VENEZUELA - Oil Exploration Background.

Oil exploration in Venezuela began more than 100 years ago. The country started to produce oil in 1917, when its output averaged 300 b/d. This increased from 1,300 b/d in 1920 to 4,000 b/d in 1921 and 6,100 b/d in 1992. Production averaged 165,500 b/d in 1927. It rose to 370,000 b/d in 1930 and to 560,400 b/d in 1931. The output reached 1.064m b/d in 1946.

The country returned to democracy in 1958, two years after its oil production reached 2.457m b/d. In 1960 Venezuela helped found OPEC at a Baghdad conference, and its output averaged 2.846m b/d. The country's production peaked at 3.708m b/d in 1970, with the main producers then being Exxon, Shell and other majors.

Venezuela's output fell to almost 3.22m b/d in 1972. It averaged more than 3.36m b/d in 1993, the year which ended with the quadrupling of world crude oil prices. In 1976, when the state nationalised the oil industry and PDVSA was created, Venezuela's output averaged 2.294m b/d. It fell gradually in the 1980s due to an oil glut, from 1.895m b/d in 1982 to 1.564m b/d in 1985. Venezuela lost some of its sustainable capacity, partly due to under-production and partly because of poor maintenance. By 1990, the sustainable capacity had fallen to about 2m b/d.

In December 1998 a 180-degree turn occurred as populist Hugo Chavez, a 44-year old former paratrooper who had staged a failed military coup attempt in 1992, was elected president of the republic. He took office on Feb. 2, 1999.

One day before Chavez took office, on Feb. 1, 1999, Luis Giusti resigned as president of PDVSA. Since then Chavez has forced PDVSA to reverse its opening to foreign oil capital, has worked on a radical new constitution put in place in February 2000 and renamed the country after Simon Bolivar (his 19th century hero). Called "Hurricane Hugo" and barnstorming the business community as being the champion of the poor, Chavez is an ally of Fidel Castro and is rated as the most pupular man in Venezuela's history (see background & The Oil Curse in Downstream Trends of this week)

The Oil & Gas Reserves: Venezuela's Ministry Energy and Petroleum on Oct. 17 said it had confirmed an additional 3.441 bn barrels of oil, raising its total proven oil reserves by 4.46% to 80.582 bn barrels in 2004 from 77.141 bn barrels in 2003. These include condensates. It said the proven reserves of natural gas increased by 1% to 151.479 TCF (4.29 TCM) from 150 TCF (4.25 TCM). The ministry said "intensive exploration efforts" were behind the increase.

Venezuela's Orinoco Tar Belt has vast deposits of extra-heavy oil and tar-like bitumen, which can be converted into synthetic crude oil. But PDVSA recently said it expected to be able to add these deposits - with the recoverable quantities officially estimated 238 bn barrels' worth - to the country's proven oil reserves.

President Chavez wants OPEC and the IEA to include them as part of Venezuela's proven oil reserves. Previously it was said the Orinoco oils and bitumen would be recognised as conventional by 2021.

President Chavez has said inclusion of the Orinoco deposits would make Venezuela home to the world's largest reserves of oil. At present, Saudi Arabia has the world's largest proven oil reserves with about 264 bn barrels. But Saudi Oil Minister Ali al-Naimi recently said the reserves could be increased shortly to 464 bn barrels.

Venezuela currently has the biggest known oil reserves outside the Middle East and is the world's fifth-largest oil producer. Its reserves of natural gas are the second-largest in the western hemisphere, after the US, and ninth-largest in the world.

The country has advanced infrastructure and logistical facilities which make the development of marginal fields viable. PDVSA experts believe another 40 bn barrels of conventional condensate and light and medium oils could be added to the reserves through further exploration and enhanced oil recovery (EOR) systems, so that the total of proven reserves by 2010 may exceed 120 bn barrels.

The country's frontier areas contain some of the largest sedimentary basins in the world. They require special technologies to deal with problems such as very deep pay zones, reservoirs with low permeability, and complex geological formations.

Operations in the petroleum sector declined considerably after nationwide strikes in December 2002 and January 2003 which caused oil exports to be suspended and led to the sacking of 18,000 of PDVSA's personnel (see DT). A resultant shortage of geologists, reservoir engineers and other upstream experts affected E&P operations.

Before the strikes, exploration was directed towards increasing the reserves of light oil and natural gas which are mainly offshore in eastern Venezuela. Work also concentrated on Lake Maracaibo, the southern end of Lake Maracaibo, northern and central Monagas, western and eastern Zulia, central Anzoategui, the Andean flank, and Barinas. The Zuata field and the Orinoco belt stood out for an increase in the oil recovery factor.

In August 2002, PDVSA launched a major five-year exploration programme intended to raise its oil production potential to new levels. The novel aspect of this, dubbed Vision, was its integrated view of the country for exploration - including a vast offshore sector encompassing much of the Caribbean coastline and a strip of the Atlantic. The project also incorporates downstream analysis. Felipe Audemard, then the PDVSA executive who was overseeing the Vision, said: "We are selecting areas on the basis of business and technical criteria. In some areas the focus is gas, in others, such as the western continental play, oil is the driver". The plan included 16,000 km of new 2D seismic, 22,000 sq km of 3D data and 168 exploration wells.

The most visible aspect of this project was a 10-well exploration programme in the offshore gas play known as Plataforma Deltana, north-east of Venezuela, where PDVSA has offered five blocks to foreign companies. PDVSA in 2003 was in a campaign to acquire a big volume of seismic data to lay the groundwork for the new exploration concept (see background in Vol. 61, Gas Market Trends No. 18).

New concepts resulted in a major new oil discovery, Ceuta-Tomoporo. Based on the premise of Venezuela's ancient geological link with Africa, PDVSA has focused on an under-explored south-western region known as the Western Llanos. Outcrop studies over the last six years identified some pre-Cretaceous source rocks and oil seepage in the Andean region. Some of the Palaeozoic formations tend to run too deep for commercial purposes but an encouraging trend at about 12,000 feet or less has been identified.

PDVSA in 2003 gave a contract for a first 2D seismic shoot of 1,100 km. Plans to acquire 3D seismic was to depend on the results of this first phase. Taken together with existing projects such as Plataforma Deltana, PDVSA said it could prove up 91 bn barrels of oil and 38 TCF of gas then rated as probable. Under the "yet to find" category, the company listed another 84m barrels of oil and 246 TCF of gas.