It's A Gas..Gas..Gas?

 We’ll go Down The Rabbit Hole in a few but first…NTD reports Venezuela’s Oil Minister and PDVSA (Venezuela government-owned oil company) president, Pedro Tellechea, says the country expects to sign licenses by year end for developing the nation’s vast natural gas reserves.

 In addition to having the world’s largest proven oil reserves Venezuela sits atop the 5th largest natural gas reserves in the world. The Chavistas have already squandered the country’s oil resources by destroying PDVSA (before Chavismo and 21st Century Bolivarian Socialism PDVSA was the envy of the entire oil-producing world with infrastructure already in place). Now they can squander the country’s natural gas resources, with no infrastructure to speak of, as well.

 Then we have Natural Gas World telling us that negotiations between Venezuela and Trinidad & Tobago to jointly develop an offshore gas field near the maritime border between the two countries have hit a sticking point. The government of Venezuela’s President (dictator), Nicolas Maduro, has refused to accept the terms (Told ya’!), according to Trinidad & Tobago Prime Minister, Keith Rowley.

 The US Treasury Department issued a tw0 year license allowing Venezuela and Trinidad & Tobago to develop the Dragon Field natural gas project and provide for the export of natural gas from Venezuela to Trinidad by PDVSA.

 The authorization, however, bans any cash payment to the government of Nicolas Maduro, similar to the sanctions-easing arrangements already in place for Venezuela’s joint ventures with Chevron (US), Eni (Italy), and Repsol (Spain) for oil exports.

 Officials for both Venezuela and Trinidad & Tobago have yet to disclose which terms have been refused by the Maduro regime and the negotiations have not been suspended.Oh, and we’re still waiting to find out if Venezuela received any cash from the Eni, Repsol deal after shipments were suspended by the Chavistas demanding cash and then were resumed after four months…What do you think happened…then and now?

 Then we have Hart Energy telling us that Venezuela continues to flare over half of it’s natural gas production burning off more than Houston-based Freeport LNG exports, according to Gas Energy Latin America.

 Venezuela lacks the money to fund the infrastructure to capture and monetize those gas volumes. Now we know why Maduro is hyping environmental responsibility. If he can’t get his hands on any of the EU’s $1.5 billion fund maybe he can sucker some company into investing by trying to score ESG (Environmental,Social Governance) points. Other than that, Venezuela will continue to waste it’s resources.

 Now, let’s head Down The Rabbit Hole…

 Chapter 3/ continued…

 …In the first couple of years of his tenure Hugo Chavez allowed PDVSA to continue to operate more or less autonomously and although he was getting the “expropriation train” rolling in various sectors he hadn’t yet cranked it into high gear and PDVSA was still prospering, as was the government. As we saw in the discussion with the hospitals, there was plenty of revenue to address many of the inequities that existed in a balanced and sustainable manner. In 2002 all that ended and in his third year in power Chavez went off the rails. In 2002 PDVSA workers as well as other workers in Venezuela went on strike. Chavez used this as an opportunity to fire a lot of people. Estimates vary between 13,000 – 19,000 but regardless, with a workforce of 40,000, it was a huge number of employees. Then came the really big news. Chavez boisterously announced “PDVSA will be red!” (the color of Chavismo) In no uncertain terms the priority was first and foremost party loyalty, which translates to loyalty to Chavez. Business acumen and technical expertise would be secondary.

 The fired employees left Venezuela for greener pastures in the US, Canada, and around the world, a harbinger of things to come, not just in PDVSA but in all sectors of the economy in Venezuela. The good news was that there was a wealth of talent at PDVSA and the upper management was still in the hands of experienced professionals. The bad news was that Chavez went on an expropriations binge in all areas of the economy and PDVSA would be no exception. Over the Chavez years, Ecuador, also a socialist country, expropriated about a hundred companies. In the same time frame Chavez expropriated over 1,200.

 Important strategic partnerships with large multinational companies like Exxon Mobil and Conoco Phillips went by the wayside. The lawsuits surrounding these expropriations and others would go on for years and continue to this day. This was another opportunity for Chavez to fill the ranks with party (Chavez) loyalists and over a period of years he tripled the payroll to over 120,000. Normally that would put a strain on cash flow but as this was happening oil prices went on a historic run reaching all-time highs and remaining elevated for years.

 It’s important to understand a couple of things about the oil business in general and Venezuela in particular. Oil is a rigorously capital-intensive business. It costs a lot of money to keep those existing wells maintained and pumping. It costs even more to keep exploring for sites for new wells and getting them operational once a site is determined. Depending on a number of factors related to accessibility it can take 5-10 years to get a new well online. In keeping with our good news – bad news presentation, while it’s expensive and time consuming, it’s also very lucrative, especially in a rising oil price environment.

 More tomorrow….

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