Analysis: Venezuela may face shortcomings

MIAMI, July 25 (UPI) -- Venezuela's state-run petroleum company PDVSA faces pitfalls in the coming years because of a shortage of oil rigs and other setbacks, Venezuelan energy officials have warned.

Some energy analysts criticize that notion, however.

According to Luis Vierma, exploration and production vice president at PDVSA, Venezuelan oil faces a "significant operational emergency" if it does not increase the number of rigs operating in the country. Addressing Venezuela's National Assembly last week, he said PDVSA had fallen short of its 2007 goal of getting 191 rigs online in 2007 and producing some 3.3 million barrels per day. So far, he said, 112 rigs were online as of July, and by the end of the year their numbers would only likely increase to 120.

"Venezuela is moving toward technological independence, but it will take a long time," said Vierma, El Universal newspaper reported last week.

PDVSA's independence could take even longer considering Venezuela's oil output is believed to have slipped by more than 250,000 barrels per day from a year ago, according to the Paris-based International Energy Agency. Production has reportedly decreased from 2.6 million bpd to 2.37 million bpd.

Hoping to counter the production shortfall, PDVSA announced last week it was investing $3.5 billion in new oil rigs, a much-needed injection of cash into improvements for a sector that some experts say has been abused by President Hugo Chavez for his social programs.

Peter DeShazo, a former U.S. deputy assistant secretary of state for Western Hemisphere affairs and now Americas program director at the Center for Strategic & International Studies, noted PDVSA's infrastructure has been neglected in recent years to fund Chavez's social spending agenda.

"Certainly PDVSA's overall capabilities are not what they used to be," DeShazo told United Press International.

Venezuelan oil has also faced setbacks in recent weeks on the foreign-investment front, prompting some to believe that Chavez's policies could eventually be the sector's undoing.

Oil giants ConocoPhillips and Exxon Mobil Corp. announced last week they were pulling out of Venezuela and its oil-rich Orinoco River reserves despite spending millions of dollars in development over the last few years.

"They won't be missed," Chavez said of the companies that did not reach agreement with Venezuela over the future of their projects.

Their pullout followed a protracted tussle between PDVSA and private foreign companies after Chavez announced Venezuela would acquire a majority stake in every operation in the Orinoco.

While most companies acquiesced, Conoco and Exxon would not come to terms with PDVSA and announced they would cut their losses rather than retain a minority share of their projects under Chavez.

Venezuela's ambitious plans for taking majority control of its most-lucrative resources began earlier this year with the inauguration of Chavez to a second term in office. He announced then his intention to revert Venezuela's oil and gas sectors back to majority state control, an announcement that sent shockwaves through the international petroleum sector, causing global price spikes and raising eyebrows in Washington.

The takeover stipulated that PDVSA has at least a 60-percent share of the projects pumping heavy crude once dominated by foreign firms such as BP PLC, Chevron and Total. Those firms and others would be given fair market value for controlling interest of the projects, Chavez said.

Though many warn Venezuela's oil sector could be headed for a bust, others like Economist Mark Weisbrot at the Center for Economic and Policy Research speculate "there's no obvious end in sight for Venezuela's current economic expansion," noting the country's continued economic growth since the months-long oil strike that ended in February 2003.

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