Oil, Gas, Lies and Corruption - Profiting from Unscrupulous Governments

James Winston

May 10th, 2006

Winston Churchill said “truth is so precious that she should be attended by a bodyguard of lies.” When it comes to Saudi Arabia’s oil resources no truer words can reflect how Saudi’s power elite have hidden the truth about their misguided stewardship of our planet’s biggest oil deposits.

In a country where public beheadings are the norm – power, secrecy, control, and image are all important cornerstones to keep the elite royal class in the Kingdom of Saud both perversely rich and oppressively powerful over their subjects. Internationally, their status as an influential powerhouse is still apparent though light is now shining through their veil of lies which they have used to insulate the world concerning the truth of their oil resources.

As investors, the fragile nature of Saudi Arabia’s domestic problems should be enough for most people to buy “insurance” oil and gas stocks. However there’s another major problem brewing in Saudi. For nearly 60 years, Saudi Arabia’s seven largest oilfields have supplied almost all of the country’s production and is the biggest source of the global supply. Today these aging oil fields are becoming problematic despite their political stance that everything is OK in the land of Saud. Those in the oil and gas industry know otherwise.

In Matthew Simmons book, Twilight in the Desert, the author has done an extensive review of technical papers on the Saudi oil and gas fields as published by the Society of Petroleum Engineers.

The papers reveal that Saudi technicians were observing serious signs of aging as far back as 30 years ago. As the years have progressed, today the problems have grown to be acutely complex and require technical sophistication beyond the capabilities of their “in house” expertise.

Though the Saudi’s will tell you they can keep going strong for another 60 years or more, the fragile nature of their oil fields is being exposed along with their big lie.

Hal Hemmerich, President of Transeuro Energy, has had 30 years of international experience in the resource industry and extensive hands on work in the Middle East. He commented that “we all know the most prolific producer on earth is Saudi Arabia but today they are unable to continue to supply the world with energy in the same way. In the old days, they would just punch drill hole after drill hole after drill hole. They would just mud up, with such great pressure down below, they would drive a hole down and produce. They started with conventional drilling because their resource was so strong. But as their resources have started to wane, they now need to re-work these wells.”

Many of the world’s producing nations are now looking at western technology to help keep their dream alive. One of techniques they are looking at employing is the use of underbalanced drilling, a science which was developed and has been used with great success for the last 20 years in North America.

Underbalanced drilling uses a complex package of engineering techniques which basically brings the oil well pressure and the drill bit pressure to a close equilibrium – just enough to allow for a free flow of gas or oil. The idea here is to get away from the older methods of jamming down mud into the hole to prevent a blow out – though this works, it plugs up the flow of gas.

Hemmerich says that newer technology has been used in Oman which has increased their production by multiple times.

Just to keep up the status quo, Saudi is accelerating the number of drills pumping oil and older wells are getting tweaked to increase the production life.

Saudi remains an enigma. “They won’t show you how they calculate their reserves. I don’t know how the world has let them get away with this. They just come out every year and go, here we are. In fact their resource figures haven’t gone down. Everyone knows that if you produce hundreds of millions of barrels your reservoir goes down and your production becomes more difficult.” said Hemmerich.

So as investors, search out “High Technology” energy service companies who are entering the International Markets, like High Arctic Energy Services – I’m sure they will be busy for years to come.

The science of underbalanced drilling is very much needed former Soviet Union (FSU) block countries as well. Early investors who can realize the potential in the FSU can stand to make big profits over the coming years.

Oil and gas fields in the FSU were basically raped and pillaged and left for dead - as easier prey was sought out.

Currently Hemmerich’s company Transeuro has picked up a property in the Ukraine which he feels has huge potential.

Hemmerich commented that “In the old Russian days they would just sweep through areas with rigs and drill, drill, drill. And they had a real high cut off for production. If the well didn’t flow at a high rate, they would shut it off and move on to the next one. And again, technology was non existent, some wells were drilled without the benefit blow out preventers. Talk about running naked.”

According to Hemmerich, the Russians would use a massive amount of heavy mud which would limit the flow and the potential of the resource.

Old Russian data which is on file at the Ukraine department of resources indicates Transeuro’s properties contain some 300 billion cubic feet of gas and another 32 million barrels of oil. It’s like virgin territory but with data. The Russian’s did a lot of 2D seismic and everything is nicely mapped and all the data is available.

The Ukrainians are very motivated to get western expertise. They not only endured Soviet domination and mismanagement of their gas fields – last winter the country was blackmailed by their former masters who cut off the gas to the country. The message was, pay our price and do as we say - or else.

Needless to say, a major mandate for the Yushchenko government is to have energy self sufficiency for his country. To that end Transeuro has cut a 72/28 deal with the Ukrainians to develop their gas fields using underbalanced technologies.

What has been a major problem for the Ukrainians is going to turn out to be a win-win situation as western technology is brought to bear on a high potential resource. And again, investors who can position themselves in these ground floor, high technology re-work programs will be able to capitalize right along with them.

The reality is that oil resources around the world were mismanaged for long term benefits. And because of pride and political prestige, some of the biggest oil producers on the planet continue to deny this reality – oilfields are declining in production. Only now are we beginning to see glimpses of truth from the big OPEC countries that they are recognizing these issues and importing modern technology to extend the life of their reservoirs. But it is inevitable that truth will come out, and it’s companies like High Arctic and Transeuro who will benefit from this. Those who have the capital, technical ability, and connections to access to these fields will profit handsomely in this new high tech era of oil and gas exploration.

James Winston

www.jameswinston.com

Un día cualquiera en la vida del petróleo
Luis A. Pacheco

Posted on Analitica Premium

Viernes, 28 de abril de 2006

“El Presidente Bush anuncia planes para bajar los precios de la gasolina” - PBS Online “El Presidente Chávez amplía el alcance de descuentos de petróleo para pobres en los EE.UU.” – Raw News

“El miedo y los especuladores empujan el precio del petróleo demasiado alto, dice el Presidente de British Petroleum” – The Guardian

“La industria petrolera enfrentará tiempos difíciles en Washington debido el aumento de precios y ganancias” – MSNBC

“China aprueba proyecto para convertir carbón en petróleo” – Oil and Gas Journal

“Safari Petrolero chino arriba a Nigeria” – AFP “Presidente Iraní piensa que los precios del petróleo continuarán aumentando” – Dow Jones Wireline

Estas y otras decenas de noticias las encontrará el lector interesado, lego o experto, cualquier día de la semana, y en esta aldea global en la que convivimos con otros seis mil millones de la especie, renovadas cada hora del día, en un interminable carrusel de nuevos acontecimientos y actores.

El petróleo, o mejor dicho la energía y su disponibilidad, han pasado a ser de noticia eventual para expertos, a ser el telón de fondo del escenario sobre el cual se desarrollan los eventos que modelan nuestro presente y futuro.

El crecimiento de la economía mundial, liderado por los gigantes de Estados Unidos, China e India, acoplado a la falta de inversión en la cadena de suministro de productos y las crecientes tensiones geopolíticas, ha empujado el precio de la energía, en particular del petróleo, a niveles cercanos a los máximos históricos.

En este escenario de tensión e incertidumbre, los políticos, los medios y en general el ciudadano común, buscan razones, direcciones, predicciones. Los medios de comunicación, se inundan de todo un espectro de explicaciones.

En un extremo del espectro se concentran en la búsqueda de culpables por los altos precios de la energía, esto de manera predecible ocurre en los países consumidores. En el otro extremo, se construye argumentos apuntando el dedo hacia el consumo irracional como principal causa, esto de manera no predecible, también ocurre en los países consumidores.

Como regla general, las transnacionales del petróleo y los países productores, o debemos decir exportadores, tratan de mantener un perfil bajo ante la fusilería verbal y escrita que día a día apunta hacia ellos como los “malos de la partida”.

En el mientras tanto, la teoría del “Peak Oil”, que sostiene que estamos cerca o ya sobrepasamos el punto después del cual el consumo de petróleo debe empezar a disminuir, debido a que todo el petróleo producible ha sido ya descubierto, se ha convertido en la moneda de intercambio preferida para construir escenarios cataclismitos que pronostican tiempos de debacle económica de alcance global.

Si a este ya confuso panorama, le añadimos la cada vez más intratable cuestión del radicalismo islámico y sus llamadas “guerras santas”, y las ineficaces acciones militares con las que el occidente solo atina a responder, nos encontramos ante una mezcla de ingredientes que conducen aun inevitable punto de quiebre. No es una cuestión de si ocurrirá o no esta discontinuidad, sino de cuando ocurrirá.

Si los lectores han sido pacientes con este cronista, y hasta ahora no me han abandonado buscando evitar una angustia innecesaria, se preguntarán a santo de que viene toda esta letanía.

Venezuela es uno de esos países, que producto de los azares de la naturaleza, le toca ocupar un rol decisivo en el resultado de la siguiente travesura de la historia. Su ingente base de recursos de hidrocarburos, petróleo y gas, su posición geográfica, su tradicional rol de suplidor seguro del hemisferio occidental y su tradición petrolera, le convierten en una pieza clave en el rompecabezas global.

Pero hete aquí que el “azar” de los dioses le ha puesto “piquete” adicional, como dirían los jugadores de billar de tres bolas, a una situación ya de por sí compleja. Los eventos políticos de los últimos siete años han creado una paradoja extraordinaria en el ámbito petrolero nacional. Una situación de oportunidades sin precedente aparejada a una industria petrolera nacional en minusvalía, y unos niveles de ingresos que alimentan un espejismo de políticas eficaces.

Hay gente que piensa, los mas, que el solo hecho de tener recursos hidrocarburíferos en el subsuelo le confiere a Venezuela, sobretodo a estos altos precios, una posición de invulnerabilidad política y económica secular. Hay otros, los menos, que entienden que controlar la veta, como la historia ha demostrado una y otra vez, no garantiza el bienestar de la comunidad alrededor de la mina, es decir nosotros los venezolanos.

¿Qué hacer? ¿Cómo aprovechar la coyuntura?, que aunque no es de nuestra hechura, presenta amenazas y oportunidades importantes para nuestro desarrollo presente y futuro. ¿Como escaparnos del sentimiento de éxito inevitable a lomos del precio del petróleo, que invade la psiquis nacional?

Hace solo unos años, la creencia en la industria petrolera en general era que los precios se mantendrían en niveles moderados, $15 - $18 por barril de WTI, aunque había un riesgo de eventuales picos de precios. Aún hoy día, de acuerdo a PDVSA (El Universal, Abril 27 de 2006), se planifica a precios del barril más cercanos a $20 que a los niveles de $70 de los días recientes. Sin embargo, la creencia implícita de aquellos que manejan la política petrolera de Venezuela y de otros países exportadores, derivada de sus acciones mediatas e inmediatas, es que los precios altos están aquí para quedarse.

Si este es el escenario probable, y es cierto que Venezuela tiene reservas de hidrocarburos suficientes para las siguientes décadas, ¿cual debe ser la estrategia petrolera de cara a las crecientes necesidades de su población y al complejo panorama internacional que hemos descrito? ¿y cuales sus implicaciones?

A pesar de la inmisericorde crítica al plan de expansión de capacidad de producción de Venezuela, diseñado por previas administraciones, los actuales responsables de diseñar la política petrolera no han hecho más que reciclar las mismas ideas, empaquetadas con un envoltorio engañoso de patriotismo y nacionalismo y en un ambiente mucho más hostil para la inversión privada necesaria.

Esta recurrencia de ideas no es de extrañar. La ecuación formada por una demanda en continuo crecimiento, acoplada a la extensa base de recursos de Venezuela, resulta en una sola solución: expansión de la capacidad de producción y búsqueda de nuevos mercados. Hoy igual que ayer. ¿O es que desde el punto de vista petrolero, que es el que ocupa a este cronista, hay alguna diferencia de fondo entre el plan de “Siembra Petrolera” y el incorrectamente denominado “Plan de Apertura Petrolera”?

Sin embargo, la intención estratégica de largo plazo debería ser hoy diferente a la de los años noventa. Los altos precios del petróleo son sin duda una muy bienvenida bendición para los países exportadores, y en particular para aquellos países que como Venezuela no han sido capaces de estructurar economías sanas alrededor y partir de la renta petrolera. ¿Pero es el mantener esa situación, por defecto o por diseño, la estrategia correcta?

En una visión de mediano y largo plazo, que no es una particular fortaleza de la clase dirigente, la situación se presenta complicada. Los altos precios de la energía, las inseguridades de suministro asociadas a problemas de origen ideológico (religiosos o políticos), la creciente consciencia sobre los problemas ambientales, y la dinámica de innovación asociada al libre mercado de las ideas y la tecnología, se empiezan a ensamblar y estructurar hacia un mundo cada vez menos, y no mas dependiente, de las volatilidades asociadas al petróleo y de las veleidades de los gobiernos que controlan las reservas.

La insurgencia de China e India como motores económicos de dimensiones gigantescas, y su influencia en la demanda de materias primas, contribuyen al presente sostenido aumento de precios del crudo y otras materia primas; pero por otro lado y aun mas importante, activan en miles de millones de seres humanos la consciencia de su derecho a mejores y mas sostenibles niveles de vida, y su derecho a acceder a la energía de una manera confiable y accesible, bajo regimenes de libertad.

Las implicaciones de estas presiones son difíciles de definir, y mucho menos proyectar hacia delante. Pero si la historia de los anteriores 250 años arroja alguna lección (con todo y guerras), es que la ingenuidad humana siempre consigue una solución a los obstáculos que se presentan en el camino de su progreso, y que este camino generalmente discontinuo, deja a los desprevenidos en el basurero de la historia.

El petróleo, y por lo tanto Venezuela, se enfrenta a un acertijo estratégico de difícil solución. Se debate entre, ser partícipe del futuro contribuyendo a mantener y ampliar el mercado para los hidrocarburos como fuente energética de excepción, o contribuir a adelantar la dilución de su relevancia para el mundo, al aprovecharse de su presente posición de dominio.

Obtener el balance entre el precio “justo” del recurso, concepto difícil de delinear, y hacer crecer y defender el mercado por el mayor tiempo posible, no es una tarea fácil ni necesariamente factible de concluir. Lo que sería ingenuo pensar es que la presente situación es inmutable y que hemos descubierto el corno eterno de la abundancia.

Aquellos que abrazan la teoría del “Peak Oil” apuran a que el mundo se prepare para un escenario sin petróleo; aquellos que se preocupan por el calentamiento global presionan por la venida de un mundo sin petróleo; y los competidores del petróleo se preparan para asumir su rol. Mientras tanto aquellos que se han pasado toda una vida tras el parapeto de la defensa de la “renta petrolera”, se empeñan en aplicar viejas recetas a nuevas y muy complejas situaciones.

Mañana nuevas noticias ocuparán los titulares, y estaremos un paso más cerca de ese futuro que otros construyen por nosotros, mientras seguimos distraídos y embelezados por una bonanza que no es de nuestra hechura y que nos impide desentrañar el “What if”.

El petróleo, con todos y sus lunares, nos ha traído hasta aquí. No es muy temprano para derribar la empalizada virtual del campo petrolero y la mitología de la renta, y empezar a ver el mundo que yace allende.

http://www.analitica.com/premium/energia/8445754.asp

PDVSA, The Dispassionate Story
By Luis A. Pacheco.
Published in Energy Tribune: April 21, 2006

When PDVSA was created in 1975, as a result of the nationalization process, there was a natural apprehension that it would follow in the steps of all the other failed Venezuelan state enterprises. Against the grain, the company evolved – from a loose coalition of E&P companies into a major integrated oil company and a relevant factor in the world energy scene – through a succession of governments.

But that evolution was not without its price – a very important political price. The technical and commercial success of PDVSA left in its wake a number of tense situations. For example, the OPEC quota policy was always a contentious issue between Venezuela’s oil ministry and the company. But there were other sources of irritation: among them, the salaries of oil workers, the investment overseas, and the debate on what to do with its generated revenue. Most of these issues were never resolved to the satisfaction of the political establishment, and they re-surfaced years later with a vengeance.

Of course, this is all hindsight. The PDVSA managers were raised in an environment that strived only for technical prowess and were ill-equipped to be sensitive to the potential political nuances of their activities. In modern management speak: PDVSA was not very adept at managing its stakeholders. In turn, there is no doubt that the political actors cared very little about understanding the details of the oil industry, so long as it was generating enough revenue.

The success of the “Apertura” (the opening up) strategy in the 90s, which allowed the controlled participation of the international oil companies in the upstream business, gave Venezuela access to capital and technology. And that technology was necessary to fulfill the potential of its huge hydrocarbon resource base. The Apertura helped thrust PDVSA into a competitive environment, which was instrumental in counteracting the inevitable inefficiencies resulting from its legally designated isolation. All of these events created political friction.

When President Hugo Chávez came into office in 1998, he did not arrive alone. He brought with him a prejudiced opinion about the oil industry and its workers, borne from all the previous tensions and misunderstandings, and he was accompanied by a cadre of PDVSA’s historical enemies. Not surprisingly, the PDVSA establishment was apprehensive about its new political masters. These two forces were bound to clash sooner or later, and after some skirmishes, the tensions exploded destructively in the widely reported but little understood PDVSA crisis that boiled up in the spring and winter of 2002.

PDVSA is no longer the proud company that it once was. Thanks to the firing of more than half of its workforce, it has lost its former vitality. As modern economists and managers have come to understand, the soul of any corporation, in particular one as complex as PDVSA, resides in its people and their expertise. Without that, no modern organization has a sustainable future.

Surprisingly, the PDVSA name still remains. The oil keeps flowing, although at a steadily decreasing rate. The people left inside, old and new, still retain their spirited hubris. It comes with the territory. But the life force of the organization has been irretrievably lost. Today, PDVSA is little more than a political tool in the hands of the shrewdest political operator Venezuela has ever known, and a blunt instrument with regard to the future of the Venezuelan oil industry.

After more than 80 years of oil industry, Venezuela has not yet discovered how to live harmoniously with it. From unrestricted private participation to unbridled state intervention, we have not managed to grow beyond the primitive stages of rent-seeking behavior. Sooner or later, the state-owned enterprises are bound to fail, either through inefficiency or as victims of political expediency. PDVSA will not be an exception.

The company is like a wounded giant, dizzy and without a sense of direction, running around in circles. It appears to be incapable of moving forward under this or any other government. Sadly, it doen’t seem that the story will have a happy ending. The state has proven to be an incompetent manager of the oil resource. Venezuela has to start thinking anew, while there is still time left for its oil.

http://www.energytribune.com/articles.cfm?aid=95