PDVSA to outsource maintenance contracts

Thursday, June 12, 2003

Venezuela's state oil company PDVSA will soon start to award oil field maintenance contracts to reverse declining production at its oil fields, industry sources told BNamericas.

"One thing that has suffered a lot since they downsized significantly has been the quality of operational maintenance," one source said, asking not to be named. "That is very worrisome for PDVSA."

"Maintenance levels are not at the same levels as before the strike," said a different source, Fernando Delgado, executive director of the Zulia state branch of Venezuela's national oil chamber.

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PDVSA is considering awarding contracts to joint ventures of Venezuelan and foreign companies, Delgado said, adding "this would be good for the country, and reactivate the sector with private capital."

Awarding these contracts to private companies would not necessarily mean privatizing the operations of state oil fields, "but we could start with maintenance contracts on small fields and then move to larger fields," the first source said.

"PDVSA is not going to give everything away, but just a part," the source said, adding, "It seems this idea has been received well by PDVSA management."

Delgado said construction companies in the west of the country, where PDVSA is the main client, have been operating at 20% of capacity since the end of the oil strike in February. "Activity is considerably less than it was," he said.

"PDVSA officials say it's because before the strike they were spending too much money on maintenance contracts, but it's impossible for me to check that," Delgado added.

For now the lower levels of maintenance have not resulted in any serious accidents, such as oil spills or gas explosions, Delgado continued, adding that if maintenance does not improve such accidents will become more likely in the future.

PDVSA faces an "emergency" in declining oil production, the source said, adding "The reality is that there are almost two worlds, because the expectation is that there has been recovery since the strike, but in the last week and a half we're starting to hear that production is rapidly declining."

"There is a perception that production is heavily declining now. That reality is sinking in and they are having serious problems with maintenance which in turn impacts production," the source continued.

Another reason for declining production could be that PDVSA overproduced some good prospects after the strike, "but that's always a bad industry practice because when you overproduce you will never reach optimum economic recovery," the source said.

However, the oil chamber's Delgado said that there is a natural 20% annual decline in oil fields and poor maintenance now will affect future production, not current production.

PDVSA chairman Ali Rodriguez said on Wednesday that the company is currently producing at its OPEC quota of about 2.9 million barrels of oil a day. "The official numbers are pretty good," Delgado said, adding that current production is within 100,000b/d of pre-strike levels.

Because half the workforce was sacked during and after the two-month strike at the beginning of the year, PDVSA has appointed political allies or lower level employees loyal to President Hugo Chavez, the source said.

"Some people believe the problems are here to stay because they have cut the company so thin in terms of employees and personnel that it will be hard to handle a company this size with a 45% cut in the payroll and believe that everything's going to be fine and dandy," the source continued.