VENEZUELA

When Venezuela's national oil company, Petroleos de Venezuela SA (Pdvsa), began operating in 1976, it had rapidly, dwindling crude oil reserves, a small international client base made up of intermediaries, no secure markets outside the country, and a refining plant geared mostly toward exporting fuel oil.

Now, more than 17 years later, the company - widely known by its initials as Pdvsa - ranks as one of the world's largest integrated oil companies, with 1992 gross revenues of $21.4 billion.

The company today has the largest proved crude reserves outside the Middle East and an extensive client base consisting of major refining and distribution assets in the U.S. and Europe, as well as end users. It also has domestic refineries offering high value product slates and owns expanding petrochemical and coal units. Table 1 gives some important operating indicators for the company.

Essentially, Venezuelan management converted a limited and declining oil industry that previously functioned as part of the international systems of Exxon Corp., Royal Dutch/ Shell, and others into an independent, flexible international oil company.

Despite an onerous tax burden and bouts of political interference, Pdvsa is profitable and well managed and is investing heavily to remain a competitive factor on the international energy market.

After many years in which private investment - especially from foreign sources - was off limits to the oil and gas sector, Pdvsa and several international companies are currently planning three joint ventures in L&G and heavy oil that require investments of $10.4 billion. The company is also seeking international investment in other projects.

PDVSA GETS ITS START

Pdvsa was established in 1975 with initial capital of $595 million as the Venezuelan government was preparing to nationalize its most important industry, petroleum. The company, which is wholly owned by the Republic of Venezuela, began operating on Jan. 1, 1976, when the government of President Carlos Andres Perez took legal and physical control of all foreign oil companies.

Subsidiaries of major international oil companies such as Exxon, Royal Dutch/Shell, Mobil, and Gulf had been operating in Venezuela for decades under concession agreements. Until the Middle East began producing on a commercial scale, Venezuela had ranked as the world's largest oil exporter.

The state takeover of foreign oil companies was carried out under the Oil Industry Nationalization Law, approved by the Venezuelan Congress in 1975.

Ironically, it was the same man, Perez, who had worked hard to advance the oil industry nationalization in 1975, that pushed to open the industry to private investment once he assumed the presidency for a second term in 1989.

ORGANIZATION

Pdvsa began its corporate activities as a holding company that controlled 14 operating units, all located in Venezuela. The 14 oil operators were eventually merged into four and later to the three operating units that exist today.

Over the years, the company has also added coal and petrochemical subsidiaries in Venezuela and partly or wholly owned assets outside the country.

The holding company is owned by the Republic of Venezuela, which is represented by the Minister of Energy and Mines. An annual meeting approves or disapproves management's report on operating and financial activities, approves operating and capital budgets, and defines policy lines.

Pdvsa is not a part of the Energy Ministry but is a separate commercial entity that receives its policy directives from the minister, who acts as the shareholder's representative.

Pdvsa is managed by a president and two vice-presidents, each of whom is named to his job for 2 years by the president of Venezuela. The president of Pdvsa, currently Gustavo Roosen, presides over a board of directors. Directors are also named for 2 year terms by the Venezuelan chief executive. Pdvsa's vice-presidents are Frank Alcock and Mario A. Rodriguez (see picture).

With about 600 employees in the holding company itself, Pdvsa also has eight coordinators responsible for overseeing sectors such as planning, E&P, refining, domestic and international sales and finance, as well as corporate managers covering other areas.

PDVSA'S BOARD

Pdvsa's board currently is made up of the president and chief executive officer; the two vice-presidents (who have well defined executive responsibilities); and eight permanent directors and four alternate directors, all of whom cover specific areas of activities at the operating level.

The composition of Pdvsa's board has varied under different governments in terms of the number of professional oilmen and outsiders sometimes viewed as simple political appointees - holding directorships. This mix reflects the constant battle in Pdvsa between oil industry veterans who for the most part run the industry and outside appointees who sometimes represent the points of view of a specific minister of energy.

Reporting to the Pdvsa board are the presidents and boards of directors of the Venezuelan subsidiaries. The most important of these are Corpoven SA, Lagoven SA, and Maraven SA, the oil operating units, and Pequiven SA, the petrochemical subsidiary.

The presidents, vice-presidents, and board members of these units, directly responsible for the country's oil and petrochemical activities, are also named by the president of Venezuela.

OTHER POSITIONS

All executive appointments below the board and vice-president level at Pdvsa and the four major Venezuelan subsidiaries are made by Pdvsa itself.

The holding company also names top management at its other domestic subsidiaries' as well as the chief executive and board for its main foreign subsidiary, Citgo Petroleum Corp., Tulsa, and its representatives on the boards of joint ventures overseas.

Also reporting to the top executives and board of Pdvsa are the president of Citgo, Pdvsa board members at joint venture companies outside Venezuela, and executives running certain other Pdvsa interests abroad.

Expatriates are frequently used by Pdvsa for its activities in Venezuela, but they are usually contracted directly, form part of a project management team, or are brought in for different periods of time under technical assistance agreements. Currently, a large number of expats are working to upgrade Maraven's Cardon refinery in western Venezuela.

Ideally, policy lines for the oil industry are developed in discussions between Pdvsa and the ministry. All major strategic decisions must be approved by the ministry, while operating decisions are made and carried out entirely by Pdvsa and its subsidiaries.

In effect, Pdvsa's board of directors reports to the Minister of Energy and Mines, who in turn reports to the president of Venezuela. (However, the top job at Pdvsa is so important that the company president regularly reports to the nation's chief executive).

PDVSA TODAY

Pdvsa is now an international oil company with substantial oil and gas reserves and a large, fully integrated oil industry in Venezuela and refining, storage, and distribution systems in the U.S., Europe, and the Caribbean.

In Venezuela, Pdvsa consists of the holding company, three vertically integrated oil operating units (Corpoven, Lagoven, and Maraven), plus a range of subsidiaries, including Pequiven (petrochemicals), Carbozulia (coal), PDV Marina (international shipping), Intevep (R&D), Bariven (international purchasing), and Bitor (production and marketing of Orimulsion, a boiler fuel made from bitumen and water). Fig. 1 is an organization chart of Pdvsa and its subsidiaries. Corpoven, Lagoven, and Maraven on their own rank as major producers, refiners, and exporters in international terms. While the three companies some day may be merged into one operator, Pdvsa and the government believe that the present structure aids in promoting healthy competition among them.

Each has its own corporate and commercial identity, but the three are assigned their own exploration and production areas, operate their own refineries and domestic transportation and storage systems, while working toward the same set of goals defined by Pdvsa.

Lagoven was originally formed from the assets of Creole Petroleum, the Exxon subsidiary that was nationalized in 1976, plus other smaller companies, while Maraven was established with the nationalized assets of Royal Dutch/Shell plus others. Corpoven combined the former assets of Mobil and other concessionaires.

Today these companies are entirely different from the subsidiaries left behind by the ex-concessionaires. However, some traces of the Exxon and Shell corporate cultures can still be seen in Lagoven and Maraven.

INVESTING OVERSEAS

In 1983 Pdvsa began its "internationalization program," whereby it invested in downstream oil companies overseas in order to ensure placement of its crudes, obtain a firm foothold in its key markets, gain direct experience in international marketing, and have greater access to new technology.

Its first investment was a joint venture in 1983 in refining and petrochemicals with Germany's Veba Oel AG, a subsidiary of Veba AG. Today Pdvsa either directly or through subsidiaries owns or holds shares in oil refining, distribution, and sales networks in the U.S., Germany, Sweden, Belgium, England, and the Caribbean.

At the end of 1992, Pdvsa had four wholly owned refining complexes in Venezuela with processing capacity of 1.18 million b/d and owned wholly or partially 13 refineries in the U.S. and Europe. It also operates the refinery on Curacao under lease from the Curacao government and owns storage facilities in Bonaire and the Bahamas.

Pdvsa's processing capacity outside Venezuela totals 1.8 million b/d.

It is the sole owner of Citgo Petroleum Corp., a large oil refining and distribution company, and is a 50/50 partner with Union Oil Co. of California in the Uno-Ven Co., a refiner and distributor in Illinois.

Pdvsa and Veba Oel are equal partners in Ruhr Oel Gmbh (Germany), which refines, transports, and markets oil and petrochemical products, while the Venezuelan company and Neste Corp. are 50/50 partners in AG Nynas Petroleum, a specialty refiner based in Sweden.

Pdvsa also has a variety of subsidiaries in areas such as fertilizers, corporate insurance, storage of crude and products, as well as regional offices and market intelligence centers outside Venezuela.

At yearend 1992, Pdvsa reported that it had 50,506 employees in Venezuela and Curacao. Lagoven had 15,033 employees and Maraven 12,200. Corpoven had 12,087 workers at yearend 1991.

PDVSA OPERATIONS

Venezuela has been producing oil on a commercial scale for more than 70 years.

Many of its active fields have been pumping crude for decades and require substantial use of enhanced and secondary recovery techniques in order to maintain output at acceptable levels.

In general, Venezuela's oil fields suffer from production declines of 23%/year, and Pdvsa devotes a major share of its production budget to compensating for the declines. In 1992, the company, spent 53% of its production budget on generating and maintaining production potential,

At the same time, a key element in Pdvsa's medium-term Development plan is to raise crude production capacity to about 4 million b/d by 2000. Crude potential now stands at just over 2.83 million b/d, about the same as in 1991-92.

Pdvsa executives acknowledge that reaching the 4 million b/d target will require huge investments of human, technical, and financial resources during the next several years, and the company expects that foreign investment will play an important role in expanding crude production potential.

EXPLORATION, DRILLING

Venezuela has four sedimentary basins and has found accumulations of crude oil and/or natural gas at different sites on its continental shelf.

Oil and gas production comes from three areas: the Maracaibo basin, the Barinas-Apure basin, and the Eastern basin, which includes the Orinoco belt. The belt is the world's largest accumulation of bitumen and extra-heavy crude.

Pdvsa has 27,450 wells, of which 14,513 are active and 12,937 are shut-in. Of the active wells, 2,275 produce via natural flow and 5,420 by gas lift. Another 6,818 require pumps.

Pdvsa last year shot 2,911 line km of conventional seismic surveys and carried out 243 sq km of 3D studies.

The company drilled 20 wildcats and one stratigraphic well in 1992 and reported that exploratory efforts added 321 million bbl of crude and 101.9 bcf of natural gas to proved reserves.

Pdvsa is concentrating its exploration on the flank of the Perija range and Tarra in Zulia state; the northern flank of the Venezuelan Andes, which includes sections of Merida, Trujillo, and Zulia states; Tocuyo-Chruguara in Falcon state; the eastern marshlands (Pantano Oriental) in the state of Monagas; and Barinas North in Barinas state.

PDVSA'S PRODUCTION

Production last year, which averaged 2,483,600 b/d including condensates and natural gas liquids, broke down as follows: 924,000 b/d of light crudes and condensate (37% of the total), 892,100 b/d of medium crudes (36%), 554,900 b/d of heavy and extra heavy crudes (22.3%), and 112,600 b/d of natural gas liquids/ethane (4.5%).

As classified by Pdvsa, proven reserves of crude oil (63.3 billion bbl) consist of:

Light crudes (30 API gravity and above): 13% of total reserves.

Medium crudes (20.0-29.9): 15.2% of total reserves.

Heavy crudes (10.0-21.9): 23.9% of total reserves.

Extra heavy crudes (0-9.9): 47.8% of total reserves,

A geological survey carried out by British Petroleum indicates that Pdvsa has very large deposits of light and medium crude in eastern Venezuela. The company has not yet begun to develop these deposits and will require foreign investment to do so.

Its other probable and possible reserves are dominated by heavy oil, especially extra heavy crude and bitumen found in the Orinoco belt, which lies roughly on an east-west axis above the Orinoco River.