PDVSA Chances of Lifting Output Seen Boosted by Reshuffle

The removal of President Nicolas Maduro’s main policy maker improves Venezuela’s chances of tapping more of the world’s largest crude reserves, according to Barclays Plc and Medley Global Advisors LLC.

While Rafael Ramirez’s exit from the posts of vice president for economy and energy minister dims hopes for economic reform, it may give his successor at Petroleos de Venezuela SA the opportunity to focus more on the job of pumping oil. Besides running PDVSA, Ramirez oversaw the exchange system and housing programs among other non-oil duties.

His deputy on the PDVSA board, Eulogio Del Pino, will take over as part of a series of government changes unveiled by Maduro on Sept. 2. With a master’s degree in exploration from Stanford University, Del Pino oversaw the company’s operations and coordinated agreements with international oil firms as head of Corporacion Venezolana del Petroleo, or CVP.

“The appointment of Del Pino to PDVSA is marginally positive,” Barclays analysts Alejandro Arreaza, Alejandro Grisanti and Donato Guarino wrote in an e-mailed note yesterday. “This increases the chances of increasing production.”

Active army general Rodolfo Marco Torres replaced Ramirez as the economy vice president, with Asdrubal Chavez, the cousin of the late leader Hugo, named oil minister.

Chavez’s appointment is neutral, according to Barclays. “We doubt Chavez could hinder any plan Del Pino might have.”

Political Clout

Even so, PDVSA’s capacity to invest may be constrained by Del Pino’s lesser political clout, they wrote. Venezuelan bonds tumbled in the past two days as the overhaul brings into question the status of a proposed lowering of fuel price subsidies and PDVSA’s planned sale of U.S. refineries.

While Del Pino’s appointment is positive for industry, “political constraints and PDVSA’s strained finances will likely limit any potential upside,” Eurasia Group analyst Risa Grais-Targow said in an e-mail. “In a context where Maduro is hesitant to make any significant policy shifts, it would likely be challenging to implement a coherent oil policy.”

Venezuela’s oil production peaked under Ramirez’s tenure as president of PDVSA in 2008 at 3.2 million barrels a day, never approaching his goal of 5.8 million by 2012.

PDVSA, based in Caracas, plans to invest $302 billion through 2019 in partnership with local and international oil companies to reach 6 million barrels a day from about 2.9 million in 2013, according to its annual report. The company also wants to increase gas and condensate output, build six new oil upgraders and increase domestic refining capacity.

Less Risk

Del Pino graduated from Venezuela’s Central University, or UCV, in 1979, obtained a master’s from Stanford in 1985 and has worked in the upstream oil business for more than three decades.

“The replacement choice of Del Pino is the best possible outcome in a negative policy environment,” Luisa Palacios, managing director and head of Latin America research at Medley, said by telephone from New York. “The person that knows the most about production at PDVSA is now the head of PDVSA. That should mean that the downside risk to production has declined.”

His appointment comes at a time when the government of Maduro, Chavez’s handpicked replacement, faces a dwindling supply of dollars that has left shortages of everything from birth control pills to baby food, as well as the world’s highest inflation rate.

Maduro is considering divesting PDVSA’s U.S.-based refining and marketing subsidiary, Citgo Petroleum Corp. and raising the price of gasoline for the first time in 18 years, among other initiatives to shore up a cash shortage.

Refinery Spending

The oil industry is in need of foreign capital and know-how to assist PDVSA lift stagnant production at mature fields in the Lake Maracaibo region as well as in the Orinoco Heavy Oil Belt. The company bought its first cargo of light-sweet Algerian grade crude to dilute heavy Orinoco crude for sale to refineries, four people with knowledge of the matter said this week. A lack of investment and maintenance reduced its ability to produce diluents in Venezuela.

PDVSA signed a financing agreement with an unnamed international lender for about half of a project valued at $3 billion to expand the Puerto La Cruz refinery in eastern Venezuela, it said yesterday.

The company is increasing the refinery’s capacity to 180,000 barrels a day of heavy crude oil to cover national and export demand for products including gasoline, jet fuel and diesel, the company said in an e-mailed statement.

“Del Pino has a clearer understanding than most regarding the urgent need to boost production and, most importantly, he knows how to do it,” David Voght, managing director of IPD Latin America consultancy, said in an e-mailed response to questions. “One of his biggest challenges will be to now prove himself in the political arena.”

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