Since 2 December 2002 Venezuela has been paralysed by a general strike aimed at forcing early Presidential elections. The action has brought the country’s oil & gas sector to its knees, with implications far beyond Venezuelan shores. As the strike continues without any sign of a lasting solution to the political crisis which sparked the protest, Wood Mackenzie has analysed how the key players in the Venezuelan upstream sector are being affected, and what they are losing with each passing day. We have found that the top ten International Oil Companies in Venezuela are currently losing a combined US$6.7 million/day in net revenue.
The general strike has reduced exports from the world's fifth largest oil exporter to a trickle. Current national production is thought to be in the region of 400,000 – 600,000 b/d, down from a 2003 forecast of over 3 million b/d. Of this, International Oil Company (IOC) operated fields were expected to contribute a combined annual average of around 980,000 b/d gross production in 2003. However, the strike action has forced PDVSA to declare force majeureon a number of IOC fields, leading to the shutdown of operations and significant cutbacks in production. In light of the crisis, Wood Mackenzie has reviewed the current production of each of the top ten IOCs active in the Venezuelan upstream and has analysed the financial cost to those companies based on a comparison of current output and pre-shutdown 2003 production forecasts.
Based on a comparison of current output and Wood Mackenzie’s (pre-shutdown) production forecasts and economic analysis for 2003, the top ten IOCs in Venezuela are currently losing a combined US$6.7 million/day in net revenue (after royalty, but before tax and costs).
The Longer Term Cost to the Upstream Sector
By the governments’ own admission, under revised PDVSA production targets the effects of the strike will cut national average annual production by 23% in 2003 – a disaster for a country that relies on oil for around 25% of GDP, 80% of total exports and 50% of government revenues. However, these production figures are based on an assumed speedy resolution to the political stalemate and an optimistic view on the resumption of operations: In reality, production is likely to average much less than 2.3 million b/d in 2003.
Most of the IOC fields were shutdown in a controlled manner. However, it is still possible that some reservoirs may have been damaged and that facilities on heavier or more waxy fields may require significant cleaning and wells may require stimulation. In addition to the shutdown of operations, a shortage of gas is limiting re-injection for enhanced oil recovery – critical for pressure maintenance and a high proportion of Venezuelan output. Only upon the resumption of operations will the full implications for both near-term rehabilitation and longer-term reservoir management be known. As an optimistic case, (assuming minimal long-term damage to fields and facilities), it is likely to take at least one or two months to ramp up production of light and medium crude from Marginal Fields to anything approaching normal levels. Production on Dación, for example, is expected to take 30 days to reach 20,000 b/d from re-start and over two months to reach 60,000 b/d.
Perhaps surprisingly, the four Strategic Association projects are capable of a quick return to pre-shutdown output. The fields were shut-in in a controlled manner and, theoretically, upstream operations could be restarted quickly and easily: reservoir pressure and temperature is not a major problem, and the production capacity of extended reach wells (aided by pumps and the injection of diluent), is well in excess of requirements. Similarly, the ‘downstream’ part of the projects will recover equally as quickly: syncrude production at the upgrader can be ramped up and stabilised at pre-shutdown levels within two weeks.
Conventional heavy oil fields, such as Boscán, will perhaps suffer the worst long term problems. Pressure maintenance and heat retention is key on this field. As such, Boscán has been producing throughout the crisis in order to keep the oil above pour point and avoid heat loss from facilities. However, with half of the wells on the field currently shut-in and produced oil being stored in pits, it is possible that output will never recover to pre-shutdown levels.
Whilst it is possible to quantify daily losses to the IOCs, it is more difficult to measure the cost of the strike to the biggest loser of all – PDVSA. Moreover, it is impossible to predict the damage that is being done to the future of the Venezuelan upstream sector as a whole, both technically and in terms of confidence. How the Venezuelan upstream sector emerges from the other side of this crisis will ultimately be determined by the way in which the current political situation is resolved – surely the biggest and most important uncertainty of them all.
Wood Mackenzie Offices
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