VENEZUELA: PRODUCTION UPDATE FROM PDVSA AND

C O N F I D E N T I A L CARACAS 001240 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 DRESTREPO AND LROSSELLO E.O. 12958: DECL: 09/21/2019 TAGS: EPET EINV ENRG ECON CU VE SUBJECT: VENEZUELA: PRODUCTION UPDATE FROM PDVSA AND SHELL'S JOINT VENTURE REF: A. (A) CARACAS 1057 ¶B. (B) CARACAS 1056 ¶C. (C) CARACAS 1055 ¶D. (D) CARACAS 106 Classified By: Economic Counselor Darnall Steuart, for reasons 1.4 (b) and (d). ¶1. (C) A petroleum engineer working on crude oil production at Shell and PDVSA's joint venture on Lake Maracaibo provided some insights into the challenges of oil production in Venezuela's oldest production area. According to the engineer, the production of Petroregional del Lago (PERLA) had dropped in August to 32,000 barrels/day (b/d),down from a high of 42,000 b/d in October 2008 (see Ref C). She confirmed that PERLA is also still producing a significant amount of natural gas, but that PERLA is using the majority of it for energy generation and supplying the rest to PDVSA. ¶2. (C) The engineer characterized the loss of well pressure ("energy") as a long-term challenge for PERLA. Two of its three reservoirs are older and require maintenance and technology to maintain production rates. She shared that PERLA's maintenance plans do not include well maintenance before October 2009. PERLA has prioritized three wells that require new pumps (two electrical submersible pumps (ESPs) and one jet pump) for priority maintenance. PERLA does not plan to drill any new oil wells until after these three wells are serviced. The engineer stressed that without regular well maintenance, production decline rates could climb as high as 30% from the current annual rate of 20%. ¶3. (C) The engineer stated that in addition to maintenance and production issues, PERLA is facing difficulties restarting wells that had been closed in response to OPEC quota reductions (see Ref D). While there was a 20% chance that any closed well would not start up again, PERLA observed a 60% chance that the ESPs in closed wells would not restart (mostly due to the large amount of sand filling the holes) and would have to be replaced. Furthermore, PERLA's average water cut (the amount of water produced along with crude oil and other liquids) from a new well was 20%, but jumped to 60% in well restarts. She noted that sand control has become a critical challenge in maintaining crude oil production. ¶4. (C) She commented that while some aspects of Shell's corporate cultural surrounding health, safety, and environmental issues persisted in the PDVSA-majority owned joint venture, these issues were not as important to PDVSA. Finally, she said that due to the drop in global oil prices and the company's difficult financial position, PDVSA has terminated an internal incentive program designed to reward employees who contribute the most to increasing crude oil production. ¶5. (C) COMMENT: With majority ownership of joint ventures in Venezuela, PDVSA calls all the shots. It is doubtful that its private sector partners agree with decisions to postpone maintenance programs and lower the profile of health, safety, and environmental issues. END COMMENT. DUDDY