Venezuela managed to nearly double its oil production in 2021 from an all-time low in 2020, after its state-owned company signed agreements that allowed it to extract and process more heavy crude into exportable grades.
The abrupt decline began with the support of small oil service companies that accepted debt repayment agreements with Petróleos de Venezuela (PDVSA), to which was later added a major contract with Iran that assured the country of stable supplies of lighteners.
Venezuela raised its production to 824,000 barrels per day in November, much higher than the first three quarters of 2021 and 90% above the average for the same month the previous year.
But 2021’s performance, while impressive after years of inactivity, does not necessarily mean that the state-owned company will be able to continue increasing production.
PDVSA’s recent achievements, including exceeding 1 million barrels of oil produced in a single day for the first time in nearly three years, what Oil Minister Tarek El Aissami called a “great victory” in a Christmas message to workers, were not enough to achieve the goal set by its management. Current production of 1.28 million barrels per day at the end of this year.
Years of unpaid bills, mismanagement, and most recently, US sanctions have cut off access to specialized drilling equipment and foreign investment. Sanctions have also limited its portfolio of clients, who are now from companies with no business experience.
PDVSA’s performance for 2021, while impressive after years of inactivity, does not necessarily mean that the state-owned company will be able to continue increasing production.
Workers in several producing areas say the reopening of oil fields is continuing and they hope to reactivate more flow stations. However, experts noted that PDVSA has done everything it can for now and that its future progress may be limited by a lack of additional training as well as job upgrades to process its extra heavy ore.
“Basic production in 2021 was well below PDVSA’s production capacity,” said Francisco Monaldi, director of the Latin American Energy Program at Rice University’s Baker Institute in Houston.
He added, “We are reaching this capacity now. To see an increase in production through 2022, there is a need to invest in new wells and available infrastructure for improvement.”
With the help of allies
The major turning point came from the swap agreement between state-owned PDVSA and the National Iranian Oil Company (NIOC) that began in September and has proven essential to generate export crude from heavy oil from the major oil-producing region. Venezuela, Orinoco Belt.
Hard-currency income from domestic fuel sales and increased oil exports to Asia have also allowed PDVSA to pay off some debts with service companies, settle outstanding debts with the promise of future work, and grant permits to some companies. Service personnel can operate equipment in the fields.
Some of these companies also accepted in-kind payments, mainly oil by-products and leftover fuels that were later sold domestically and abroad, according to people familiar with the matter.
As of mid-December, there were a total of 47 active servicing and workover exercises in the Orinoco belt and another 29 in other areas, according to an internal PDVSA document seen by Reuters. The same report showed another 19 similar units malfunctioning. No active drilling rigs, necessary to develop production capacity, have been reported.
The US Treasury, which administers the PDVSA sanctions regime, did not respond to a request for comment.
Return to the lost land
Venezuela reported annual crude oil production of 569,000 barrels per day in 2020 and its exports averaged 627,000 barrels per day due to the fact that PDVSA was able to deplete a large portion of its accumulated stocks. Official figures do not exclude the fraction of imported diluent or water in each barrel of crude oil.
But analysts and independent experts agree that production has recovered. Latin America consulting firm IPD estimates that Venezuela’s average crude production will range from 640,000 to 660,000 bpd this year, excluding condensate and natural gas liquids.
Antero Alvarado, managing partner of consultancy Gas Energy, said two oil projects in eastern Venezuela that have partially restarted operations, Petro San Félix and Petrodelta, are seeking funding to continue increasing production.
Two sources said that service companies quickly helped reopen wells in that area, particularly in the Belt and North Monagas, using coiled tubing to condition them.
“PDVSA has repaid its debts with the suppliers,” Alvarado added. He said the company has also repaired three of its 750-horsepower imported drills from China, with the goal of activating them next year.
In the western region, where equipment theft has proliferated, people familiar with the plans said at least two other projects — in the mature Tía Juana and Cabimas fields — plan to double their production by 2022.
A worker from Lake Maracaibo in northwest Venezuela said: “A lot of production starts here. The ‘Chevos’ (maintenance drill) hasn’t rested from drilling and cleaning, it’s going.” He added that some non-functioning streaming stations are expected to restart in 2022. There are still hurdles Delays in compliance with payment by PDVSA are expected to remain a major problem. Agreements with oil service companies to resume work are fragile and could be undone if PDVSA does not deliver on its promises.
“The debt continues to rise,” said a contract executive, who asked not to be named out of fear or retaliation. “Companies bill $1 million per month, but receive payments of $50,000 or $100,000 per month.”
A worker at another company said his company has been operating intermittently this year due to pay problems.
In the Orinoco Belt, where diluents are necessary to keep production steady, reaching extraction levels above current levels would require at least one more operator to upgrade the oil into service, at Petromonagas or Petro San Felix projects, to take full advantage of the diluent supply , the experts said.
PDVSA’s infrastructure for offloading and storing imported diluents has also become saturated.
Since shipments began arriving from Iran, there have been delays in the export of crude oil, according to internal company documents. PDVSA has also had to decommission part of its fleet of tankers, which is critical to its operations, in order to stock a portion of the diluents.