VHeadline.com oil industry commentarist Oliver Campbell writes: PDVSA recently filed their Return 20-F for 2003 with the Securities Exchange Commission of the USA. It has been delayed because of problems associated with the strike but, in the interim, I doubt any lenders have been worried about the credit worthiness of the world’s fifth largest oil company.

• A word of warning -- parts of this article will not interest many readers, so I suggest you skip those aspects that leave you cold.

My first surprise was that the auditors, Alcaraz Cabrera Vasquez, have given an unqualified opinion on the 2003 consolidated accounts. Because of all the problems with missing or inadequate records arising from the strike, and the inordinate time it took to reconstruct the accounts, in their place I should certainly have been more cautious and made reference to the fact not all the accounting was in good order. However, if you will excuse the quip, that is a matter of opinion.

As we are now nearing 2006, it is difficult to show much enthusiasm for events that occurred in 2003. Much water has flowed under the bridge, and both the commercial and political scenes have changed substantially with much higher oil prices and new relationships established both with other countries and other state companies.

Statement of Net Income in millions of US$

*Oil purchases are mainly those made by CITGO to satisfy their crude and product requirements to the extent PDVSA cannot supply them.

The number of wells drilled has fallen from 479 in 2001 and 474 in 2000.

*A metric ton assumed to equal 6 barrels. A barrel contains 30% water to make the emulsion.

The crude oil production figures are dispersed throughout the report, and what is needed is a simple table which shows the figures at a glance. I have extracted below what I believe, but am not sure, are the correct figures.

The figures by oil basin, in barrels per day, are quoted as follows:

* I have been unable to reconcile these differences with any other figures in the report.

Another problem I have had is with production from the Orinoco Belt which on page 27 is stated, in barrels per day, as follows:

* The figure of 430,000 differs from the 455,000 total shown above, as does also the amount of 174,000 with the 122,000 PDVSA share.

Doubtless PDVSA can explain all these differences easily, but would not one table setting out all the production figures be preferable?

On the credit side, I congratulated PDVSA back in May 2003 on their success at restoring production after the strike in such a short time. Since production in the first quarter was so low, this means the country’s production at the year end must have reached 3,000,000 barrels per day--no mean achievement.

An increase of 25% in Government Take over 2002, despite the strike, is also better than most observers expected.

On the debit side, PDVSA spent so little on capital expenditure, particularly on drilling new wells (down from 479 in 2001 to 206 in 2003), that it is believed production capacity has fallen through natural decline i.e. that the figure of 3,529,000 b/d capacity at the end of 2003 has since dropped. To restore this, large sums need to be spent putting closed wells back into production and drilling new wells. This requires carrying out major repairs and contracting more drilling rigs, but is hardly rocket science. The problem may well be the lack of suitably experienced petroleum engineers.

The fact that capital expenditure of $1,969 millions was so low in 2003 (down from $3,781 millions in 2001) can be explained by the strike, but this hardly explains why the 2004 expenditure of $2,990 millions was only 42% of the amount budgeted. It casts doubts on whether PDVSA will spend the $5,869 millions budgeted for 2005. If PDVSA does not have the manpower capability, then the answer is to make more use of consultants, service companies and contractors.

The statement, “When used in this annual report, the term “Petroleos de Venezuela” refers to Petroleos de Venezuela, S.A. and the terms “we,” “our,” “us,” “the Company” and “PDVSA” refer to Petroleos de Venezuela, S.A. and its consolidated subsidiaries” has not always been adhered to since sometimes PDVSA appears over the head of data which solely applies to Petroleos de Venezuela S.A. The terms are also somewhat confusing. Would it not be simpler to say “PDVSA" refers to Petroleos de Venezuela S.A. as a corporation, and “PDVSA Group,” “we,”, “our,” “us,” “the company” refer to PDVSA together with its consolidated subsidiaries?”

There are a couple of minor errors -- on page 10 the equity interest in a refinery in Belgium no longer exists since the Antwerp refinery was sold in 2003. On pages 23/24, there is a rounding error as production from the Operating Service Agreements totals 463,000 b/d whereas on page 21 the figure is shown as 465,000 b/d.

The 20-F Report has been very well prepared and its compilers are to be congratulated on the wealth of information it provides—but please bear in mind that, for the future, a table showing all the elements of country-wide production (PDVSA'S own effort, Service Contracts, PDVSA’S share of Orinoco Belt, for Orimulsion, Partners’ share in Orinoco Belt, etc) would be most useful.

We now await the 20-F Report for 2004 and trust it will be out before the end of this year.

Oliver L Campbell, MBA, DipM, FCCA, ACMA, MCIM was born in El Callao in 1931 where his father worked in the gold mining industry. He spent the WWII years in England, returning to Venezuela in 1953 to work with Shell de Venezuela (CSV), later as Finance Coordinator at Petroleos de Venezuela (PDVSA). In 1982 he returned to the UK with his family and retired early in 2002. Campbell returns frequently to Venezuela and maintains an active interest in political affairs: "I am most passionate about changing the education system so that those who are not academically inclined can have the chance to learn a useful skill ... the main goal, of course, is to allow many of the poor to get well paid jobs as artisans and technicians." You may contact Oliver L Campbell at email: oliver@lbcampbell.com

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Petroleos de Venezuela (PDVSA) Cardon refinery
Photography: Santiago Padilla