How Venezuela has almost doubled its oil production this year Oil and Gas News

Venezuela has almost doubled its oil production this year compared to decades ago, as its state-owned company has made deals to pump and process heavier crude into exportable grades.

The surprising reversal began when the state of Petroleos de Venezuela, known as PDVSA, secured the support of small drilling companies, removed old debts and then secured a stable supply of a key diluent in Iran. Both rose to 824,000 barrels per day (bpd) in November, up from the first three quarters of the year and 90 per cent more than the monthly average a year earlier.

It was unclear whether production could continue to increase. Unpaid bills for years, mismanagement, and more recently U.S. sanctions have cut off access to specialized drilling equipment and foreign investment. Sanctions have limited its customers to companies with no commercial advertising.

PDVSA’s latest gains, including one million barrels of production for the first time in almost three years, were described by Oil Minister Tareck El Aissami as a “big victory” in a Christmas message – not yet from the current 2121 production target. 1.28 million bpd.

Workers in the producing regions have said they will continue to reopen their oil fields and restart more flow stations. However, oil experts say the PDVSA has done everything it can and reduced the benefits of its lack of additional equipment and innovative operations on its raw asphalt.

“Basic production in 2021 was below PDVSA’s production capacity,” said Francisco Monaldi, director of the Latin American Energy Program at the Baker Institute at Rice University in Houston. “Now we are reaching that capacity. To see production grow in 2022, it is necessary to invest in new wells and upgrade infrastructure, ”he added.

Assisted by allies

The main turning point began in September with the exchange agreement between state-owned companies PDVSA and National Iranian Oil Company (NIOC). It was crucial to create grades that could be exported from the extra-heavy crude produced in the upper region of Venezuela, the Orinoco Belt.

Revenues from domestic fuel sales and higher oil exports to Asia have also allowed PDVSA to repay some of its debts to service companies with the promise of future work and permits to pay off their debts, allowing some domestic companies to exploit workover platforms.

Some service companies also accepted cash payments, mostly oil by-products and residual fuels that were later sold at home and abroad, according to people familiar with the matter.

As of mid-December, a total of 47 work and maintenance platforms were active in the Orin Belt and another 29 in other regions, according to a document including the PDVSA seen by Reuters news agency. The report also included 19 others who were inactive. No active drilling rigs have been reported, which are needed to build the output capacity.

PDVSA did not respond to the request for comment. The U.S. Treasury Department, which imposes penalties on PDVSA, did not immediately respond to the request for comment.

Recovering lost land

Venezuela reported annual production of 569,000 bpd last year and its exports averaged 627,000 bpd as PDVSA emptied inventories. Official numbers did not rule out imported diluents or stored raw water.

But independent analysts and experts agreed that production has slowed down. IPD Latin America Consulting estimated that Venezuelan gross production will average 640,000-660,000 bpd this year, excluding condensate and natural gas liquids.

In eastern Venezuela, two crude projects that partially revived production – Petro San Felix and Petrodelta – were seeking funding to continue to increase production, said Antero Alvarado, managing partner of Gas Energy Consulting.

Wire pipe service companies have helped reopen the wells in the region quickly, two sources said.

“PDVSA has repaid its debt to suppliers,” Alvarado added. The company also repaired three 750-horsepower equipment imported from China with a view to activating it next year, he said.

In the western region of the nation, when there have been numerous equipment thefts, at least two separate projects – in the mature oil fields of Tia Juana and Cabimas – are expected to almost double production in 2022, according to people familiar with the initiative.

“Production is being restarted here. Work equipment has not been rested, ”said a worker on Lake Maracaibo in northwestern Venezuela. He said some non-functioning flow stations will be restarted in 2022.

Obstacles remain

Delayed debt repayment was expected to remain a key issue. Agreements with oil service companies to resume work are fragile and could be broken if the PDVSA does not live up to its promises.

“Debt continues to grow because companies are paying PDVSA only a fraction of what they generate in their monthly services,” said a contractor executive who asked to be identified for fear of retaliation.

An employee of another company said his company has been working intermittently this year due to payment issues.

In the Orinoco region, where diluents are essential to continue production, to boost production beyond the current level, at least one more innovative oil will be needed in the Petromonagas or Petro San Felix projects to take advantage of the supply of diluents, experts say.

The PDVSA’s infrastructure for diluting and storing diluents has also been thinned. Since the arrival of regular shipments from Iran, there have been delays in exporting crude, according to the company’s internal documents. PDVSA also had to use the necessary containers to store the diluents.