PDVSA’s Boost in Oil Well Spending Fails to Stem Output Fall

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A 62 percent increase in Petroleos de Venezuela SA’s 2014 exploration and development spending wasn’t enough to stem a near decade-long slide in crude output.

PDVSA, as the state oil company is known, spent $23 billion in 2014 on oil drilling and well development, reservoir recovery and exploration, compared with $14.2 billion in 2013, according to a financial statement posted on the company’s website Sunday. The increase failed to prevent a drop in oil production, excluding natural gas liquids, of 3.8 percent.

Venezuela’s oil sector generates an estimated 95 percent of the country’s foreign currency. The collapse of oil prices is making it harder for the country to attract foreign investment to pursue a target of boosting production to 6 million barrels a day by 2019.

“This is just a continuing trend of declining production due to underinvestment in the oil fields,” Andy Lipow, president of Lipow Oil Associates LLC in Houston, said by phone.

Production declined in the company’s Eastern, Western and Orinoco heavy-oil regions to 2.79 million barrels a day from 2.9 million in the prior year. PDVSA’s oil output has fallen in every year since 2008, according to company data.

At $50 a barrel, it may not be economic for the company to invest in heavy oil, Lipow said.

West Texas Intermediate crude, the U.S. benchmark, is down 47 percent from its June high and fell 0.3 percent to $56.99 in New York on Monday.

Exports Fall

Officials at Venezuela’s state oil company didn’t immediately respond to e-mail requests seeking comment on why their efforts to increase spending have not been able to stop production declines.

Caracas-based PDVSA also reported that total oil and refined product exports fell 2.9 percent to 2.36 million barrels last year. PDVSA’s average realized oil price fell 16 percent to $82.73 a barrel in 2014, from $98.08 in the prior year.

PDVSA’s total revenues fell 4 percent to $128.4 billion in 2014, from $134.3 billion. That included $23.2 billion in non-oil income such as foreign currency gains, up from $20.3 billion a year earlier.

The Venezuelan government continues to rely on PDVSA as its primary source of income to support social spending, Asdrubal Oliveros, director of the Caracas-based consultant Ecoanalitica, said in an interview.

“On top of the declines in oil production, there’s also an increase in expenses that is obviously affecting the cost structure, earnings and profitability.”

The company’s debt rose 5 percent to $45.7 billion in 2014. Funds owed to service providers and suppliers fell 3 percent to $20.9 billion.

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