Oil rig count soars in unlikely OPEC nation before Vienna talks
All across the Americas, drilling rigs are being idled as oil prices hover near six-year lows. In Colombia, more than 57 percent have been pulled; in Mexico, 42 percent. Then there’s Venezuela. Starved for hard currency needed to ease a crushing recession and struggling to shore up slumping output, the state oil giant known as PDVSA has been adding rigs at a furious pace to search for new sources of crude.
The number has climbed 19 percent this year, signaling a new push that comes at the same time the OPEC nation is urging its fellow members to cut output at Friday’s meeting to support prices. It’s a sacrifice that Venezuelan President Nicolas Maduro — the successor to his mentor, the late Hugo Chavez — isn’t willing to take in his own country, though, as a shortage of dollars fuels widespread shortages and runaway inflation and puts the opposition on the verge of taking control of congress in elections this weekend.
Petroleos de Venezuela SA’s drilling efforts are helping boost production from the Orinoco heavy oil belt, according to Medley Global Advisors. That extra-heavy oil can be mixed with lighter domestic grades to maintain the nation’s exports and bring in much-needed U.S. dollars.
The nation with the largest oil reserves in South America is more dependent than ever on petroleum revenues, which account for 95 percent of export earnings and almost half of government revenues, according to the country’s foreign ministry. Venezuela is facing an economic crisis after a global glut pushed prices down by two-thirds since last June. Oil may drop to the mid-$20s a barrel unless OPEC takes action, Venezuelan Oil Minister Eulogio Del Pino said.
Saudi Arabian Oil Minister Ali al-Naimi and Del Pino will meet Thursday in Vienna for informal talks, according to an OPEC delegate with knowledge of the meeting. OPEC’s official meeting will take place on Friday.
“It’s in Venezuela’s interest to have OPEC cut production, although it will probably not be able to afford to abide by any production cuts,” Luisa Palacios, managing director at New York-based consultant Medley, said in a Nov. 25 e-mailed response to questions. “In order for Orinoco oil to be a sustainable source of production increases, Venezuela has to convince others within OPEC, that can already produce competitively at these prices, to cut production.”
Venezuelan production is down 0.6 percent from its 2014 average, compared with an increase of 4.7 percent across the Organization of Petroleum Exporting Countries, according to data compiled by Bloomberg. The country’s combined crude and liquids production, which averaged 2.9 million barrels per day in 2014, isn’t expected to change this year or next, according to Del Pino. In a Nov. 19 broadcast on Venezuelan state television, President Nicolas Maduro said “income in dollars entering the country from oil and other sources fell by 64 percent this year, almost a financial disaster.”
Venezuela’s Information Ministry and PDVSA didn’t respond to e-mailed requests seeking comment on the nation’s rising rig counts.
Venezuela is seeking to take advantage of a global glut of light oil. PDVSA, as the state oil company is known, has been importing 48,000 barrels a day since July, mostly from Africa, to supply the Isla refinery in Curacao. That allows it to mix its own lighter Mesa and Santa Barbara grades with extra-heavy ones from Orinoco, PDVSA reported on Nov. 10 in a statement on its website, citing Refining Vice President Jesus Luongo.
Venezuela’s increase contrasts with an overall reduction of 17 percent in Latin America, according to data from Baker Hughes Inc. The growth in drilling is allowing oil service providers to remain upbeat on the country even as they struggle in neighboring countries. Schlumberger Ltd. Chairman and CEO Paal Kibsgaard said in an Oct. 16 earnings conference call that slow activities in Mexico, Argentina, Brazil and Colombia were “partially offset by steady activity in Venezuela and Ecuador.” He added, “in Venezuela, activity was steady for both PDVSA and for the heavy oil joint ventures in the Faja.”
“Venezuela has a very good case for needing the money, but the Saudis have started to figure out they need the money too,” Carl Larry, head of oil and gas for Frost & Sullivan LP, said Nov. 25. “The market share is getting smaller and for Venezuela, which has few options, this is probably their best strategy at this point.”