"Groundhog Day"

 We’ll head Down The Rabbit Hole in a sec but first…Argus Media reports that PDVSA (Venezuela government-owned oil company) has restarted the catalytic crackers (needed for processing gasoline) at the Cardon and Amuay refineries, according to internal communication seen by Argus.

 This is one of those “Groundhog Day” kinda’ deals, you know, something that replays over and over, and we can expect it to continue. The plants are beset by recurring maintenance problems, (What do you expect after over two decades of neglected maintenance?) power outages, explosions, and accidents.

 FYI, the massive complex encompassing the two refineries has never fully recovered from a 2012 explosion that killed dozens of workers.

 Then we have Business Wire also adding clarification to a story we had yesterday on the upcoming auction of Citgo Petroleum shares to satisfy debt of the Venezuelan government, which owns PDVSA, which owns Citgo. The US District Court for the District of Delaware, issued a ruling that allows Canadian firm, Gold Reserve, to be named “Additional Judgement Creditor”, along with 10 others filed before Gold Reserve’s motion. The 10 companies ahead of Gold Reserve’s $1 billion judgement have proven established claims of $4.684 billion.

 Then we have AP telling us that a Federal Judge in Miami, Darrin Gayles, criticized prosecutors for an apparent attempt to undercut a current court order and take control of a condo owned by former congressman, David Rivera, awaiting trial on money laundering and acting as an unregistered foreign agent charges.

 The prosecutors maintain this property and others are “tainted” and are related to Rivera’s activities on behalf of Venezuela President (dictator), Nicolas Maduro, while Rivera claims he needs access to the assets to pay attorney’s fees.

 The dispute over the properties has slowed the government’s prosecution of the $20 million bribery/money laundering case and eight months after charges were filed Rivera has yet to be formally arraigned.

 Now, let’s go Down The Rabbit Hole…

 Chapter/3 continued…

 …Now, with Maduro in control things got really crazy. In one demonstration of paranoia, or simply putting on a big anti-corruption show, he fired the entire accounting department. For a few weeks there was absolutely nobody qualified to bill customers or pay bills. Then he turned PDVSA over to the military since he couldn’t buy their loyalty through any other means. In light of the recent and prior purges distrust ruled the day and more employees left. Now that the head of PDVSA was a military general with no oil business experience it seemed that nobody had any idea what was going on.

 As the economy completely cratered, wages for those who remained lost all their purchasing power. They had gone from good jobs to mediocre jobs to bad jobs. The minimum wage got as low as 60 cents A MONTH, and while PDVSA workers earned more than the minimum wage they were struggling just to feed their families. The last straw was when Maduro completely reconfigured the monetary and economic systems and raised the minimum wage 3,000%. The problem for experienced workers was they got nothing. No corresponding increase for them, not even a token amount. A new hire would earn the same as an experienced professional (what few still remained). The exodus proceeded in rapid fashion.

 One last note on the personnel side of things. For the remaining administrators a paralysis set in. Nobody wanted to be the one who approved or denied anything so they delayed and side-tracked. When a decision absolutely had to be made they were in a “damned if you do and damned if you don’t” situation. If the word came down from above that they wanted to do something corrupt or just plain stupid and it came to you, you had a choice. Sign off on it and set yourself up as a scapegoat if all didn’t go well or refuse to sign off and be thrown in jail (remember, in Venezuela rights are a thing of the past). Many of these people found it was simply better to leave. At one point PDVSA stopped accepting resignations.

 So now you have a collapse in oil prices (they’ve since rebounded but are still far from the levels Chavez enjoyed) and production is falling. If they had to do some juggling of shipments with production at 2,500,000 bpd, a drop to 2,000,000 would be a real balancing act. The minimal investment in critical infrastructure made when production was at 2,500,000 bpd became non-existent at 2,000,000 bpd. The deserted workforce at 2,500,000 became a wasteland at 2,000,000…AND THEN IT GOT BAD!!

 Under Maduro’s leadership the production continued to decline each year approaching the previously unthinkable level of 1,000,000 bpd. The days of raking in over $300 million a day were a distant memory. Revenues were down to $50 million and falling. Could it get any worse…You know the answer.

 In March,2019 Venezuela experienced a series of catastrophic blackouts. They were caused by the same issues afflicting PDVSA, years of little or no maintenance on critical infrastructure. And wouldn’t you know it, the hardest hit areas were the oil-producing regions. March oil production came in at 720,000 bpd. Most analysts were projecting production to fall from there and they were proven correct. With operable drilling rigs down to 20 from 95, and some days with zero in operation, production from existing wells declining as they fall into disrepair, a complete collapse of the workforce, no experienced leadership, and no credit availability, PDVSA is in a death spiral.

 Summary : It seems a pattern is developing here. PDVSA did not collapse due to civil war, a natural disaster, or outside influences. Other oil-dependent countries and companies survived the collapse in oil prices and today are doing quite nicely. It is estimated that $10 billion a year will need to be invested for a period of 10 years to recover lost production under Chavismo and 21st Century Bolivarian Socialism. As there is no technical expertise nor responsible management at PDVSA they will have to partner with the large multinational oil companies and oil-service firms or contract out the recovery and redevelopment altogether. As has become our mantra, this was (is) an entirely avoidable disaster, a man-made disaster, a Chavista- made disaster.

That will do it for the week. We’ll be back Monday with our next chapter of Venezuela : Down The Rabbit Hole and more current news. Until then…Have a great weekend everybody!!!

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