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At oil firm, signs of trouble By Jack Chang and Kevin G. Hall McClatchy
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CARACAS, Venezuela -- For the better part of a decade, Venezuelan
President Hugo Chavez has spent billions of dollars of his country's oil
revenue to challenge U.S. interests, build influence worldwide and fund a
self-styled socialist revolution at home.
Yet as Chavez moves from one international crisis to another -- most
recently a near military confrontation with neighboring Colombia, an
important U.S. ally -- many wonder how long his oil-funded wild ride will
last.
Not long, analysts in Venezuela and abroad said, if production continues
to decline at the country's state-run energy company, Petroleos de
Venezuela S.A.
It is responsible for 80 percent of the exports from this country of 26
million people.
"PDVSA is a company on the border of collapse," said Robert Bottome,
editor of the economic newsletter VenEconomia. "You don't have people,
you don't have a corporate strategy, and you don't have money."
PDVSA's problems are America's problems because lost output in any
oil-producing nation results in tighter supplies and higher global
prices. Venezuela ranges from the third- to the fourth-biggest supplier
of oil to the U.S. market.
PDVSA's woes include falling output, insufficient investment in current
and future production, a work force bloated by patronage and a shortage
of oil-field equipment and skilled personnel.
PDVSA is notoriously tight with financial information that other
companies usually provide, but a study of official announcements, company
figures and outside analyses suggest that it's bleeding money and racking
up huge debt even as international oil prices are at record highs.
Official PDVSA statements indicate that the company lost $3.6 billion
last year, according to a study by the nonprofit Economic Research Center
for the Caribbean, which is based in the Dominican Republic.
Figures from the International Energy Agency research center show a $7.9
billion loss last year, which would be astonishing, given skyrocketing
oil prices. The IEA calculates that Venezuela produces about 2.4 million
barrels of oil per day, about a quarter less than PDVSA says it's pumping
out.
Most independent experts use the IEA's figures, which indicate that
output at PDVSA has dropped by 800,000 barrels per day since 1997. And
despite the current high oil prices, PDVSA appears to be running out of
cash.
Falling production means that Chavez may eventually have to cut back on
popular social programs at home and on billions of dollars in charity to
foreign governments.
"There are many signs that something's wrong at PDVSA," said Pietro
Donatello, the Venezuela-based editor of the magazine Latin Petroleum.
"You put together all the pieces of the puzzle, and things are not
looking really good."
Chavez may have even less room to maneuver if U.S. officials make good on
threats to declare Venezuela a state sponsor of terrorism because of
alleged links to the Revolutionary Armed Forces of Colombia, a guerrilla
group.
That designation would cut off most commercial ties between the United
States and Venezuela, including oil. Venezuela sells more than half of
its oil to the United States, which is the only major buyer that has the
capacity to easily refine Venezuela's heavy crude.
Government energy officials, who didn't respond to requests for comment,
have painted a brighter picture of PDVSA. They say oil production has
stayed largely steady at 3.3 million barrels per day, a little more than
a decade ago, and will hit 6 million barrels per day by 2012.
That upbeat view assumes that Venezuela can obtain the financing for a
$70 billion expansion to double its oil output in four years. The threat
of U.S. sanctions would make it harder for PDVSA to find investors.
With 80 billion barrels of proven oil reserves, Venezuela holds the
world's seventh-biggest reserves. PDVSA also claims extra heavy crude-oil
deposits in the Orinoco belt that, if confirmed, would give Venezuela the
world's biggest oil reserves.
Venezuela's economy has boomed with the oil bonanza, growing by 8.4
percent last year, although that's also fueled the region's highest
inflation rate. And that's a problem for Chavez, high oil prices
notwithstanding, because he's guaranteed government workers paychecks
that are indexed to inflation. Chavez's popularity, measured in a recent
national poll, has fallen to 34 percent amid economic problems, food
shortages and rising crime.
The lack of foreign investment and know-how is particularly acute,
analysts said, because Chavez fired 23,000 PDVSA employees during and
after a 2003 strike.
They've been replaced in large part by political appointees, and the
company's employee rolls have swollen to 115,000, almost three times what
they were a decade ago, two former PDVSA officials said. The government
says they've grown to 75,000, although Chavez has said he wants to
increase that to about 114,000 by the end of next year.
The lack of expertise has dragged down everything from the maintenance of
drilling equipment to planning for future production. Production costs
also jumped by 27 percent in 2006, while sales grew by 20 percent, PDVSA
figures show.
Adding to the problem, foreign companies, including lenders of drilling
rigs, are reluctant to work with Venezuela after Chavez seized the
operations of Exxon Mobil and other multinationals. The result has been a
shortage of drilling rigs and other equipment needed to keep production
flowing.
Former PDVSA director Eddie Ramirez, a Chavez opponent, said the company
had also invested heavily in social programs rather than in oil
production, further hurting efficiency. PDVSA figures show that the
company spent $13.8 billion in social funding in 2006, double the 2005
amount.
"It's distracting from the company's principal mission ... selling oil,"
Ramirez said.
"You can't ask an oil company to take on what should be a function of the
state."
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