Eulogio, Venezuela’s mighty oil Czar

VENEZUELA--Eulogio-del-Pino-asume-Ministerio-del-Poder-Popular-para-Energ-iacute-a-y-Petr-oacute-leo-shaune-fraser-Olimpic-Swimmer-Cayman-IslandOn Tuesday evening, President Nicolás Maduro announced what in revolutionary newspeak is referred to as a sacudón (shake-up), otherwise known to the rest of the globe as cabinet reshuffle.

The most noteworthy replacement happened in the Ministry of the Popular Power for Petroleum and Mining. Eulogio Del Pino, who is, and will continue to be, the chief of state oil company PDVSA, will be taking over as Minister for Asdrúbal Chávez, who will  run for a seat in parliament in the state of Barinas. Del Pino will be pulling double duty much like the former Oil Czar Rafael Ramirez did, prior to being jettisoned to the U.N.

Mr Del Pino holds a MSc in Oil exploration from Stanford University and has held several key positions during his long tenure in the Venezuelan oil industry. As head of PDVSA, he also has a proven track record of skillful crisis management, having steered the oil company through its ongoing debacle of increasing production costs, mounting debt, and dwindling access to much-needed financial resources, by shifting PDVSA’s focus to its original mission: pumping out oil, instead of becoming the go-to piggy bank for sustaining the social programs and populist schemes of Chavismo.

Maybe the Stanford-trained engineer could revert 15 years of stagnant production and declining oil exports, Venezuela’s main and almost singular source of revenue, and perhaps even pressure the Central Government for economic reform. Given the deep state of financial ruin that Venezuela is currently in, Mr. Del Pino alone won’t be able to turn the tide, especially when critical investments are required for increasing Venezuela’s oil output. In this immediate scenario of doom, it’s doubtful that Del Pino will have much time to concern himself with long-term energy policy, even as he might have gained major trust within the higher echelons of the Maduro Government.

Del Pino is now poised to take the reins of the most important industry in the Venezuelan economy, at a time when an emphasis on pragmatism is as urgent as ever. Unfortunately, pragmatism is not a word deemed relevant within Chavismo. Let’s see if the Oil sector experiences a bit of an indispensable “Glasnost” under these Perestroika-less times.

34 thoughts on “Eulogio, Venezuela’s mighty oil Czar

  1. If Pdvsa sinks the whole country sinks , There is nothing now with which to replace the oil income the country needs to survive . Funny that now most production comes not from Pdvsa fields but from the fields of mixed companies partnered to Pdvsa , so we are in fact becoming denationalized at least as regards of who produces most of the oil . Eulogio doesnt have Chavez on top of him constantly shouting crazy orders and demands . So in that sense he has it easier than Ramirez , but now the industry as a result of all the terrible decisions made in the past and the fall in oil prices and the depletion of light medium crude oil deposits is facing challenges which might possibly involve its own survival. The problem is that even if Pdvsa could have done worse than having him as head (in the current regime) , the management and professional team he has to work with is very far from having the credentials or expertise of those who headed Pdvsa in the past .
    He has his secret sins as do all who have worked in roja rojita Pdvsa , but while we dont know about them we can keep hoping he will be able to do better than those that preceded him.

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  2. Dear Carlos: your assesment of Mr. Del Pino is totally wrong. You say:
    ” As head of PDVSA, he also has a proven track record of skillful crisis management, having steered the oil company through its ongoing debacle of increasing production costs, mounting debt, and dwindling access to much-needed financial resources, by shifting PDVSA’s focus to its original mission: pumping out oil, instead of becoming the go-to piggy bank for sustaining the social programs and populist schemes of Chavismo”.
    Mr. del Pino was a Vice-president of Exploration and Production during the years that PDVSA collapsed. He was directly below corrupt Rafael Ramirez. He is co-responsible for the debacle. THe tragic oil spill in Eastern Venezuela took place under his watch and took 33 hours to be brought under control because all hands were in Caracas attending a political rally.
    PDVSA was unable to execute the 2007-2012 production plan that would have increased production to 5 million barrels per day. He was the one to blame. .
    Skillful manager? Give me a break!

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    • Good comment. Because what he actually did a few years ago is definitely more important than his Standford credentials to predict how he will behave this time.

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  3. I totally agree with Coronel’s comment. He is as responsible as others of Pdvsa’s quagmire, probably even more. For years he behaved as a technocrat, enchanting quite many- though not everyone. And when the opportunity of money and power came along, he took it with gusto. There will be no pragmatism, just another face.

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  4. Fun exercise: PDVSA cost/bbl: light/medium crude $15x.70 total production =$10.50 of total; heavy crude $65/bbl.x.30 total production=$19.50 of total; $10.50 + $19.50=$30.00/bbl. average production cost, vs. $35/bbl. current Ven. crude price=$5.00 approx. profit/bbl x maybe 1 million Ven.bbls/da. actually being paid for = $ 5 million/da.Ven. net income from oil exports currently—Eulogio Del Pino,”Arregla Esto” (from old LHC campaign ads)., and.BOA/ Venny traders, keep re-investing interest/ averaging down on those Venny/PDVSA bonds….

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  5. Smart or not he can’t control oil prices. Is Venezuela even making money in today’s market? Their reserves continue to shrink so if I had to guess no!

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  6. Bill said: Funny that now most production comes not from Pdvsa fields but from the fields of mixed companies partnered to Pdvsa.

    I have no idea how you know that, Bill, but it’s true. I have an immediate family member doing graduate work in petroengineering who has worked on both the Pdvsa rigs (some have cheap Chinese built equipment) and ones run by foreign companies. The difference is nothing short of remarkable. In the Pdvsa field, the rig foreman didn’t even know how to estimate the volume of one of the reservoirs – a simple piece of math to anyone in the industry. Apparently the level of dysfunction and general knuckleheadedness has to be seen to be believed. Wonder that any of the Pdvsa outfits pump a single barrel.

    But I’m told that the true miracle is that the Guri turbines are still functional, somewhat. But it’s just a mater of time. A genuine power outtage and the country is toast.

    JL

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  7. Chavismo is seeking political breathing room and this looks like a way to work around some of the complicated bureaucratic arrangements created by the regime, and particularly to get someone who is out of his league (Chavez) out of the oil ministry.

    The important question is when oil prices will start to climb again. The saudi effort to keep shale oil underground is starting to pay off. Many of the shale oil producers have been keeping afloat on hedges and these are expiring. Knowing the maturity schedule for remaining hedges will give you a reasonable estimate of when you can expect oil prices to tick up again. That’s from the supply side. On the demand side, the global economy still looks very shaky, it’s unclear when things will start picking up.

    http://seekingalpha.com/article/3451246-the-shale-oil-collapse-could-be-a-long-term-positive

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  8. PDVSA is the focus of corruption in Kleptozuela.

    The entire country with all ins former institutions is by all accounts completely putrid and infested by the Corruption Cancer. But some areas even worse than others. PDVSA is the worst, for obvious reasons, that’s where the money comes from.

    There are very few bright spots, like Industrias Polar, with much lower levels of the metastasized, Cellular Kleptomania Cancer. But in the public sector the tumor is just enormous and unstoppable:

    You can put Jesus Christ on his third visit to Earth, along with Mohamed, mother Teresa, Ghandi and Mandela along with the Presidents of Exxon, Shell, and Repsol to lead PDVSA today.

    Same disaster.

    Plus of course, Eulogio is also a demonstrated Thief, far from Ghandi. Nothing he or anyone could do under the Chavista Criminal Dictatorship.

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  9. I agree with Carlos for the pollowing reasons:

    1) The main responsible for PDVSA’s inefficiency on the so-called Plan Siembra Petrolera, is Rafael Ramirez. First, because of his lack of technical knowledge compared to other board members. Second, because he gave PDVSA the non-oil-related burden that accounted for more than USD71bn of social spending during 2011-2014 (official PDVSA’s figures). Third, because his negotiations with foreign oil companies were awful (see Petronas’ case) and the conditions established in those Joint Ventures meagre for foreign investment.

    2) What Del Pino lacks, Ramirez had in tons: political leverage. It was reflected by several journalists (Bocaranda and Vera Azaf) that Ramirez alongside Erick Malpica Flores (Cilia Flores’s nephew btw) blocked the usage of funds on upstream activities contemplated in Plan Siembre Petrolera Projects to redirect them to social programs and expenses. Especially during elections time. Any guess on who was one of the promoters of using these funds on productive projects? Yeap, Del Pino (as Upstream Vice-President. For the record, the problems between Del Pino and Malpica Flores continue.

    The problem is that even though Del Pino is better than Ramirez (the lesser of two evils if you wish), is not necessarily a reason to expect relevant production increases because as we all know, the central government is the real controller of PDVSA. Maybe with more political leverage, Del Pino could make the company concentrate more in production rather than social programs. Only time will tell. The point is not saying if Del Pino is the best available expert to run PDVSA in the country (he’s not). The point is that at least within chavismo, there’s someone with a little common sense (compared to the previous one) to run the gallina de los huevos de oro.

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    • Call a spade a spade. There are no ”social programs’ what exists is corruption centric bosales de arepa politicos to control, buy and dumb down the pueblo mesmo

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      • “Social programs” are low inflation, good jobs, good hospitals, good schools, good infrastructure, low crime, high life expectancy, a good environment to do business and to atract foreign investment and a high GDP per capita. However, what we have in most of South America is just propaganda. They distribute arepas and pretend that they REALLY improving poor people’s lives, when those people are actually living worse than they did one decade ago. And to make things worse, leftists are extremely good at propaganda. Sometimes they even manage to have Hollywood starts featured in their ads.

        Bolivarianism is basically fascism with a good public relations team.

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        • Potatoe, potato. Volcanoe, volcano. Social programs carried out by PDVSA are mainly PDVal (+ others), and we all know what happened there. The point is that whether they’re good or bad programs, or if corruption undermines them all or not, it still a non-oil related burden that PDVSA shouldn’t have whatsoever. And Ramirez is the main responsible. Not only of that, but also for the prodcution stagnation/decrease since 2005.

          According to the Plan Siembra Petrolera, we should have been producing 5mm bpd as of 2012 (actually we produced 3mm bpd at that moment). Now the plan is to increase it to 6mm bpd with 2019 as deadline, when we are now producing 2.8mm. These goals are nonsense. Historically the biggest y-o-y production increase from technical point of view was of 140k bpd for PDVSA. Assuming the plan of the government as such, PDVSA should increase its output by 625k bpd a year. It cant be done. Is impossible to achieve at that level and time frame even if you put Francisco Monaldi as Head (no offense intended).

          Bearing in mind the aforementioned and that we cannot privatize PDVSA overnight or change its entire board, I think Del Pino is the best choice from what’s available in that scenario. True, qualified oil workers left after the oil strike in early 2000s (another reason of PDVSA’s lack of efficiency), but if we are to expect a mild, discrete, or timid production increase Del Pino is the guy to pull it off (again, under our actual scenario). Why could an increase be expected? Mainly because of the joint ventures in the Orinoco Oil Belt, as Bill said before. PDVSA’s production while is decresing in Zulia and Monagas blocs, is actually increasing and “being somehow compensated” by the Orinoco Oil Belt output. Del Pino understands better than Ramirez what should be agreed in the terms of future project finance deals and investment deals, besides the condiditions of the Joint Ventures. That’s a start. A baby step. But at least aimed to a better direction than what we were used to before with “Almighty Czar Rafael”.

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  10. Venny Analyst said: “The problem is that even though Del Pino is better than Ramirez (the lesser of two evils if you wish), is not necessarily a reason to expect relevant production increases because as we all know, the central government is the real controller of PDVSA. Maybe with more political leverage, Del Pino could make the company concentrate more in production rather than social programs.”

    Points well taken, but the above supposes that if the PDVSA only changed tracks and “concentrated more on production than social programs,” a spike in production would immediately or eventually result. This is not my understanding per the dreadful state of affairs at the national drill sites. The leadership has largely been handed over to loyalists with little executive or mechanical wherewital and the standard matainance protocols have been ignored for going on fourteen years. What’s more, competant workers, from toolpushers to petroengineers have long ago defected to paying jobs elsewhere, leaving the PDVSA sites in poor, even dangerous states of disrepair. In other words, no mater what an oil minister might decide per program shifts, there are no longer the professional in place to do anything. the oil sector not managed by foreign companies can no more increase production than they can jump over the moon. The whole thing is totally and profoundly fucked up and managed by crooks and incompetants. I’ve heard it said that if an enemy wanted to sabotage the oil sector, a more devastating plan could not be devised than what Socialismo has managed on their own.

    JL

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  11. Suspect that Eulogio is there as part of the bargain Ramirez made with Maduro to allow for his final political defenestration , afterwards he probably was a candidate for replacement by one of Cilias favourites who however on being offered the post declined because he wanted no tight political strings attached if appointed .

    Juan Largo is absolutely right that even if he can do a better job than Ramirez and others in the magic circle’s entourage, if he doenst have a good competent supporting team there is a limit to what he can do to improve the situation . The situation is dire enough to improvize someone for the job who will almost certaintly accelerate and cap the already ongoing disaster . Maybe him no being a man with his own political weight is a plus for the circle of power. Time will tell whether he can do anything to salvage part of the foundering ship which is Pdvsa today.

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  12. Monaldi recently gave 2.8 kbd as Venezuelas production figure (in a radio interview) , this number is too high , The IEA is giving it as 2.44 kbd (including all faja crude production) , this last figure tallies with opec figures derived from independent sources . what is certain is that production of light medium crudes is falling fast and being replaced with extra heavy faja crudes which yield a lower per bl income than conventional crudes because of the special difficulties to produce it , transport it and make it into a saleable product (pure extra heavy crude oil can not be sold unless mixed with light crudes or diluents or upgraded which adds to the cost of its disposal) . So even if production is maintained the money coming frm it is falling from both the above cause and the lower international oil prices.

    Maybe crude production can be improved somewhat if the production lost due to neglect of maintenance and poor infrastructure upkeep is repaired and remedied , but that will cost a bundle which Pdvsa hasn got and will probably try to pay with oil supplies from any increased or salvaged production. Im pretty certain that the effort to restore lost production will be made if the contractors do it on a deferred payment or carry basis which allows Pdvsa to pay it with future crude supplies .

    Also important any effort to raise the refineries production of diesel and naphta which have fallen considerable requiring the monthly import of arround 2.4 kbd of refinery products at a price at least equivalent to 100 kbd of crude . These refinery products are needed to use as feed for the production of electricity by thermoelectric plants (now that Guri is so rundown) and to mix with the extra heavy faja crude as mentioned before.

    There has been a sensible improvement in Pdvsa´s efforts at improving its operating basis after the death and burial of the Dear Departed Leader . both under Ramirez and later under del Pino , still its a long way to go before they approach even half way the level of technical proficiency that once prevailed in Pdvsa.

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    • In reading figures on crude output, present and historical, I feel it would be more informative to give the figures net of the barrels that are sent to China to pay back loans, always assuming these numbers are available. If those barrels are taken into account, the task before PDVSA of increasing the nation’s oil income, or even restoring that income to that of a few years ago, appears all the more difficult to achieve. Personally I scrutinize the news to find signs of the inevitable intervention by the Chinese to protect their investments in Venezuela. Have they, for instance, been pushing to introduce saner management into PDVSA?

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  13. Bill wrote: These refinery products are needed to use as feed for the production of electricity by thermoelectric plants (now that Guri is so rundown) and to mix with the extra heavy faja crude as mentioned before.

    Guillermo (or anyone), do you savy what the hell is really happening at Guri? And what the ratio is per how much electricty they actually produce? I always read that Guri pitched in around 40% of the nation’s power but surely this is a high estimate. I’ve heard stories about the last of the Guri turbines cavitating so bad no one knows how they are still operational, but who knows how true that is since I haven’t seen any on-site photos since those ones from a few years ago. I suspect that if Guri DOES go down, it could be disasterous for the country, throwing large outlying states into chaos, since even telecommunications require SOME juice. But perhaps this is overstated as well. My only first-hand source for info comes from family members working on the rigs. I know no one at Guri.

    JL

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  14. Correction. the Feb. 10, 2015 EL UNIVERSAL reports that “the Venezuelan hydroelectric plant Guri, the third largest in the world, which provides 62% of the country’s electric power …”

    That’s right there at 2/3rds of the nation’s electricity – if El U is correct, and it might not be.

    But try and find any real time info on Guri. I can’t.

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    • Thats based on old statistics , the percentage of thermoelectric generation has gone way up which implies having to feed it with refined products , the amount of refined products imports has also risen considerably , which might be explained by need to supply those thermoelectric plants . Pdvsa should go for natural gas to feed those plants but that means building gasducts from eastern venezuela where the gas is found to where those plants are in central venezuela which takes a while ( if you have the gas to spare) . If eulopgio is really trying to plan rationally building that gasduct should be one of his first priorities the savings would be enormous.

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  15. There is a Bloomberg report on Pacific Rubiales and the Derwick bolichico Alejandro Betancourt (now owner of a 20% stake in the firm) which is strange and curious , what it implies is that the expert manpower (mostly former Pdvsa employees fired in the 2002 oil strike by the govt) might be coming back to Venezuela to help on the ongoing efforts of Eulogio to rescuePdvsa activities from final ruin perhaps using the Pacific Corporate Name as a vehicle .

    The report deserves reading : here it is: http://www.bloomberg.com/news/articles/2015-08-21/man-who-spoiled-pacific-rubiales-oil-deal-has-a-plan-for-growth. According to the report Pantin (head of Pacific) and Betancourt ( one of the Derwick top bosses) are on good terms .

    Understand that there is some kind of large scale bidding process on the works to invite world class companies to engage in all kind of activities in the Faja to restore Pdvsa’s falling production. problem of course is that since Pdvsa lacks the money some kind of creative financing will have to form part of the tender package.

    Maybe some of our bloggers with direct knowldege of the Derwick saga may have something to say about this new development .!!

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    • “Creative financing”–put up massive amounts of money to produce Faja oil that costs $65/bbl, but that sells today at a little over $30/bbl, and has a very poor future price projection–all Alice In Wonderland stuff, as Gustavo so aptly expresses below.

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  16. The company Derwick Associates has made its money thanks to contracts that should be investigated when a new, honest government takes charge, if that ever happens. There are indications that gross over-billing to PDVSA has taken place in those contracts to warrant a deep investigation. Enough information on this dealings has been published by Cesar Batiz, in Ultimas Noticias, Alek Boy in INFODIO, Steven Bodzin in Setty’s Notebook, by the Wall Street Journal and by myself in my blog, that could form the basis for such an investigation.
    With this shadow over their heads this group cannot command the great majority of technical staff and managers of Pacific Rubiales to work for them in Venezuela, under the corrupt regime of Maduro and Eulogio. This is my belief.
    Having said that I doubt the existing PDVSA has any time left to try any major program in the Faja, which is the only area where new production could be established in the short term. The Faja situation is desperate: with new producing wells coming in at some 400 barrels of oil per day, a declination factor of 20% per year or higher, PDVSA is like Alice in Wonderland, having to run faster and faster to keep in the same place.
    Quote:
    “.Alice looked round her in great surprise. “Why, I do believe we’ve been under this tree the whole time! Everything’s just as it was!”
    “Of course it is,” said the Queen, “what would you have it?”
    “Well, in our country,” said Alice, still panting a little, “you’d generally get to somewhere else—if you ran very fast for a long time, as we’ve been doing.”
    “A slow sort of country!” said the Queen, “Now, here, you see, it takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!”
    The same applies to PDVSA in the faja: with low yielding wells and a sizable declination, they have to keep drilling desperately to keep at the same level of production. The logistics of increasing production significantly in the Faja are enormous!! Unsurmountable for a mediocre company like today’s PDVSA.
    This means that no Pacific Rubiales, nor any service company or medium sized oil company can do the job which is required in the Faja. This would be a job for the Shells, the Exxons and the BP’s of this world but they don’t want to go in there. Chevron, or rather Ali Moshiri, would, but the window of opportunity for the development of the faja is rapidly closing,as heavy oil and coal face stiff opposition from cleaner sources of energy. The XXI century is the century when King Oil dies… long live King Gas and Queen Renewables.

    Sorry for this rambling comment but I am answering to your request from a comment from bloggers familiar with Derwick’s …. saga? , rather infamous record.
    I will write something in my blog about this picaresque possibility with a little more time at hand.

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  17. I couldnt have expected a better more lucid comment on the Derwick / Pacific Rubiales article than the one written by Dr Coronel above , someone we have admired for many years both for his brilliant pen, uncompromising moral stance and veteran acquaintance with the Venezuelan oil industry.

    Im curious however about what motivated the article to be written , the Derwick boys are very bold and sophisticated in the way they handle their outside relations ,they must have had a hand in the article getting published , the question is why?? .

    I understand part of Pdvsa problems come from having to make up for the consequences of years of neglect in the upkeep of the industrys basic infrastructure causing the loss of part of its productive capacity but which perhaps can be partiallly restored through selective efforts at the corrective upkeep of certain particularly hard hit fields/ installations .. The improvement of course would not be dramatic but of modest scope helping restore part of the lost production . In that case a large company might not be needed as a smaller one, with the required expertise might do the job.

    I also see much difficulty in believing that those old pdvsa employees would be willing to help out the regime which persecuted them so cruelly . The whole thing is confusing and will probably giver rise to further comments later in time.

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    • Why? Because Derwick is trying to establish beach heads in the Venezuelan petroleum industry, to legitimate their gains through diversification. They already have the money and now, you could say tongue in cheek, they are planning to “reinvest”.
      The work you mention of optimizing older fields, applying secondary and even tertiary recovery methods to gain more light oil production, maintaining order in the chaos, can and should certainly be done, but it cannot be an epileptic effort but a persistent and industry wide one. A small, good company could certainly help to do this, but the task is enormous and seemingly out of reach for this PDVSA, obsessed by the political component of the Faja. PDVSA is beyond salvation as corporation. A new oil model will be required, heavily tied to international investment bringing in professional operators. This radical change in attitude is not feasible under this PDVSA. and will take skilfull selling to a nation that takes state ownership and operational control of the petroleum industry as religion.
      Thank you for your generous words. To me they are like a decoration.

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