VENEZUELA: BUSINESS OPPORTUNITIES AND WAYS TO

C O N F I D E N T I A L SECTION 01 OF 02 CARACAS 001057 SIPDIS ENERGY FOR ALOCKWOOD AND LEINSTEIN, DOE/EIA FOR MCLINE HQ SOUTHCOM ALSO FOR POLAD TREASURY FOR MKACZMAREK COMMERCE FOR 4332/MAC/WH/JLAO NSC FOR RKING E.O. 12958: DECL: 08/04/2019 TAGS: EPET EINV ENRG ECON CU VE SUBJECT: VENEZUELA: BUSINESS OPPORTUNITIES AND WAYS TO INCREASE CRUDE PRODUCTION REF: A. CARACAS 817 Classified By: Economic Counselor Darnall Steuart, for reasons 1.4 (b) and (d). ¶1. (C) SUMMARY. It is easy to focus on the negative stories coming out of Venezuela's oil sector, but there are opportunities for companies to prosper and for Venezuela to increase production. Energy field consultations in June highlighted the multitude of opportunities that oil service companies believe will be generated if or when PDVSA decides to do what is necessary to increase production through well maintenance and an expanded drilling program. Oil production companies also pointed out ways Venezuela easily could increase crude production, especially from marginal fields heretofore deemed uneconomic by PDVSA. END SUMMARY. ¶2. (C) From June 2 through 15, Petroleum Attache (PetAtt) and visiting Washington energy analyst met with industry representatives in Zulia, Caracas, and Monagas. This is a complementary cable to Reftel A. and septels on production in Western Venezuela and the factors that impact on production. THE FLIP SIDE: Opportunities for Service Companies -------------- -------------- ¶3. (C) Notwithstanding the current pessimism over the decline in production, international oil service company officials believe PDVSA,s mismanagement of fields will ultimately offer plenty of business opportunities for years to come. Their major challenge is to weather the current payment problems long enough to take advantage of forthcoming opportunities. Some companies see the exodus of other service companies from Venezuela (through their willing departure or expropriation) as increasing the future opportunities available to those companies that stay. ¶4. (C) Jim Vidrine of Weatherford (strictly protect throughout) estimates there are 7,000 wells in Venezuela that need to be "worked over" or serviced, a figure that Weatherford believes indicates it will have work for years to come here. Vidrine also pointed out that well maintenance would have an immediate positive impact on PDVSA's crude production. Mac MacVay of Superior Energy Services (strictly protect throughout) thinks that any company that remains here will be able to choose the opportunities it wants to pursue. Even though Superior has cut back on staff and operations, it has developed a new low cost business area to generate revenue and maintain a market presence. MacVay theorized that if Superior were able to achieve a well work over rate of one well every 48 hours Superior could be occupied for a long time to come. Furthermore, MacVay estimated that one third of shut-in wells will not come back on line when re-opened, requiring a specialty service company's proprietary technology. ¶5. (C) Cesar Fernandez, a plant manager for Cameron in Maracaibo (strictly protect throughout) shared that its corporate strategy in Venezuela is to decrease exposure and push for payments. PDVSA's procurement plan for Cameron (developed in 2008) called for the manufacture of twenty-two wellheads. In early 2009, PDVSA adjusted that figure to eighteen wells and subsequently dropped it to twelve. He added that even though Cameron laid off half of its 160 plant workers (mostly machine operators) in May, there will always be business opportunities in Venezuela. In order to maintain and increase production, PDVSA needs to drill new wells and new wells require new wellheads, an on-going opportunity for Cameron. CARACAS 00001057 002 OF 002 Opportunities to Easily Increase Production -------------- ¶6. (C) Schlumberger Venezuela President Ivan Betancourt (strictly protect throughout) shared that PDVSA production from the Dacion field dropped from 90,000 b/d to 30,000 b/d after it took over the field from Italy's ENI in 2007. Apparently, PDVSA views Dacion as a low cost field and has not made any investments or installed any technology to maintain or boost production. Betancourt implied that this would be an ideal opportunity for PDVSA to invite a foreign oil company to manage this marginal field, resurrect production, and make a healthy profit. ¶7. (C) PetroDelta, a PDVSA mixed company with HarvestVinccler is producing 23,000 b/d, double the amount it produced last year. It expects production could climb to 100,000 b/d once it begins oprations in two undeveloped fields and completes urrent expansio programs. Superior's MacVay notedthat there are 14,000 wells just on Lake Maracaio that offer plenty of potential to increase prouction if a company drilled horizontal offshootsin existing wells to hit untapped oil pockets. NOTE: The majority of wells on Lake Maracaibo arestraight vertical shafts that likely leave a quatity of crude oil stranded.) There are thousands f mature wells across Venezuela that offer PDVSAthe possibility of increased production if it drlled offshoots in existing ells. ¶8. (C) Chevron notes that PetroIndependiente's offshore production platform was over engineered and can process a much greater water cut. Given PDVSA's inability to handle the water cut produced from its Lake Maracaibo wells and its closing of wells in response, Chevron believes an accommodation could be arrived at using its platform's unused capacity to process PDVSA's crude oil production. Other oil industry actors have commented to PetAtt that PDVSA holds numerous marginal fields that, with some investments and added technology, could increase production. ¶9. (C) COMMENT. International service companies are in Venezuela's oil fields daily and note that the state of disrepair they see portends business opportunities for them for years to come. This provides them with strong incentives to work through current difficulties presented by the GBRV and PDVSA. In fact, Venezuelan mismanagement of its oil resources almost guarantees increased future revenues for service companies, if they are positioned in the market at the right moment. Apart from developing large new fields, such as Carabobo, PDVSA could increase production from marginal fields and through basic well maintenance. Despite the optimism of some U.S. service company representatives, it is also possible that, given the current posture of the GBRV, these same opportunities might go to companies from nations friendly to the Bolivarian agenda. Additionally, an unintended consequence of current GBRV economic policies is that international oil service companies with established regional hub operations in Venezuela, might face decisions in the near term whether to continue investing in those facilities, let them continue and atrophy, or close and move them altogether. When speaking about risk in Venezuela's petroleum sector, industry experts point out that all of the risk is above ground ) that is political ) and that there is no below ground risk. Venezuela's vast oil reserves are well known. END COMMENT. DUDDY