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Russia to Take Control of Western Oil Fields in Venezuela, in Talks on Eastern Fields – Rapidan Energy Group – 22 de Noviembre 2019

PDVSA remains the most interesting institution in Venezuela, reflecting the state of internal politics, the collapsed economy, the effects of US-led international pressure, and the opportunistic positioning of Russia and others still allied with the Maduro government. This SitRep explores five PDVSA-related developments that tend to support our current base case assessments of Venezuela in 2020 (see our November 14 SitRep for details): 1) Russia’s voracious appetite for a bigger share of the Venezuelan upstream is paying off; 2) Venezuelan oil production has managed to recover by 0.2 mb/d despite US sanctions; 3) gasoline stocks are at critical lows, posing a serious threat to Caracas (Maduro’s top priority); 4) Russia is leading PDVSA’s cost-cutting push; and 5) PDVSA is the prize that Maduro and other regime heavyweights such as Diosdado Cabello continue to fight over.

Russia inks takeover of western oil fields, eyes the east

Russia’s determined play to expand its share of the Venezuelan upstream appears to be succeeding as PDVSA edges closer to agreeing to hand over total control of Venezuela’s western oil fields to Rosneft. The contracts are based on a concession model used for the Patao and Mejillones offshore gas fields (also operated by Rosneft). Rosneft would oversee production and pay royalties to the government, which would not have a hand in field operations. Rosneft is also eager to finalize its takeover of Venezuela’s eastern oil fields and is already evaluating the costs to reactivate wells that have been shut-in.

Russia makes hard push to slash PDVSA costs

Rosneft’s representative in Venezuela, Pavel Kemenets, is on a mission with PDVSA to cut down on inefficient spending in projects where Rosneft is involved. Rosneft’s goal is to reduce payroll by 80 percent, mostly through attrition. It pays salaries exclusively in Petros and has suspended insurance coverage for oil workers. Moreover, all service contracts are on hold pending a complete audit designed to identify waste, fraud, and corruption.

Defying US sanctions with a 0.2 mb/d bump in November

Shipping data for the first half of November indicates exports are up 0.2 mb/d m/m. Most of the increase is coming from storage, which is freeing up space for Rosneft and other IOCs to resume upstream operations. PDVSA continues to leverage its relationship with Rosneft to market crude oil, most of which slips out of Venezuela by way of ship-to-ship transfers to tankers operating with their transponders turned off. Venezuelan oil exports have also risen thanks to barter transactions that comply with US sanctions (mainly refiners receiving Venezuelan crude in exchange for petroleum products).

Furious efforts to prevent gas shortages in Caracas

Information flow indicates gasoline stocks are down to critical levels. Storage tanks require urgent maintenance and most of the gasoline that PDVSA is marketing is contaminated with water and sediment. Long lines, common across Venezuela, have reached Caracas despite direct orders from Maduro to keep Caracas well supplied. However, PDVSA is confident new shipments will arrive in time to avoid fuel shortages in the capital.

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