VENEZUELA - Part 1 - The Prospects, Geology & Exploration.

The state-owned Petroleos de Venezuela (PDVSA) said the country is producing over 3.2m b/d of crude oil, refined petroleum products and gas liquids. But independent experts say the sustainable capacity is still less than 3m b/d, down from 3.6m b/d in late 2001, due to under-investment in E&P.

Under-investment and lack of qualified E&P personnel at PDVSA since a crippling oil strike in late 2002 and early 2003 have caused Venezuela's fields to decline. Claims of a decline by an alarming rate of 20% per annum have been strongly denied at both PDVSA and the Ministry of Energy and Petroleum. Former PDVSA director Jose Hardy said in October 2003 the NOC needed to spend $10 bn per annum to reverse its operational deterioration. He said a PDVSA recovery required numerous resources, which cannot be fully provided by the government alone. Hardy added that PDVSA would by then have been able to produce 5m b/d of crude oil and other liquids had it executed an $8 bn petroleum business plan before the country's ultra-populist regime of Hugo Chavez took office (see profiles of Venezuela's fields and their operators in Part 2).

After Chavez took office in early 1999, PDVSA dropped a $70 bn plan to raise the production capacity to 6.5m b/d for crude oil, condensate and NGL by 2010, excluding Orimulsion (see background in Vol. 57, No. 21). Caracas is concentrating on natural gas and offshore oil in exploration efforts. New E&P openings for foreign companies and Venezuela's private sector are for gas (see E&P regime in Gas Market Trends).

President Chavez is approaching his wary South American neighbours about developing nuclear energy, raising questions in Washington about his ambitions. Chavez, a self-described Marxist revolutionary fiercely opposed to the Republican administration of George W. Bush, says he wants to co-operate with Argentina, Brazil and possibly Iran to develop nuclear energy as part of his drive for regional integration. But energy experts estimate it will take his government at least five years of studies, training and investment to develop a sustainable nuclear energy project in Venezuela, the world's No. 5 oil exporter. Despite its being opposed to the liberal approach of previous regimes, Caracas has a long list of energy-related and industrial projects for the private sector. The economy would have been a huge mess has it not been for the big rise in oil prices. "The Oil Curse" is still there (see Downstream Trends).

PDVSA is one of the world's main oil exporters and wants to revive plans to export gas in LNG form. But it cannot attract the big international oil companies (IOCs) required for the LNG venture to be bankable (see Part 3), with downstream assets covering important parts of the US and European markets (see Part 4).

The petroleum sector has lost most of its highly qualified decision makers, from those in charge at the Ministry of Energy and Petroleum to those in PDVSA. Chavez controls the petroleum sector (see who's who in Part 5).