MercoPress. South Atlantic News Agency

Venezuela to slash oil industry suppliers costs by 40%

Venezuela's government owned oil company PDVSA plans to slash costs by 40% as it struggles with low crude prices amid the global financial crisis, according to the president of the corporation.

Rafael Ramirez said Tuesday that PDVSA is no longer willing to pay "high prices" that service companies charged last year, when oil prices hit 147 US dollars a barrel. "We aim to reduce spending on services provided by nearly 250 companies by negotiating contracts", said Ramirez. On Monday PDVSA announced it will begin "a massive process of payments starting this week and this will benefit 6,000 contractors and suppliers," the company said in a statement. The process will cover the pending bills with 90% of the company's suppliers, the company said, but the statement gave no names of companies to receive payment. The recent fall in oil earnings, combined with a slow decline in Venezuela's oil production, have hurt PDVSA finances. Meanwhile according to the International Energy Agency, IEA, crude production in Venezuela has declined to 2.36 million barrels per day (MBD) in 2008, down from 3.18 in 1997. That is a drop of 0.82 MBD or 26%. But official figures indicate production in 2008 was slightly higher than in 1997, 3.27 vs. 3.16 MBD. The gap between IEA and official figures becomes larger after 2002, with the data diverging widely after the 2002-2003 PDVSA strike. Official figures show production bouncing back to the pre-strike levels after 2003 and remaining there. IEA figures show that production recovers slightly in 2004-2005, but never returns to the pre-strike levels and declines in the years 2006-2008. According to the IEA, total crude oil production in 2008 was as low as in 2003, the year of the strike. IEA produces public monthly data for the most important world oil producers, including Venezuela. Venezuela's official sources, however, do not produce public monthly data. According to the IEA, PDVSA production, excluding that of the strategic associations, never recovered to the pre-strike levels and has declined steadily since then. It declined to 1.82 MBD in December 2008 from 2.35 MBD in June 2003, an average annual decline of 4.8%. PDVSA production ten and half years ago, in June 1998, was 3.17 MBD. If the latter figures are correct this would mean production has declined 43% over this period. PDVSA estimated petroleum exports declined from 2.95 MBD in 1997 to 1.20 MBD in 2008, a drop of 1.75 MBD or 60% says IEA. Official PDVSA petroleum exports have declined from 2.93 MBD down to 2.44 MBD, a drop of 0.49 MBD or 17%. In 2008, the difference between estimated and official PDVSA exports of 1.24 MBD represented 50 percent of the official PDVSA export figure.