Analysis Justin Jacobs | PetroleumEconomist

“The time for a new oil revolution has come,” Venezuela’s president Nicolas Maduro declared during his weekly Sunday chat show this weekend. Few would argue that’s the case. Oil production is collapsing and exports are down, sharply worsening a national debt crisis. But the kind of revolution Maduro has in mind will make things worse rather than better for the industry, its investors and the nation’s oil-fueled economy.

During the speech, Maduro announced that he was appointing Major General Manuel Quevedo from the National Guard to take up the dual role of oil minister and boss at state oil company PdV, making him among the most powerful people in the country. Quevedo was most recently the housing minister, and reportedly played an important role in countering massive opposition street protests that roiled the capital for much of the last year. He has no known oil industry experience.
Paralysed operations

Quevedo is an oil neophyte at a time when PdV badly needs a steady hand to lead its recovery. Crude output is in freefall. Production has fallen by nearly 300,000 barrels a day—around 15%—this year alone, and is down 0.8m b/d, (around a third), since Maduro took office in April 2013, according to figures the country reports to Opec. PdV’s cash flow problems have paralysed the company’s complex operations. There is little money to drill new Orinoco heavy oil projects and build the infrastructure needed to bring the huge reserves to market, while at the same time neglected mature fields are quickly declining.

More worrying is the recent collapse in exports. Between September and October they fell by 340,000 b/d, down to 1.32m b/d, according to the Oil Research team at Thomson Reuters. Shipments for this month look even more dire, running at just 0.77m b/d up to 22 November, according to the Reuters data. November’s exports to the US, PdV’s most important cash paying market, were just 280,000 b/d, a disaster in the making for the state oil company. Venezuelan crude exports to the US averaged around 0.75m b/d throughout the first half of this year, but sanctions are scaring off US banks and crude buyers, which has seen Gulf Coast refiners turn instead to Brazil, Iraq, Canada, Mexico and Colombia for heavy oil.

There is nothing in Quevedo’s background to suggest that he’ll have any idea how to solve PdV’s complex problems, or even know where to start. But his appointment is less about righting the oil industry than it is about protecting Maduro’s political position as Venezuela’s crisis deepens. Maduro needs to keep the military, which has unseated a number of unpopular presidents in the past, on his side. To do that, he has gradually handed out more and more of the cabinet’s key portfolios to military officials. The oil industry, so vital to Venezuela’s economic health, had been the lone exception, with experienced technocrats still managing operations.

Military takeover

Not that the military wasn’t eyeing the oil industry. In February last year, the Department of Defense set up Camimpeg, a security and oilfield services firm to run operations for PdV as foreign firms cut their activity. It hinted at the creeping militarisation of the oil industry. Quevedo’s appointment completes a near total takeover by the military of the oil industry and other key economic positions in Maduro’s government. Quevedo is likely to move quickly to stack PdV’s senior ranks with military officials who have little oil experience, a major threat to the company’s already sclerotic operations.

The appointment also caps off a months-long purge of Venezuelan oil executives. In recent months, dozens of PdV executives have been sacked, and many arrested on corruption charges. Last week, six senior officials, including the acting president, at PdV’s US-based refining subsidiary Citgo were arrested when they had returned to Caracas for meetings on corruption accusations associated with recent bond offerings. Quevedo pushes Eulogio Del Pino, a Stanford-educated oilman with decades of experience, out of the oil ministry and replaces Nelson Martinez, another seasoned oil player who was recently president of Citgo, as head of PdV after Martinez had held the job for just three months.

Bron: PetroleumEconomist