Juan Pablo Perez Alfonzo felt the Orinoco oil should be preserved
The orderly development of this area is 30 years behind.Now Chavez wants to liquidate it because he needs cash urgently.
For the last 30 years the heavy oil deposits of the Orinoco river area in Venezuela have been developed at a snail’s pace. Although the area has been known to contain over 200 billion barrels of recoverable oil since a study made by Venezuelan geologists J. A. Galavis and H. Velarde was presented at the World Petroleum Congress in Mexico City, in 1967, production from this area is still very modest as compared to reserves. It falls short of one million barrels per day (954,000 barrels per day, according to PDVSA). This production has been generated due to the financial and technical efforts of international companies active in the area during the last 15-20 years. In order to accomplish this result the international companies invested about $20-25 billion in production drilling, production facilities and oil upgrading. The main effort started during the 1990’s, at the time of the so-called “aperture”, a strategy that opened up several areas of Venezuelan oil activity to private companies in order to expand oil production and reserves. Legal changes imposed by the Hugo Chavez regime during recent years have altered the nature of the contractual relationship between the state and the oil companies, some of which (Exxon Mobil, ConocoPhillips) have found the new regulations unacceptable and are currently in a legal dispute with the Chavez regime. All this is well known in the oil industry sector but it serves as background to this new effort made by the Chavez government to promote foreign investment in the Orinoco area, by auctioning proven heavy oil reservoirs located in the so-called Carabobo Block, where the presence of some 160 billion barrels of oil in place has been “certified” by companies such as the Iranian petroleum company, Petropars, on behalf of PDVSA.
I will not go into the technical details of the proposed auction. In general, they are very straightforward, although some points made by PDVSA in the brochure that contains the proposal sound audacious or simply confusing. For example, PDVSA claim that the recovery factor for the oil in place in the area is of 20% or more. However, they have no technical data to support such a statement. There has been no technical work done in the last ten or more years in these reservoirs that could serve to substantiate this claim. Recovery factors are very hard to predict, especially in heavy oil reservoirs that have not been produced long enough to sufficiently analyze their behavior. This is the case of the Orinoco heavy oils, where compaction, a mechanism that has produced very high recovery factors in the Lagunillas- Bachaquero reservoirs of the Maracaibo Basin is not known to exist. The other item that caught my eye was PDVSA’s claim of productions per well of the order of 1500-3000 barrels per day. This sounds very high, especially because they also state in the same document that the production of 954,000 barrel per day in the area comes from 2,000 producing wells. This would indicate an average production per well of less than 500 barrels per day. The problem with these inaccurate claims is that the credibility of the company will suffer in the eyes of the potential partners.
BY INVITATION ONLY.
The brochure adds that 37 companies have been invited to participate in the auction for the development of the area. This being an auction of a national asset I would expect that the invitation goes out to those companies that can best fulfill the objectives of the auction and our national interest. After all, this is not my birthday party, for which I can invite my buddies, no matter how disreputable or useless they might be.
This is a national matter and demands honest and professional handling. I spent some time looking at the profiles of the companies invited. On the basis of this rather cursory examination (and I could be wrong in some cases) I concluded that, of the 37 companies that had been invited, about a dozen have no qualifications for being invited. They would not be able to contribute enough financing, technology or marketing capabilities to this project. Since I am an independent oil geologist and have no ties whatsoever with any organization, I can freely say that companies such as Ancap (Uruguay), Enarsa (Argentina), Galp (Portugal), Itochu (Japan), JOGMEC (Japan), Petropars (Iran), PetroSA (South Africa), PetroVietnam (Vietnam), PTT (Thailand), Shaanxi (China), Sinochem (China) y Zenthua (China), have little or nothing to bring to the table, be it money, management, markets, experience with heavy oil production and upgrading or technology. There are others that are, at best, borderline, such as JGC, Mitsui, Mitsubishi, Lukoil and a few small ones already active in Venezuela. There are about 13-14 which could be defined as real companies, world class, with technological know how in the heavy oil sector, such as BP, Chevron, Petronas, Shell, Total, Repsol and a few others. It is remarkable the absence of U.S. companies in the list of invites, although there are more than a dozen of such companies that are financially and technically stronger than most of the companies invited.
I have to ask: Who decided the list? On what criteria? The criterion to choose the companies to be invited has to be very well explained, if the process is to be transparent. PetroVietnam? They don’t even have a refinery at home and its activities are very parochial: Algeria, Mongolia, and Cuba?. They lack money even for their own domestic projects. Ancap? No experience, too small. Enarsa? Good only for carrying moneybags. PetroSA? Mostly gas production, small refinery. Galp? Big, but ten times smaller than the big ones, in real financial problems at this moment. Itochu? A trader, not an integrated operating energy company. Zenhua? Well known in parts of China, owned by a manufacturer of weapons, although it could become an important oil importer. Petropars? They are a failing company at home, why should they be any better in Venezuela? PTT? Mostly gasoline stations in Thailand, a very domestic oriented company.
I think the criteria were political. The order came from above: invite our buddies, our friends (our cronies, the members of the gang). No U.S. companies, unless the ones that have been friendly to us.
The invitation being political, the process is automatically invalid, at least in the eyes of decent and honest Venezuelans. We cannot accept that the process becomes contaminated at such an early stage. This invitation was dishonest and unprofessional and should be challenged.
WHAT IF YOU EXTENDED THE INVITATIONS AND NO ONE CAME?
This is the greatest fear of every bride and groom, of every musician and every writer. What if no one comes to the wedding, to the concert, to the baptism of the book? The solution, as clearly seen by PDVSA, is to invite a bunch that includes many that will not fail to show up. The danger for PDVSA lies in the no-show of those that really matter. In the case of the Orinoco heavy oil the attraction is great. The oil is there, the geological risk is very low, the economic margins look robust (provided you do not get “nationalized” just after you make all the required investments). As several oilmen have said in connection with this process, is like “shooting fish in a barrel”. I think the auction will be well attended. Ethics play a very small part in the relations between companies and political regimes. Companies cannot afford to be “ethical” about the places and the people they work with. Only those companies with great amounts of money, like Exxon Mobil, stand up to dictators, perhaps out of ethical convictions but probably out of arrogance, just because they don’t accept being pushed around by lesser mortals. Most companies, however, will play ball. In Venezuela they have good arguments to do so. If Chavez stays, they keep playing ball. If Chavez is ousted, they are already there, in the field. The only thing they risk is how the new government that replaces the current one will look at their dealings and at their getting in bed with what is already proven to be the most corrupt and abusive political regime ever seen in our country.
THE DEVELOPMENT OF THE HEAVY OILS OF THE ORINOCO AREA IS ALREADY 30 YEARS LATE BUT CAREFUL!
Those who are old enough will remember that adecos and copeyanos treated the “Faja” as sacred ground that could not be touched. One of the most influential Venezuelans of the last century, Juan Pablo Perez Alfonzo, spoke almost in religious terms about the inviolability of the “faja”. It should be left for future generations, for our grandchildren, he said. If the development of the Orinoco reservoirs had started then, in an organized and professional manner, today Venezuela would be producing 6 or more million barrels per day. As it turned out, with Chavez in control of that much oil and money, the disaster would have been ten times greater. So, we never know. The problem with alternative futures is that we don’t know what would have happened if…
What is important to mention is that 30 years ago the oil industry was still in the hands of professional, honest managers. They would have done the job of developing the Orinoco oil in an orderly manner. Today, the oil industry is in the hands of an inept and corrupt bunch. They are not seeing the auction as the starting point of a well laid out plan to develop the Orinoco heavy oils. They see it as a way to get cash quickly! They need plenty of money now!
This is, in my view, the real objective behind this auction. This is not a plan; this is a rapid liquidation of national assets in order to get badly needed cash. This regime will fall unless it can provide ever fresher amounts of cash to Argentina, to Bolivia, to Nicaragua, to the FARC, to Hizballah, to the Venezuelan armed forces, to the millions of poor Venezuelans who expect a fish every day but who will never be taught by Chavez how to fish.
If Perez Alfonzo were alive today he would oppose this auction very strongly. I did not agree with Perez Alfonzo thirty years ago but I agree with him now. It would be particularly painful for him to realize that those who are now liquidating our resources are the same ones who sat in his garden, listening to him in admiration when he spoke about the need to preserve Venezuelan oil for future generations. They were young and idealistic then, now they are just older, fatter and greedier, without ideals but with plenty of ideas on how to get rich quickly.
For the last 30 years the heavy oil deposits of the Orinoco river area in Venezuela have been developed at a snail’s pace. Although the area has been known to contain over 200 billion barrels of recoverable oil since a study made by Venezuelan geologists J. A. Galavis and H. Velarde was presented at the World Petroleum Congress in Mexico City, in 1967, production from this area is still very modest as compared to reserves. It falls short of one million barrels per day (954,000 barrels per day, according to PDVSA). This production has been generated due to the financial and technical efforts of international companies active in the area during the last 15-20 years. In order to accomplish this result the international companies invested about $20-25 billion in production drilling, production facilities and oil upgrading. The main effort started during the 1990’s, at the time of the so-called “aperture”, a strategy that opened up several areas of Venezuelan oil activity to private companies in order to expand oil production and reserves. Legal changes imposed by the Hugo Chavez regime during recent years have altered the nature of the contractual relationship between the state and the oil companies, some of which (Exxon Mobil, ConocoPhillips) have found the new regulations unacceptable and are currently in a legal dispute with the Chavez regime. All this is well known in the oil industry sector but it serves as background to this new effort made by the Chavez government to promote foreign investment in the Orinoco area, by auctioning proven heavy oil reservoirs located in the so-called Carabobo Block, where the presence of some 160 billion barrels of oil in place has been “certified” by companies such as the Iranian petroleum company, Petropars, on behalf of PDVSA.
I will not go into the technical details of the proposed auction. In general, they are very straightforward, although some points made by PDVSA in the brochure that contains the proposal sound audacious or simply confusing. For example, PDVSA claim that the recovery factor for the oil in place in the area is of 20% or more. However, they have no technical data to support such a statement. There has been no technical work done in the last ten or more years in these reservoirs that could serve to substantiate this claim. Recovery factors are very hard to predict, especially in heavy oil reservoirs that have not been produced long enough to sufficiently analyze their behavior. This is the case of the Orinoco heavy oils, where compaction, a mechanism that has produced very high recovery factors in the Lagunillas- Bachaquero reservoirs of the Maracaibo Basin is not known to exist. The other item that caught my eye was PDVSA’s claim of productions per well of the order of 1500-3000 barrels per day. This sounds very high, especially because they also state in the same document that the production of 954,000 barrel per day in the area comes from 2,000 producing wells. This would indicate an average production per well of less than 500 barrels per day. The problem with these inaccurate claims is that the credibility of the company will suffer in the eyes of the potential partners.
BY INVITATION ONLY.
The brochure adds that 37 companies have been invited to participate in the auction for the development of the area. This being an auction of a national asset I would expect that the invitation goes out to those companies that can best fulfill the objectives of the auction and our national interest. After all, this is not my birthday party, for which I can invite my buddies, no matter how disreputable or useless they might be.
This is a national matter and demands honest and professional handling. I spent some time looking at the profiles of the companies invited. On the basis of this rather cursory examination (and I could be wrong in some cases) I concluded that, of the 37 companies that had been invited, about a dozen have no qualifications for being invited. They would not be able to contribute enough financing, technology or marketing capabilities to this project. Since I am an independent oil geologist and have no ties whatsoever with any organization, I can freely say that companies such as Ancap (Uruguay), Enarsa (Argentina), Galp (Portugal), Itochu (Japan), JOGMEC (Japan), Petropars (Iran), PetroSA (South Africa), PetroVietnam (Vietnam), PTT (Thailand), Shaanxi (China), Sinochem (China) y Zenthua (China), have little or nothing to bring to the table, be it money, management, markets, experience with heavy oil production and upgrading or technology. There are others that are, at best, borderline, such as JGC, Mitsui, Mitsubishi, Lukoil and a few small ones already active in Venezuela. There are about 13-14 which could be defined as real companies, world class, with technological know how in the heavy oil sector, such as BP, Chevron, Petronas, Shell, Total, Repsol and a few others. It is remarkable the absence of U.S. companies in the list of invites, although there are more than a dozen of such companies that are financially and technically stronger than most of the companies invited.
I have to ask: Who decided the list? On what criteria? The criterion to choose the companies to be invited has to be very well explained, if the process is to be transparent. PetroVietnam? They don’t even have a refinery at home and its activities are very parochial: Algeria, Mongolia, and Cuba?. They lack money even for their own domestic projects. Ancap? No experience, too small. Enarsa? Good only for carrying moneybags. PetroSA? Mostly gas production, small refinery. Galp? Big, but ten times smaller than the big ones, in real financial problems at this moment. Itochu? A trader, not an integrated operating energy company. Zenhua? Well known in parts of China, owned by a manufacturer of weapons, although it could become an important oil importer. Petropars? They are a failing company at home, why should they be any better in Venezuela? PTT? Mostly gasoline stations in Thailand, a very domestic oriented company.
I think the criteria were political. The order came from above: invite our buddies, our friends (our cronies, the members of the gang). No U.S. companies, unless the ones that have been friendly to us.
The invitation being political, the process is automatically invalid, at least in the eyes of decent and honest Venezuelans. We cannot accept that the process becomes contaminated at such an early stage. This invitation was dishonest and unprofessional and should be challenged.
WHAT IF YOU EXTENDED THE INVITATIONS AND NO ONE CAME?
This is the greatest fear of every bride and groom, of every musician and every writer. What if no one comes to the wedding, to the concert, to the baptism of the book? The solution, as clearly seen by PDVSA, is to invite a bunch that includes many that will not fail to show up. The danger for PDVSA lies in the no-show of those that really matter. In the case of the Orinoco heavy oil the attraction is great. The oil is there, the geological risk is very low, the economic margins look robust (provided you do not get “nationalized” just after you make all the required investments). As several oilmen have said in connection with this process, is like “shooting fish in a barrel”. I think the auction will be well attended. Ethics play a very small part in the relations between companies and political regimes. Companies cannot afford to be “ethical” about the places and the people they work with. Only those companies with great amounts of money, like Exxon Mobil, stand up to dictators, perhaps out of ethical convictions but probably out of arrogance, just because they don’t accept being pushed around by lesser mortals. Most companies, however, will play ball. In Venezuela they have good arguments to do so. If Chavez stays, they keep playing ball. If Chavez is ousted, they are already there, in the field. The only thing they risk is how the new government that replaces the current one will look at their dealings and at their getting in bed with what is already proven to be the most corrupt and abusive political regime ever seen in our country.
THE DEVELOPMENT OF THE HEAVY OILS OF THE ORINOCO AREA IS ALREADY 30 YEARS LATE BUT CAREFUL!
Those who are old enough will remember that adecos and copeyanos treated the “Faja” as sacred ground that could not be touched. One of the most influential Venezuelans of the last century, Juan Pablo Perez Alfonzo, spoke almost in religious terms about the inviolability of the “faja”. It should be left for future generations, for our grandchildren, he said. If the development of the Orinoco reservoirs had started then, in an organized and professional manner, today Venezuela would be producing 6 or more million barrels per day. As it turned out, with Chavez in control of that much oil and money, the disaster would have been ten times greater. So, we never know. The problem with alternative futures is that we don’t know what would have happened if…
What is important to mention is that 30 years ago the oil industry was still in the hands of professional, honest managers. They would have done the job of developing the Orinoco oil in an orderly manner. Today, the oil industry is in the hands of an inept and corrupt bunch. They are not seeing the auction as the starting point of a well laid out plan to develop the Orinoco heavy oils. They see it as a way to get cash quickly! They need plenty of money now!
This is, in my view, the real objective behind this auction. This is not a plan; this is a rapid liquidation of national assets in order to get badly needed cash. This regime will fall unless it can provide ever fresher amounts of cash to Argentina, to Bolivia, to Nicaragua, to the FARC, to Hizballah, to the Venezuelan armed forces, to the millions of poor Venezuelans who expect a fish every day but who will never be taught by Chavez how to fish.
If Perez Alfonzo were alive today he would oppose this auction very strongly. I did not agree with Perez Alfonzo thirty years ago but I agree with him now. It would be particularly painful for him to realize that those who are now liquidating our resources are the same ones who sat in his garden, listening to him in admiration when he spoke about the need to preserve Venezuelan oil for future generations. They were young and idealistic then, now they are just older, fatter and greedier, without ideals but with plenty of ideas on how to get rich quickly.
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