Identifier
Created
Classification
Origin
07CARACAS512
2007-03-08 21:07:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Caracas
Cable title:
PDVSA AND MPPEP ANNOUNCE 2006 RESULTS: BEWARE THE
how-toVZCZCXRO0179 RR RUEHAO RUEHCD RUEHGA RUEHGD RUEHGR RUEHHA RUEHHO RUEHMC RUEHNG RUEHNL RUEHQU RUEHRD RUEHRG RUEHRS RUEHTM RUEHVC DE RUEHCV #0512/01 0672107 ZNR UUUUU ZZH R 082107Z MAR 07 FM AMEMBASSY CARACAS TO RUEHC/SECSTATE WASHDC 8069 INFO RUEHWH/WESTERN HEMISPHERIC AFFAIRS DIPL POSTS RHEBAAA/DEPT OF ENERGY RUCPDOC/DEPT OF COMMERCE RUEATRS/DEPT OF TREASURY RUMIAAA/HQ USSOUTHCOM MIAMI FL RHEHNSC/NSC WASHDC
UNCLAS SECTION 01 OF 03 CARACAS 000512
SIPDIS
SENSITIVE
SIPDIS
ENERGY FOR CDAY, DPUMPHREY, AND ALOCKWOOD
TREASURY FOR KLINGENSMITH AND NGRANT
COMMERCE FOR 4431/MAC/WH/MCAMERON
NSC FOR DTOMLINSON
HQ SOUTHCOM ALSO FOR POLAD
E.O. 12958: N/A
TAGS: ECON EPET EINV VE
SUBJECT: PDVSA AND MPPEP ANNOUNCE 2006 RESULTS: BEWARE THE
FUZZY MATH
REF: A. 05 CARACAS 02596
B. 06 CARACAS 2489
-------
SUMMARY
-------
UNCLAS SECTION 01 OF 03 CARACAS 000512
SIPDIS
SENSITIVE
SIPDIS
ENERGY FOR CDAY, DPUMPHREY, AND ALOCKWOOD
TREASURY FOR KLINGENSMITH AND NGRANT
COMMERCE FOR 4431/MAC/WH/MCAMERON
NSC FOR DTOMLINSON
HQ SOUTHCOM ALSO FOR POLAD
E.O. 12958: N/A
TAGS: ECON EPET EINV VE
SUBJECT: PDVSA AND MPPEP ANNOUNCE 2006 RESULTS: BEWARE THE
FUZZY MATH
REF: A. 05 CARACAS 02596
B. 06 CARACAS 2489
--------------
SUMMARY
--------------
1. (SBU) Minister for People's Power of Energy and Petroleum
(MPPEP) and PDVSA President Rafael Ramirez presented a
consolidated financial report on their 2006 results on March
4. The end of year report details PDSVA's activities this
past year, including much of its social participation.
According to these numbers, PDSVA made a net profit of USD
5.97 billion on worldwide revenues of almost USD 102 billion
in 2006. It spent USD 11.8 billion on social expenditures
and transfers to the National Development Fund (FONDEN) and
remitted over USD 27 billion to the BRV. The figures (if
they are to be believed) reveal a state oil firm increasingly
geared to providing social services and working as an
extension of the Venezuelan government, to the detriment of
its oil production and refining responsibilities.
--------------
IT'S RAINING MONEY
--------------
2. (SBU) According to the abbreviated financial statements,
PDVSA had worldwide revenues of USD 101.990 billion in 2006,
of which USD 55.401 billion was earned in Venezuela. This
resulted in net earnings of USD 5.970 billion worldwide, of
which USD 3.287 billion was earned in Venezuela. PDVSA
claims to have spent USD 20.755 billion on operations,
including investing USD 5.832 billion. PDVSA transferred USD
6.855 billion to FONDEN and USD 229 million to FONDESPA in
2006, which along with its in-house spending of USD 4.754
billion resulted in total social expenditures of USD 11.838
billion. PDVSA paid USD 27.213 billion in taxes, royalties,
and dividends, which represented about 51 percent of total
government revenues. (NOTE: The entire PDVSA financial
statement is available on Post's SIPRNET site. END NOTE.)
3. (SBU) PDVSA's revenues increased 18.9 percent in dollar
terms from 2005 to 2006, during which time the price for the
average Venezuelan oil basket rose from USD 46.03/barrel to
USD 56.44/barrel. Despite the increase in revenues, PDSVA
profits fell by 7.9 percent from 2005 and profit margins fell
from 8 percent in 2005 to 5.8 percent in 2006.
--------------
THOSE FUNNY NUMBERS
--------------
4. (SBU) The table below shows the claims made by PDVSA in
its report. There are many gaps and the numbers provided do
not match with private sector and Embassy sources. Embassy
estimates that total Venezuelan production is in the vicinity
of 2.4-2.6mbd. Private sector production in the Faja region
prior to OPEC cuts was 422,000bd of syncrude. Local
consumption is approximately 500,000bd. This would put PDVSA
production in the 1.4-1.6mbd range, well below the 2.3mbd
claimed in the report. PDVSA appears to be taking credit for
all of the production in the former Operating Service
Agreement (OSA) fields, which we estimate to be around
350,000bd (PDVSA owns on average 60 percent of the joint
ventures that run the OSA fields). PDVSA appears to be
accurately reporting the production in the Faja. (COMMENT:
PDVSA has been exaggerating its production levels since the
2002-03 strike, and this report continues the trend. It does
demonstrate the declining production in the former OSA
fields, which produced around 474,000bd in December 2005.
END COMMENT.)
PDVSA FORMER FAJA LNG TOTAL
OSAs
PDVSA PRODUCTION 2316* 343 --- --- 2659
PDVSA EXPORTS 2267 --- 170 --- 2437
CARACAS 00000512 002 OF 003
VENEZUELA PRODUCTION 2316* 343 562 173 3394
VENEZUELA EXPORTS 2632 --- 310 --- 2984
*Includes 29,000bd from PDSVA Gas.
SOURCE: MPPEP and PDSVA "Memoria y Cuenta 2006" Financial
Statement
NOTE: Post has sincere reservations about the accuracy of
PDVSA's numbers listed above. End Note.
5. (SBU) The report also highlights PDVSA's diversification
of export sources, noting a strategy to "diversify markets to
mitigate the effects associated with the excessive dependence
on traditional markets" (read: the United States). 56
percent of Venezuela's oil exports went to the United States
in 2003 and, according to this report, by the end of 2006
only 45 percent of their exports went to the United States.
(Note: According to DOE, Venezuela exported 1.27mbd to the
United States in December 2006, down from 1.53mbd in December
2005. End Note.)
--------------
A LITTLE HELP FOR MY FRIENDS
--------------
6. (SBU) PDVSA spent USD 1.347 billion in 2006 to setup,
staff and run Barrio Adentro II. Barrio Adentro is one of
the BRV's most popular missions (reftel B) and is staffed and
run by Cuban doctors and technicians. Stage II provides more
clinical and diagnostic care than the basic Barrio Adentro
clinics. It appears that these costs and payments were in
addition to the 89,000 barrels of oil a day sent to Cuba for
the Cuban doctors and technicians working in Venezuela (worth
approximately USD 1.8 billion/year at the average price for
the Venezuelan basket of oil in 2006). PDVSA also
contributed USD 275 million in 2006 to the other Barrio
Adentro programs and lists a USD 50 million expenditure to
capitalize the opening of the state-owned bank Banco
Industrial in Havana.
7. (SBU) PDVSA also spent close to USD 189 million supporting
international agreements between Venezuela and Argentina, and
another USD 150 million for Venezuela's commitments with
Uruguay. According to the table, Bolivia only received USD 3
million from PDVSA from their bilateral deals signed in 2006.
--------------
INVESTING IN THE FUTURE
--------------
8. (SBU) PDVSA's plan to increase oil production to 5.8mbd by
2012 also gets attention in the report (reftel A). The "Plan
Siembra Petrolera" includes 47 major projects, 186 projects
and 655 sub-projects, of which 30 major projects, 159
projects and 236 sub-projects are currently being executed.
PDVSA claims to have spent USD 5.940 billion on these
projects in 2006 (though their abbreviated balance sheet
indicates that it spent USD 5.832 billion total on all
investments in 2006). The list of 425 various projects
includes completion dates ranging from 2007 to 2037 (Post
assumes that the projects projected to be completed in 1905
were typos).
9. (SBU) According to PDVSA, 500 Venezuelan youth are being
trained by Iran to work in the petroleum industry, and
Portugal, Italy, and Gazprom are providing technical help and
training. PDVSA has employees studying at the French
Institute of Petroleum (34),the Superior Institute of Energy
in France (27),the University of Houston (48),Robert Gordon
University in Scotland (50),the University of Burgos in
Spain (172) and is developing other programs with Iran, China
and Vietnam.
--------------
PLANS FOR 2007
--------------
CARACAS 00000512 003 OF 003
10. (SBU) The 2007 PDVSA budget predicts national petroleum
and derivative production to be 3.251mbd, of which 2.609mbd
will be exported. The budget forecasts that PDVSA will raise
its production to 3.808mbd by the end of 2007. None of these
numbers are probable. According to this budget, PDVSA will
spend approximately USD 15.8 billion on operations, USD 13.7
billion on investments, USD 2.8 billion on social
expenditures, and remit USD 946 million to the government in
dividends. The budget estimates are based on USD 29/barrel
of oil (the current price for the Venezuelan oil basket is
USD 52.79/barrel) and an inflation rate of 12 percent
(inflation is currently running in excess of 18 percent) and
thus are equally unrealistic.
--------------
COMMENT
--------------
11. (SBU) The March 4 announcement and subsequent publication
represent the first time that the MPPEP and PDVSA have
presented their end of year results together as a
consolidated report. While the separation between these two
entities ceased to exist years ago, this nonetheless marks an
increased demonstration of PDVSA's integration into the
Venezuelan state. The report notes that, "the New PDVSA
finds itself perfectly aligned with the Venezuelan State,"
and a majority of the 73 pages in the document refer to
social and governmental activities rather than those related
to the production and sale of petroleum. As has been the
case in recent years, the numbers offered by Minister Ramirez
and this document are hard to swallow and do not match OPEC,
DOE, or local analysts' estimates. Even if the budgetary
numbers are to be believed, they show a precipitous decline
in the profitability of PDVSA and call into question its
ability to continue to spend at the rate it did in 2006 and
at the same time continue its (apparently ancillary mission)
to extract, refine, and sell Venezuela's oil.
BROWNFIELD
SIPDIS
SENSITIVE
SIPDIS
ENERGY FOR CDAY, DPUMPHREY, AND ALOCKWOOD
TREASURY FOR KLINGENSMITH AND NGRANT
COMMERCE FOR 4431/MAC/WH/MCAMERON
NSC FOR DTOMLINSON
HQ SOUTHCOM ALSO FOR POLAD
E.O. 12958: N/A
TAGS: ECON EPET EINV VE
SUBJECT: PDVSA AND MPPEP ANNOUNCE 2006 RESULTS: BEWARE THE
FUZZY MATH
REF: A. 05 CARACAS 02596
B. 06 CARACAS 2489
--------------
SUMMARY
--------------
1. (SBU) Minister for People's Power of Energy and Petroleum
(MPPEP) and PDVSA President Rafael Ramirez presented a
consolidated financial report on their 2006 results on March
4. The end of year report details PDSVA's activities this
past year, including much of its social participation.
According to these numbers, PDSVA made a net profit of USD
5.97 billion on worldwide revenues of almost USD 102 billion
in 2006. It spent USD 11.8 billion on social expenditures
and transfers to the National Development Fund (FONDEN) and
remitted over USD 27 billion to the BRV. The figures (if
they are to be believed) reveal a state oil firm increasingly
geared to providing social services and working as an
extension of the Venezuelan government, to the detriment of
its oil production and refining responsibilities.
--------------
IT'S RAINING MONEY
--------------
2. (SBU) According to the abbreviated financial statements,
PDVSA had worldwide revenues of USD 101.990 billion in 2006,
of which USD 55.401 billion was earned in Venezuela. This
resulted in net earnings of USD 5.970 billion worldwide, of
which USD 3.287 billion was earned in Venezuela. PDVSA
claims to have spent USD 20.755 billion on operations,
including investing USD 5.832 billion. PDVSA transferred USD
6.855 billion to FONDEN and USD 229 million to FONDESPA in
2006, which along with its in-house spending of USD 4.754
billion resulted in total social expenditures of USD 11.838
billion. PDVSA paid USD 27.213 billion in taxes, royalties,
and dividends, which represented about 51 percent of total
government revenues. (NOTE: The entire PDVSA financial
statement is available on Post's SIPRNET site. END NOTE.)
3. (SBU) PDVSA's revenues increased 18.9 percent in dollar
terms from 2005 to 2006, during which time the price for the
average Venezuelan oil basket rose from USD 46.03/barrel to
USD 56.44/barrel. Despite the increase in revenues, PDSVA
profits fell by 7.9 percent from 2005 and profit margins fell
from 8 percent in 2005 to 5.8 percent in 2006.
--------------
THOSE FUNNY NUMBERS
--------------
4. (SBU) The table below shows the claims made by PDVSA in
its report. There are many gaps and the numbers provided do
not match with private sector and Embassy sources. Embassy
estimates that total Venezuelan production is in the vicinity
of 2.4-2.6mbd. Private sector production in the Faja region
prior to OPEC cuts was 422,000bd of syncrude. Local
consumption is approximately 500,000bd. This would put PDVSA
production in the 1.4-1.6mbd range, well below the 2.3mbd
claimed in the report. PDVSA appears to be taking credit for
all of the production in the former Operating Service
Agreement (OSA) fields, which we estimate to be around
350,000bd (PDVSA owns on average 60 percent of the joint
ventures that run the OSA fields). PDVSA appears to be
accurately reporting the production in the Faja. (COMMENT:
PDVSA has been exaggerating its production levels since the
2002-03 strike, and this report continues the trend. It does
demonstrate the declining production in the former OSA
fields, which produced around 474,000bd in December 2005.
END COMMENT.)
PDVSA FORMER FAJA LNG TOTAL
OSAs
PDVSA PRODUCTION 2316* 343 --- --- 2659
PDVSA EXPORTS 2267 --- 170 --- 2437
CARACAS 00000512 002 OF 003
VENEZUELA PRODUCTION 2316* 343 562 173 3394
VENEZUELA EXPORTS 2632 --- 310 --- 2984
*Includes 29,000bd from PDSVA Gas.
SOURCE: MPPEP and PDSVA "Memoria y Cuenta 2006" Financial
Statement
NOTE: Post has sincere reservations about the accuracy of
PDVSA's numbers listed above. End Note.
5. (SBU) The report also highlights PDVSA's diversification
of export sources, noting a strategy to "diversify markets to
mitigate the effects associated with the excessive dependence
on traditional markets" (read: the United States). 56
percent of Venezuela's oil exports went to the United States
in 2003 and, according to this report, by the end of 2006
only 45 percent of their exports went to the United States.
(Note: According to DOE, Venezuela exported 1.27mbd to the
United States in December 2006, down from 1.53mbd in December
2005. End Note.)
--------------
A LITTLE HELP FOR MY FRIENDS
--------------
6. (SBU) PDVSA spent USD 1.347 billion in 2006 to setup,
staff and run Barrio Adentro II. Barrio Adentro is one of
the BRV's most popular missions (reftel B) and is staffed and
run by Cuban doctors and technicians. Stage II provides more
clinical and diagnostic care than the basic Barrio Adentro
clinics. It appears that these costs and payments were in
addition to the 89,000 barrels of oil a day sent to Cuba for
the Cuban doctors and technicians working in Venezuela (worth
approximately USD 1.8 billion/year at the average price for
the Venezuelan basket of oil in 2006). PDVSA also
contributed USD 275 million in 2006 to the other Barrio
Adentro programs and lists a USD 50 million expenditure to
capitalize the opening of the state-owned bank Banco
Industrial in Havana.
7. (SBU) PDVSA also spent close to USD 189 million supporting
international agreements between Venezuela and Argentina, and
another USD 150 million for Venezuela's commitments with
Uruguay. According to the table, Bolivia only received USD 3
million from PDVSA from their bilateral deals signed in 2006.
--------------
INVESTING IN THE FUTURE
--------------
8. (SBU) PDVSA's plan to increase oil production to 5.8mbd by
2012 also gets attention in the report (reftel A). The "Plan
Siembra Petrolera" includes 47 major projects, 186 projects
and 655 sub-projects, of which 30 major projects, 159
projects and 236 sub-projects are currently being executed.
PDVSA claims to have spent USD 5.940 billion on these
projects in 2006 (though their abbreviated balance sheet
indicates that it spent USD 5.832 billion total on all
investments in 2006). The list of 425 various projects
includes completion dates ranging from 2007 to 2037 (Post
assumes that the projects projected to be completed in 1905
were typos).
9. (SBU) According to PDVSA, 500 Venezuelan youth are being
trained by Iran to work in the petroleum industry, and
Portugal, Italy, and Gazprom are providing technical help and
training. PDVSA has employees studying at the French
Institute of Petroleum (34),the Superior Institute of Energy
in France (27),the University of Houston (48),Robert Gordon
University in Scotland (50),the University of Burgos in
Spain (172) and is developing other programs with Iran, China
and Vietnam.
--------------
PLANS FOR 2007
--------------
CARACAS 00000512 003 OF 003
10. (SBU) The 2007 PDVSA budget predicts national petroleum
and derivative production to be 3.251mbd, of which 2.609mbd
will be exported. The budget forecasts that PDVSA will raise
its production to 3.808mbd by the end of 2007. None of these
numbers are probable. According to this budget, PDVSA will
spend approximately USD 15.8 billion on operations, USD 13.7
billion on investments, USD 2.8 billion on social
expenditures, and remit USD 946 million to the government in
dividends. The budget estimates are based on USD 29/barrel
of oil (the current price for the Venezuelan oil basket is
USD 52.79/barrel) and an inflation rate of 12 percent
(inflation is currently running in excess of 18 percent) and
thus are equally unrealistic.
--------------
COMMENT
--------------
11. (SBU) The March 4 announcement and subsequent publication
represent the first time that the MPPEP and PDVSA have
presented their end of year results together as a
consolidated report. While the separation between these two
entities ceased to exist years ago, this nonetheless marks an
increased demonstration of PDVSA's integration into the
Venezuelan state. The report notes that, "the New PDVSA
finds itself perfectly aligned with the Venezuelan State,"
and a majority of the 73 pages in the document refer to
social and governmental activities rather than those related
to the production and sale of petroleum. As has been the
case in recent years, the numbers offered by Minister Ramirez
and this document are hard to swallow and do not match OPEC,
DOE, or local analysts' estimates. Even if the budgetary
numbers are to be believed, they show a precipitous decline
in the profitability of PDVSA and call into question its
ability to continue to spend at the rate it did in 2006 and
at the same time continue its (apparently ancillary mission)
to extract, refine, and sell Venezuela's oil.
BROWNFIELD