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Venezuela's oil output continues to fall as PDVSA fritters away money: Fuel for Thought

Despite the billions of dollars that have flowed into Venezuela’s state-owned PDVSA in recent years, crude oil and refining output continues to languish. It is not lack of investment hindering growth but a more human flaw—corruption.

The deleterious effects of corruption have been recognized by oil minister Eulogio Del Pino and he has promised to squash it.

“The cancer of corruption has to be attacked all-out,” he said earlier in June at the headquarter offices of Intevep, a subsidiary of PDVSA.

While the government appears to be intensifying its anti-corruption campaign, it remains to be seen if PDVSA can turn itself around and in the meantime oil production keeps cascading lower.

At the beginning of September, nine high-level officials at PDVSA were accused by the attorney general of having been involved in crimes in connection to illegal trafficking of crude oil, criminal conspiracy and corruption. The news was the latest of many corruption scandals that have swirled around management at one of Latin America’s most important oil companies.

Venezuela's crude oil productionThe nine executives facing charges manage crude production in western Venezuela. They include Gustavo Malavé, PDVSA’s executive director of production, and Juan Romero, president of Petrozamora, a mixed venture producing 110,000 b/d in which PDVSA is the 60% equity stakeholder and Russia’s Grazprombank has 40%.

On Aug 17, Del Pino said that by the end of this year the Petrozamora venture would be in position to increase its production to 130,000 b/d, thanks to a $1 billion investment by Grazprombank.

The investment seemed to signal confidence in PDVSA’s management.

“We are toppling this myth that in PDVSA no one invests and that the company is broke,” Del Pino, said during an assembly of Petrozamora workers in Zulia state. Del Pino was until August PDVSA president.

But then three weeks later, the scandal broke after authorities detained Petrozamora’s president Malavé and his entire management team responsible for production in western Venezuela.

In February, Pedro Leon PDVSA’s director for Orinoco Belt operations, also was accused by the attorney general of corruption and irregular contracting procedures. Nine other executives were arrested, including Jesus Osorio, manager of the Jose oil terminal in Anzoatequi state, and Francisco Velásquez, general director of the Petropiar mixed venture in which PDVSA owns 60% and Chevron 30%.

That partnership produces on average 100,000 b/d of upgraded crude in the Orinoco Belt.

In March, prosecutors said they were investigating Marcos Malavé, PDVSA’s trading and supply manager, for alleged irregularities in contracts related to imports of refined products.

Charges also levied in the US

At the attorney general’s office, there are other corruption cases pending related to PDVSA. One of the most notorious broke in March 2015 when Jose Luis Parada, manager of the company’s domestic marketing operation, was jailed for alleged involvement in contraband fuel trafficking. According to press reports, Parada escaped from jail in February and has not been seen or heard from since.

Corruption charges are not only being levied in Venezuela, in December 2015, the US Attorney for Southern Texas , Houston division, filed charges against several PDVSA contractors and vendors for alleged violation of anti-corruption and money laundering laws in relation to international contracts and services connected to Bariven, a PDVSA operation, from the years 2009 up to 2014.

Few details of the various PDVSA corruption investigations have been released to the public and no trials have been conducted, nor sentences handed down in Venezuela. Nor have there been estimates of financial losses attributable to corruption.

Top 10 global proved oil reservesCorruption in PDVSA has added fuel to the fire of Venezuela’s political and economic crisis as it as negatively affected oil production in Venezuela and deprived the country of much needed foreign reserves. According to unofficial figures that oil workers’ unions maintain, output in western oil fields has fallen to 450,000 b/d from 790,000 b/d in 2015.

Moreover, in the Orinoco Belt, union sources say production has fallen to 700,000 b/d far below the 1.2 million b/d official figure.

At the once productive light crude field El Furrial located in Monagas state in eastern Venezuela, production fell below 200,000 b/d in 2016 from 400,000 b/d in 2014.

There are no updated official figures for Venezuelan oil production. Nor is there fresh data for crude trading, imports of refined products or of light crude, but the country has regular tenders to import light crude and products.

Details of investments, cost and expenditures also are lacking. The minimal transparency only increases suspicions among critics about PDVSA’s management.

The quantity and variety of corruption charges shows PDVSA lacks adequate controls in its contracting operations and provides too little means for following how it invests its money.

That, added to the institutional weakness to investigate and punish these types of crimes, has turned PDVSA into something of a black hole and made returning it to an efficient company and vital contributor to society an uphill challenge.

For a country with the world’s largest proved oil reserves, according to the US Energy Information Administration, Venezuela’s production could be on par with its Middle East peers. Instead PDVSA and the nation is struggling to remain solvent.