleptocrats, AND generating huge new Trade profit$ afterwards. Yes, people will suffer even more for a few weeks, yes there will be some violence in the streets, but the nasty regime regime would fall, rapidly, saving the Venezuelan people from years and years of more suffering, quickly supplying humanitarian relief (and… making lots of new trade profit after that).

    Someone please explain that to the new Axis of Good: Macron-Macri-Trump.

    • Win-Win – Yes, but No

      I think if there was a unified embargo or oil sanctions between the US, Europe, Latam, then absolutely it is a Win-Win.
      But we all know that unity is flat impossible.
      LATAM are isolationist when it comes to any other LATAM Nation, European are incrementalist, and the US is, lets say, gun shy.
      Past US efforts (right AND wrong), are alway met with the imperialist tag to anyone south of the rio grande.
      Together on this issue – no way – not going to happen.

      Besides, the US bet has probably been placed on implosion.

  17. It,s not a matter of if that the oil output will fall. Pdvsa has no way to get out of this mess without outside help, which will not come as long as Maduro is in power.

    Venezuelans’ tolerance to hunger will be the limit to Chavismo. I think this limit is fast approaching.

  18. I would be more hopeful if some in opposition had a plan for recovery, after the fall. However, I do not believe the opposition has the political will to do what needs to be done for a quick recovery. Such as declaring the illegal debts to China null and void. Ending the right to cheap gasoline.
    But, it will never happen. There is no end in sight. Even if this government falls a large portion of the people will just blame Maduro and cling to their chavista dream. Just be glad we got out when we could.

  19. The barometer to PDVSA for me does not come from BPD and fancy figures, but from the 3 year deal that Algeria has just signed to supply Cuba.
    Cuba knows more than anyone here, what state PDVSA is in, and has adjusted accordingly. Its interesting to note that its rumoured that the deal is much bigger than the 2.1 million BPD that they received from Algeria last year.
    How the mighty crumble.

  20. The deal with algeria is for 2.1 m b per year , assumming that Cuba’s past claim that they needed at least 70 kbd just to get by is true then the algeria deal accounts for one months demand , which begs the question , where is the oil coming from to sattisfy the demand of the other 11 months ……?? problem is that cuba needs to pay most of that in hard currency with no payments deferred for 15 years ….., as Pdvsa sinks its pulling both the Venezuelan Regime and the Cuban regimes financial survival with it !!

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