US embassy cable - 04CARACAS2254

C O N F I D E N T I A L  CARACAS 002254 
 
SIPDIS 
 
SIPDIS 
 
NSC FOR TSHANNON AND CBARTON 
ENERGY FOR DPUMPHREY AND ALOCKWOOD 
 
E.O. 12958: DECL: 07/12/2014 
TAGS: ENRG, EPET, VE 
SUBJECT: SENIOR OFFICIAL PUTS POSITIVE SPIN ON NEW PROJECT 
DEVELOPMENT 
 
REF: STATE 149293 (NOTAL) 
 
Classified By: Economic Counselor Richard Sanders,for reasons 1.4 (b) a 
nd (d) 
 
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SUMMARY 
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1. (C) Energy Vice Minister Luis Vierma told Emboffs July 12 
that Venezuela is currently producing 3 million b/d of oil. 
He also provided a glowing overview of upcoming projects, 
both for Petroleos de Venezuela (PDVSA) and the private 
sector.  Most industry analysts, however, continue to put 
Venezuelan production at 2.5 million b/d and believe it is 
dropping slowly.  We are also skeptical that PDVSA has the 
managerial or the technical capacity to push many new 
projects forward.  End summary. 
 
2. (U) On July 12, Econcouns, accompanied by Petroleum 
Attache, met with Vice Minister for Hydrocarbons Luis Vierma 
to discuss a wide range of issues.  His comments on the GOV's 
vision of "PetroAmerica" are presented in septel. 
 
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WHAT'S COMING 
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3. (C) Vierma repeated the GOV claim that Venezuelan 
production is approximately 3 million b/d and offered a 
glowing tour d'horizon of projects included in the 2004 PDVSA 
budget and beyond.  Starting his summary in western 
Venezuela, Vierma said that the engineering for the cryogenic 
complex, a gas liquefication project designed to help 
alleviate gas shortages, is underway.  He verified press 
reports that PDVSA had recently started drilling a well in 
the Tomoporo oil field (more details on this important field 
follow in septel) and said the company also plans to explore 
for gas in the southern part of Lake Maracaibo. 
 
4. (C) Moving east to the giant Paraguana refinery complex, 
the world's largest, Vierma said a debottlenecking is planned 
as well as a new refinery line and a new coker.  He added 
that the Ico Project, the gas pipeline planned to 
interconnect the gas production areas in eastern Venezuela 
with the gas-starved west, is also now underway.  Continuing 
in the theme of gas development, Vierma said that PDVSA plans 
to explore for deeper gas reserves in Anaco and to expand the 
natural gas liquids production capacity at the Jose 
Industrial Complex for processing that gas.  In eastern 
Venezuela, PDVSA will press ahead with the delineation of 
discoveries in the Tacata, Chaguaramal and Cotoperi oil 
fields.  In addition, Vierma said that PDVSA President Ali 
Rodriguez will shortly announce the positive results of a 
well drilled in the Travis field in northern Monagas state. 
Vierma asserted that by the end of 2004, PDVSA will have 120 
rigs at work, either drilling or performing well workovers. 
 
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OFF-SHORE & OTHER PROSPECTS 
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5. (C) Turning to activities off-shore, Vierma said there 
will be a ceremony August 1 to mark the launch of drilling by 
ChevronTexaco in Block 2 of the Deltana Platform gas project. 
 The official license for Block 3 will be granted to 
ChevronTexaco at that ceremony, said Vierma.  Statoil is 
expected to begin drilling in Block 4 in November.  Vierma 
added that seven additional off-shore blocks (expected to be 
gas blocks) will be opened for bidding within the next few 
weeks:  five in the Gulf of Venezuela and two in waters off 
Falcon state.  When asked what the delay has been (the 
opening of this bid round has been long awaited), Vierma laid 
the delay at the feet of the Foreign Ministry, saying it has 
been carefully checking the coordinates of the proposed Gulf 
of Venezuela blocks to avoid areas in dispute with Colombia. 
Vierma said the GOV is also considering re-opening the five 
gas blocks that were not bid in 2001 (Note:  only two of 
seven gas blocks received bids at that time).  He added that 
the blocks would probably be expanded to make them more 
attractive to bidders. 
 
 
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NEGOTIATIONS UNDER THE HYDROCARBONS LAW 
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6. (C) In response to a question about the status of 
negotiations under the Hydrocarbons Law, Vierma confirmed 
that talks are continuing with Repsol over the migration of 
its operating contract for the Mene Grand field to a joint 
venture under the 2001 law.  (Note:  Rumors have held that 
the agreement is close to completion.  Vierma, however, was 
less positive, saying that the valuation of reserves is a 
sticky problem.)  He confirmed that besides U.S. independent 
Harvest International, Lukoil and Algeria's Sonatrach are 
also considering taking over the operation of small fields 
under the terms of the 2001 law. 
 
7. (C) With respect to the expansion of the extra-heavy crude 
projects in Venezuela's Orinoco Heavy Oil Belt, Vierma said 
the GOV has had discussions with the companies that now 
operate projects - ChevronTexaco, ConocoPhillips, ExxonMobil, 
Statoil (Norway) and Total (France) - as well as others 
including Amerada Hess, Marathon, Eni (Italy) and Shell.  In 
order to make new projects possible under the Hydrocarbons 
Law, he said, they are being conceptualized differently. 
Instead of the current model in which each project has field 
production feeding directly into its own dedicated upgrader 
(i.e, to refine the tar-like crude into lighter synthetic 
crude), the new model would call for field production by a 
mixed company 51 percent owned by PDVSA while up to 100 
percent of the company handling refining and 
commercialization could be owned by the private sector. 
Vierma added that PDVSA has almost finished the work of 
determining how future blocks will be apportioned. 
 
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COMMENT 
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8. (C) Vierma repeated the GOV mantra of 3 million b/d 
national production and even said that PDVSA would increase 
its own production by the end of 2004.  This claim is greeted 
with skepticism by most industry analysts who believe that 
Venezuelan production is actually approximately 2.5 million 
b/d and dropping slowly.  Our own conversations with service 
company representatives who have first hand knowledge of 
activities in Venezuela's fields lead us to doubt the GOV 
claims.  Vierma's list of upcoming projects is also 
impressive but many of them have been on the drawing board 
for years.  We are skeptical that PDVSA has the managerial or 
the technical capacity to push these projects forward in 
accordance with Vierma's bright dream. 
McFarland 
 
 
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