Archive for July 18th, 2005

Illegal, immoral and unethical, just like the revolution

July 18, 2005

These metropolitan police cars with Chavez’ image are illegal, immoral and unethical. Hey! Did I just describe the revolution?

Nicolae Ceausescu would have been proud of them!

Accounts and Tales of the Oil Belt by Saul Guerrero.

July 18, 2005


Saul
Guerrero worked at PDVSA for many years and was involved in the development of
Orimulsion which the current administration has decided to do away with on the
grounds that it is not sufficiently profitable. The basic argument being that
it is better to improve the crudes from the Orinoco Oil Belt than to use it for
Orimulsion I have written about this topic before here is the view of a true
expert as expressed in El Nacional on Friday.

Accounts and Tales of the Oil Belt by Saul Guerrero

The fool who hearkens not, regards
what is profitable as useless.

Maxims of Ptah-Hotep, Egypt,
ca 2300 before Christ.

The
Orinoco Oil Belt is a mirror which implacably reveals all of the deficiencies
and improvisations of our vision and management to take opportune advantage of
its energetic resources. How can we develop that vast potential on time,
without depressing prices in the diverse markets and without remaining in the
sterile complacency that we are the owners of the greatest hydrocarbons reserve
in the planet? The Venezuela
of the decade of the 90’s created two paths to take advantage of those
resources, the strategic associations and to feed the transportation sector and
Bitor to launch Orimulsion outside the OPEC quota as a fuel to generate
electricity. Beginning in 2003 the present administration of the Ministry of
Energy and Mines and PDVSA has wanted to destroy Orimulsion, artificially
confronting these two options, ignoring the reality that they complement each
other and do not exclude each other. The public disqualification of Orimulsion
on the part of the Ministry of Energy/PDVSA and its decision to base the
development of the Oil Belt exclusively with more projects of improving the
extra heavy crudes is a great fallacy that crumbles itself with only reading with
care the numbers and papers of the new PDVSA.

On May 21st.
of the current year, PDVSA published an ad that textually said; “During the
period January-April 2005…the production of the associations of the Orinoco Oil
Belt of 617 thousand barrels a day generated dollars that did not come into the
country…2 billion 171 million dollars… Since the four projects are costing a
total of at least $12 billion dollars, this tells us grosso modo that for each dollar invested in improving extra heavy
crudes, one manages, in the year of the highest prices of crude oil , $0.50 in
gross annual sales and $0.09 in royalties.

What the
Ministry of Energy and Oil does not explain is that in including the improved
crudes within the OPECD quota one is: a.- displacing 617 thousand barrels of products of the
Venezuelan oil basket there price of which is much higher ($45 per barrel) than
the average according to PDVSA of the improved crude ($29 per barrel), which
brings a reduction in sales of 3 billion dollars a year and b.- the associations
only pay 34% in taxes and not the 50% that PDVSA pays, that is, that according
to what was published by Vice-Minister Mommer in his paper “The Subversive
Oil”, the tax office failed to collect at least $10 per barrel, which would add
some US$ 2.3 billion in annual taxes that are not collected by the tax system.
In total a sacrifice of more than US$ 5.3 billion a year at this moment, which
substantially reduces any earnings at the end of the day for the Nation from
this production of improved crudes.

In
contrast, the current Orimulsion contracts (those that they want to eliminate
or transfer to Sinovensa in December 2005) average about US$ 20 per barrel of
sold bitumen, which implies annual sales of some US$ 400 million for each US$
400 million module that each new Orimulsion module costs. At these new prices
for the sale of Orimulsion in Asia, for each
dollar invested one obtains a dollar in annual gross sales and $0.20 in
royalties for the nation, double what you have managed to do with a multimillion
dollar investment in the strategic associations in its best year of sales.
Moreover, when Orimulsion was sold at a price tied to coal and invoiced gross
sales of US 200 million (see PDVSA’s report to the SEC), for each dollar
invested in Orimulsion, one obtained $0.50 in sales, the same level that the
four strategic associations have only managed to obtain under the price
euphoria of 2005. Contrary to what was argued by the Ministry of Energy and
Oil/PDVSA, Orimulsion has always been an excellent option for the profitable
and large scale development of the Orinoco oil
belt, without incurring in the costly penalty that implies the displacement of
the traditional production within the OPEC quota by the improved crudes.


The simple
calculation above can not escape the current authorities of the Ministry of
Energy and Oil/PDVSA. The only and great mystery that still persists is what is
the true reason for which they continue to be set on destroying the business of
Orimulsion, the endogenous development of greatest technical and commercial
success in the history of Venezuela.

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