Did Chavez nationalize Venezuela's Oil Industry?

[social_critic]

Venezuela's government claimed in the past they had nationalized the oil industry. Yet last month the oil minister and PDVSA president Rafael Ramirez issued a request from foreign oil companies which frankly leave this writer wondering if Mr Ramirez knows who is in charge of Venezuela's oil.

"The Ministry of Energy asked foreign oil companies to increase output
Venezuela would review the rights granted to foreign oil firms to operate in the South American country in joint ventures with state-run oil company Petróleos de Venezuela (Pdvsa) if they fail to increase output, warned Venezuela's Minister of Energy and Petroleum Rafael Ramírez. In December, amid a decline in oil production in Venezuela -where more than 90 percent of revenues come from oil exports- the Ministry of Energy and Petroleum asked oil joint ventures to increase oil output, Reuters reported. In December, Venezuela requested oil firms to present a schedule to raise output within a period of 30 working days."

http://english.eluniversal.com/2011/01/28/en_eco_esp_venezuela-may-review_28A5061653.shtml

The truth is a little more complicated than meets the eye. What Venezuela did when it claimed it had nationalized the foreign oil companies was to morph the entities operating the fields into joint ventures, in which PDVSA owns 60 % of the stock, and the foreign multinational owns 40 % of the stock.

Because PDVSA owns the majority of the shares, they get to name the senior management, and of course they get to carry the votes when the stockholders meet - because they own s majority of the shares. Therefore this request by Ramirez is very interesting --- he is behaving as if the foreign multinationals, which they made so much noise about kicking out --- are still in control.

I don't have the full set of information about what's going on, and I do know a bit more than I'm letting you know here in DU, but let's just say:

1. The nationalization wasn't really what they touted, they let multinationals stay, and they do own shares in these corporations or joint ventures.

2. PDVSA seems to be so broke it's relinquishing its rights to manage the corporations (which it has as majority stockholder) as long as the multinational oil companies come rescue them with a financing package for the JV's, which has been squeezed to death and mismanaged by PDVSA until now.

Foreign oil multinationals, being what they are, will probably extract a pound of flesh out of PDVSA to go along - meaning there will be secret protocols and agreement which will tie the oil to be produced, so that it can be exported by the foreigners to repay the debt (this is what the Chinese are doing). Or they will walk. In which case PDVSA is about to see its production crash even more. And which means Mr Chavez' cash, which he needs to give to his clients and the corrupt crooks who surround him, will not be there.

This is going to be getting curiouser and curioser. If I were an educated Venezuelan professional, I would be getting out, the country is already a basket case, with high inflation, high crime, lots of corruption, lawlessness, a government which doesn't respect property rights, and is led by a maniac. Time to hit the road and become refugees, my friends.

[Peace Patriot]

1. I don't trust Rotters, El (non) Universal or you to provide facts or understanding

about Venezuela, the Chavez government or the Latin American left in general.

The only thing I gather from this confused mishmash is that there may be an organized effort of multinational corporations to crash Venezuela's economy leading up to the 2012 presidential election, to deny the Chavez government a third term--cuz they want it ALL, as everybody knows--ALL the oil profits, ALL the resources, ALL the money, ALL the land, ALL the power, and they will do anything--slaughter a hundred thousand innocent people in Iraq, torture, kill, lie, bribe, bully, smash democracy to bits and let millions starve, to get what they want.

Is this what you mean by, "I do know a bit more than I'm letting you know here in DU."? That the "Big Lie" about Venezuela's economy is about to be made real, by the banksters, the oil corporations and the rest of the dirty rotten bastards who are ruining things for everybody else?

Do tell.

[social_critic]

3. You gather wrong

The joint venture vehicles created by the Venezuelan government when they claimed they had nationalized the industry gave the foreigners rights as shareholders - but kept them as minority shareholders.

Evidently you don't understand much about Venezuela, but I do believe you're smart enough to work out the logic. When industry is nationalized and controlled by the state - or a state owned and controlled corporation such as PDVSA, it doesn't need for foreigners to put forth plans to increase production. So if they are controlled by the state, why are they asking for the foreign companies to provide them with plans? What's the matter, a nationalized company can't come up with its own plans internally? Or maybe it lacks the money to invest, so why bother to plan anything?

Like I said, I don't have the full picture, but it seems to me PDVSA is crashing - they don't have the money nor the people to do intelligent planning. And the government is starting to feel the heat, they need money for the elections, and they have all those clients out there. But GDP is dropping and inflation is raging, the crime wave marches on, Chavez is making commitments to build houses and power plants, and the middle class flees in panic because he's declared himself to be a communist....so nobody invests.

Are the foreign companies engaged in a conspiracy? I doubt it. Wikileaks cables tell us they are under orders from their home countries to hold off making investments because the government is prone to nationalize properties - and to milk what they have as much as possible.

Why should the president of a multinational oil company bother to do anything except wink and put forth empty statements when they see the government doesn't respect private property, is corrupt, and is run by incompetents? I can't think of ANY reason why ANY of them would invest much beyond the cash flow they get from the properties they do own. They'll be OK re-investing their profits - the profits you crowed they didn't have after they were "nationalized". But new money? I doubt any will show up. They'll make peace signs, croon and hem and haw, and wait for the grim reaper to take care of Chavez.

[social_critic]

7. Geez, I forgot to answer one of your point.

I know a lot more than I let on here in DU, and I'm not about to tell you about it. Has nothing to do with all that stuff you wrote. It has to do with not letting you or Eva know who I am. It could get sticky for me.

[social_critic]

8. Wow, I get it now. Chavez is an agent of US corpo-imperialism

Venezuela's economy is in ruins because Chavez runs it. I used to think the guy was just being stupid, but now I get it...Chavez must be working for US multinationals. Chavez is probably a CIA agent!!

[social_critic]

10. Don't trust rotters, but oil exports are down to about 1.7 million bpd

The latest figures show exports down to about 1.7 million barrels per day. A less reliable figure is the amount of oil they have to give to China to repay "friendly loans" they received in previous years. I hear the figure is about 200,000 barrels per day. Which means Venezuela is getting "paid" for about 1.5 million barrels per day. But they got those give away and soft loan programs siphoning off at least 100,000 barrels per day. So that leaves 1.4 million barrels per day. About 500,000 b'd of this is really low quality oil, Cerro Negro syncrude, blended faja crude, or Boscan crude. So they got 900,000 barrels per day of regular oil, and 500,000 barrels per day of cheap stuff they have to sell at lower prices.

The figures I give you above are more or less right. The Venezuelan government no longer has a transparent system which the people can use to verify how much oil is being produced and under which terms its sold. This was done by the old PDVSA, but you know how it is, under communism everything is a state secret. Plus they don't want the people to know their baloney about producing 3 million barrels per day is just lies. So you won't find a government website with the right figures, and I'm sure Eva and her pals at Venezuelanalysis won't be publishing anything about this.

[CJvR]

2. Not entirely surprising.

PDVSA's cash seems to go into vote buying programs for the regime rather than investments in the business it is supposed to run.
Asking the foreign owners to pick up the investment costs is somewhat sensible, they stand to profit too after all. Unfortunately the continuing cleptocratic tendencies of the Chavez regime will make an outside bailout impossible for any CEO to justify. It is not really the oil nationalization itself that is the problem here, the oil companies do plenty of business with states that have nationalized oil earlier, but rather the continuing state of almost random thievery by the government.

[social_critic]

4. CJvR, today's PDVSA has very weak management

I should know, I look at their plans, and they seem to be prepared by high school students - and I'm being kind. I do have to correct you, asking foreigners to pick up the costs isn't sensible under the tax and legal regime they put in place. Let's forget the kleptocratic tendencies for a second. Even without them, corporations aren't supposed to expose capital and put it at risk unless the return justifies the risk. And the risk in Venezuela is indeed enormous.

The joint ventures have a single mechanism to provide a return on investment to the foreign stockholder - dividends. The JV can also borrow money with foreign stockholder guarantees (because no bank in its right mind will lend to a JV at this point). So the stockholder is left holding the bag. It backs a loan to an entity with lousy credit rating, so low it can't even sell junk bonds. And it depends on JV management controlled by PDVSA to pay dividends - which are hardly forthcoming if the JV is cash starved.

To complicate matters, the tax system isn't stabilized, meaning the crazies in Caracas are free to increase them at will. And the service and engineering industry which backs oil companies when they carry out a project are decimated, and don't want to work under standard terms - because PDVSA and its JV's don't pay their bills.

Also, PDVSA is in arrears with both past dividends, as well as payments for services carried out by the foreign multinationals - they do have to get paid if they provide technology and personnel support.

And now that we got over the niceties, we can put the final nail: the Orinoco oil belt is a fairly difficult reservoir to produce. The oil is extremely heavy (heavier than water when it's degassed), and it requires upgrading or blending so it can be marketed. The upgrading takes place in fairly complex "minirefineries" which are located at Jose, near Puerto La Cruz, which have gradually lost processing capacity because PDVSA runs a shoddy operation. Building a new upgrader takes about 5-6 years. And there's insufficient light oil production in Venezuela to blend with the heavy crude, so they're out of blendstock.

I can add other issues, but I don't think this is the right forum to discuss problems faced by private companies in Venezuela. Suffice it to say, the few companies left around are evidently waiting for Chavez to either croak politically or have an epiphany and change his stripes. "New investors" are merely posturing, they sign empty deals, and fail to move forward. And thus the economy continues to slip, inflation continues to rage, and people continue to flee.

[CJvR]

5. Oh i didn't mean...

...it made sense to the foreign partners but rather to the PDVSA and the goverment. Any CEO who invests long term in Venezuela will be crucified by the board.

[social_critic]

6. I understand your point now

However, there's an issue we can discuss: It doesn't make sense for PDVSA and the government to tell foreign multinationals to plan for increasing production and CARRY the Venezuelan side, when it's evident such investments are too risky and/or non-profitable.

When a state oil company takes hard line positions it hasn't thought through, it delays investment. And this is what's been taking place in Venezuela. PDVSA makes plans it can not carry out, it gets distracted with non-oil "social activities", and oil production continues to go down, while at the same time the oil infrastructure decays and becomes dangerous to operate.

PDVSA's attitude would make sense if they did get a significant fraction of the foreign companies to move forward. But this isn't happening. And the more radical and abusive PDVSA behaves towards its "foreign partners", the less willing are these companies to make a move.

PDVSA is run using a thuggish mentality when it comes to business relationships...and to top it off Chavez seems to believe the deals he makes are between countries, when they're between private investors who are as cold blooded and sharp as they come, don't give a hoot about politics, but do care about profits.

Which means they don't really care if Chavez paints himself red and dances on top of skeletons, as long as they get their cash. But this is the missing ingredient - PDVSA's deal doesn't give them a solid link between investment made and cash flowing back with the high return they need to justify the risk - a risk imposed by Chavez' shenanigans and erratic behavior.

Multinationals need profits. And profits they'll get, or else they'll sit and wait for the government to change its mind.

[social_critic]

9. But Venezuelanalysis has their clowns saying it's all right

It's all right, have a good night, because it's all right.