Venezuela’s Oil Workers Moving On
Three years after President Hugo Chavez purged 20,000 employees from state-owned Petroleos de Venezuela, the oil giant’s production still hasn’t recovered, but many who became part of a global diaspora of Venezuelan talent slowly are putting their lives and careers back together.
Take oil engineer Lino Carrillo, who was general manager of new business development at Petroleos de Venezuela, known as PDVSA, when Chavez sacked half of the energy giant’s employees. For two years Carrillo had little success finding work in Caracas, and he burned through his savings. Now, the native of Maracaibo on Venezuela’s coast is playing a significant role in Suncor Energy Inc.'s project to extract crude from the frigid oil sands of northern Alberta, Canada.
“It’s a change. It’s much colder here, like 25 below zero,” Carrillo said in a telephone interview from Fort McMurray in Alberta, where he and his family have relocated. “But the Canadians have been very welcoming.”
An estimated 1,000 former PDVSA workers, many of them with graduate degrees from U.S. and European universities, have left Venezuela for Mexico, the United States, Russia, Kuwait, Saudi Arabia -- wherever oil is being sought, produced or refined.
“Things are expanding here with a lot of projects on the drawing board,” said Ciro Izarra, a former PDVSA facilities planning specialist who is now working for an oil company in Dharhan on Saudi Arabia’s Persian Gulf coast. He chose not to name the company for fear of political reprisals back home. “It’s been professionally and economically interesting, an agreeable surprise.”
PDVSA’s recovery from the devastating loss of personnel seems to have stalled. The mass firings -- which included 75% of the company’s engineers, 70% of research scientists and 50% of its refinery employees -- are an important factor in its failure to regain production levels of late 2002. That’s when a series of strikes began in response to Chavez’s efforts to bend the previously independent company to his political will, culminating in the mass layoffs in early 2003 and the decline of daily output to as low as 700,000 barrels.
Although the Chavez government claims that production has largely recovered and is averaging 3.2 million barrels of crude a day, industry experts contend that the level is closer to 2.6 million barrels, a 25% drop from the 3.5 million that Venezuela was producing before chaos enveloped the state company.
Worse is that average daily production has remained flat over the last two years and may have declined by 120,000 barrels more this year. Chavez was forced to concede in early May that production has fallen by about that much in Zulia, the western state where oil was first discovered and exploited in the 1920s. Energy ministry officials since have said that production drop has been recovered, but experts are skeptical.
Meanwhile, OPEC members have raised their daily production by an average 15% since 2002 to about 30 million barrels.
One problem is that heavy crude makes up about half of Venezuela’s oil reserves. The oil is often as thick as tar and is difficult to pump, transport and refine. With the gutting of its ranks, PDVSA is short the manpower it needs to do that. The shortage is also evident in what observers say is a reduction in some sectors of refining capacity and increased numbers of accidents.
“The layoffs have been a significant blow to PDVSA’s technical and operational capabilities,” said Francisco Monaldi, an energy specialist and professor at Caracas-based Advanced Management Studies Institute graduate school.
“Now, you have differing opinions about the trend. In the last year, PDVSA has increased investments significantly, so the natural production decline might be averted,” Monaldi said.
Another factor: With Chavez’s grip on PDVSA bureaucracy complete, he uses its revenue to finance his populist war on poverty. He also has signed preferential oil deals aimed at shoring up friendly leftist governments and reducing Venezuela’s dependence on U.S. sales for its primary source of income. The cost to Venezuela of its beneficences has been estimated at $1.5 billion a year.
High oil prices have created a bonanza of petrodollars, boosting Chavez’s ambitious foreign policy efforts to buy influence in the Caribbean and Latin America -- and to tweak the United States and President Bush, whom he regularly criticizes. Manifestations of that policy include buying $900 million in Argentine bonds and providing discount heating oil to low-income residents of Massachusetts, a deal finalized Tuesday by U.S. Rep. William D. Delahunt (D-Mass.) and PDVSA’s U.S. subsidiary, Citgo.
This year, Chavez formed the PetroCaribe alliance, in which all Caribbean Community members except for Barbados and Trinidad and Tobago agreed to buy oil on favorable credit terms. Venezuela also ships as many as 90,000 barrels a day of discounted oil to U.S.-embargoed Cuba; in exchange, thousands of Cuban doctors, teachers and technicians provide services to the Venezuelan poor.
To lessen his dependence on the U.S. market, which soaks up two-thirds of Venezuela’s 2.1 million barrels of average daily exports, Caracas also is investing in several major projects such as refineries and shipping terminals to cut out costlier middlemen, predominantly from the United States. Biggest among them is a $2.2-billion refinery planned for Pernambuco state in northeast Brazil in a joint venture with Petrobras, the Brazilian state oil company.
But as Chavez spends money all over the world, some say the PDVSA infrastructure is deteriorating and endangering the sustainability of his largesse. Many of the wells and extraction equipment have fallen into disrepair through lack of investment, and natural gas needed to force up crude oil is in increasingly short supply in some fields, observers say.
All those fired employees are sorely missed, said Carrillo, who before ascending to top management was manager of PDVSA’s second-largest refinery in Cardon for 17 years. “A refinery is like a car. If you don’t maintain it, it will break down. And that’s what’s happening.”
Energy Ministry officials denied an interview request this month to discuss the current state of PDVSA infrastructure.
Some foreign oil companies, including Chevron Corp., BP and Royal Dutch Shell, that entered into lucrative agreements in the 1990s to upgrade the Venezuelan industry are balking at Chavez’s attempts to roll back the deals made before he came to power. Chavez has threatened to send troops to take over the projects, which account for about 500,000 barrels a day, or 19% of crude output, unless the companies agree to turn over majority interests to the government and to pay hundreds of millions of dollars in alleged back taxes.
“Do you see companies leaving Venezuela? No. Can they be pushed? Yes,” said one consultant, who asked not to be named out of concern that his foreign oil clients could be endangered. “Some are biting their fingernails now.”
More than ever, analysts say, Chavez will have to rely on foreign expertise to exploit the heavy oil reserves because PDVSA has lost the bulk of the researchers and technicians who knew how to deal with the resource. Virtually the entire heavy oil research staff that PDVSA once had has fled, including a dozen researchers who have joined the faculty of the University of Calgary’s engineering school. Among them is Pedro Pereira, who headed PDVSA’s heavy crude oil research.
“They’ve lost the clinical histories, the surgeons aren’t there anymore, and the hospital is falling down,” said Luis Pacheco, a former top PDVSA executive and now a consultant in Caracas.
Although Chavez makes plain his plan to lessen U.S. oil companies’ presence in Venezuela, there are no signs yet that he will divert oil sales away from its largest customer. Foreign Minister Ali Rodriguez, a former director of PDVSA, states categorically that Venezuela has no intention of steering supplies away from the U.S. market, to which it is the fourth-largest oil supplier.
“We’re not going to take oil from the United States to give to China. That’s not true,” Rodriguez said in a recent interview.
Canadian transplant Carrillo says the switch to his new job’s geography and climate hasn’t been easy. Fort McMurray is in Alberta’s icy far north, a radical change from Venezuela’s tropical temperatures.
But Carrillo said the work was highly satisfying and, from an industry perspective, important. Costly oil has given new logic to Canada’s efforts to exploit its vast oil sands reserves. Suncor is squeezing 228,000 barrels of crude a day out of them, and production could double in three years, he said.
“This is a gold-rush-type of town. We were afraid that Canadians, being Anglo-Saxons, would keep us Latins at arm’s length, but we feel very welcome,” said Carrillo, whose wife, Noris, is a chemical engineer like her husband, both with degrees from the University of Oklahoma. “We’re recovering, one spoonful at a time.”
Suncor stood by Carrillo when Venezuela requested his extradition on espionage charges this year. Carrillo was one of a half-dozen people who led initial PDVSA strikes in 2002 and was singled out for prosecution. He narrowly escaped arrest on what he said were trumped-up charges immediately before his departure from Venezuela last year.
“They said we deliberately shut down production, which is a federal crime, when all we did was walk away,” Carrillo said.
Izarra, a 25-year PDVSA employee, left Venezuela for Saudi Arabia three months ago because, like Carrillo, as a consultant trying to drum up business after the firings, he was “radioactive,” or blacklisted from any contracts with PDVSA, far and away the country’s biggest employer.
“I’m 51, with lots of productive time ahead,” Izarra said. “I am a facilities planning specialist, and there are opportunities here because this is a company that is expanding.”
Does he miss Venezuela?
“I miss it not because it’s far away in distance but because it’s far away in time,” Izarra said. “The country I miss doesn’t exist now.