International

November 1997 Vol. 218 No. 11 International Kurt S. Abraham, International Editor PDVSAs Giusti charges forward, with or without

November 1997 Vol. 218 No. 11
International

Kurt S. Abraham,
International Editor

PDVSA’s Giusti charges forward, with or without OPEC

Listening to the president of state oil company PDVSA speak these days, one can’t help wondering how much longer Venezuela will remain an OPEC member. Such speculation is prompted not only by what Dr. Luis Giusti says, but also by the confidence with which he speaks.

A recent example occurred when Dr. Giusti addressed Ernst & Young’s Eighth Annual Energy Conference in a Houston suburb. He made several remarks that could be interpreted as warning shots across the bow of OPEC, as early signals that Venezuela is prepared to leave the organization.

“I believe OPEC must change itself in fundamental ways,” he asserted. “It has continued to do things much the same way for the last 15 years. I don’t think OPEC can stay in the conventional wisdom of 1983. OPEC’s quota system was a simplistic response to falling prices. In today’s market, however, the agenda of OPEC first and foremost must not be control of the market. Twenty-seven million bpd will not give you control of the market.”

Just on the chance that his message had not registered completely, Dr. Giusti reiterated the point to a group of media that assembled afterwards. In describing how Venezuela must invest to grow in concert with the needs of the markets it serves, he said, “We are only one more actor in the world of oil. So, the fact that in many cases the discussions (of oil prices) lead to Venezuela, to pinpoint Venezuela as an isolated actor that will determine what will happen in the oil price level, that is something that could apply to anyone in the world, especially Saudi Arabia, which by the way, produces 8.5 million bopd.”

For those stuck in OPEC’s conventional wisdom, Dr. Giusti suggested a new attitude. “I guess that everybody as an individual—every country is an individual—is searching for the best way to take advantage of their resources. In terms of what you can do to have an agreement about the market, I don’t believe we can think about getting better oil prices, especially when countries have large resources. What we should aim for is getting competitive prices, in such a way that we can compete with other sources, such as natural gas, or coal or whatever.”

Regardless of whether other OPEC members adopt this philosophy, Dr. Giusti signaled that Venezuela is prepared to carry out its own agenda. “I think our plans (PDVSA and the Ministry of Energy) are geared to real opportunities and possibilities, and also understanding that even when we’re members of the international community, we also have our own plans for development of the country.

His remarks seem to have the tacit approval of the Clinton administration. Dr. Giusti noted that he was about to fly from Houston to Washington to meet with President Clinton and witness the signing of an agreement on energy by Venezuelan Minister of Energy & Mines Erwin Arrieta and U.S. Secretary of Energy Federico Peña. “We’ve had an agreement with the DOE since 1980, devoted mostly to technological cooperation,” he explained. “Since we now have this hemispheric energy dialogue, which is being co-hosted by the United States and Venezuela, the agreement is being revised—in fact it already is revised—with a new scope, where it will include not only technological cooperation but also creation of proper policies to strengthen the commercial and trading platform that will ensure and enhance energy opportunities in the hemisphere.”

According to Dr. Giusti, the Western Hemisphere imports about 4.5 million bopd, and during the next five years, that figure will increase to 7.5 million bopd. He believes that while this in itself is not a severe problem, “considering the resources that we have in this hemisphere, by creating the proper policies to get the private sector involved, we can make sure that we have a lot more opportunity for development of energy.”

In addition to energy, some basic work also had been done on other agreements between the U.S. and Venezuela, concerning intellectual property, protection of investments and double taxation. As this column went to press, President Clinton was visiting Venezuela, less than a week after Dr. Giusti was in the U.S. He and Venezuelan President Rafael Caldera signed a general protocol that will ensure that these agreements are finished.

Turning the discussion toward Venezuela’s own E&P projects, Dr. Giusti admitted that the majority of staff at PDVSA were as surprised as many industry analysts at the incredibly high prices bid for some field rehabilitation tracts in the country’s 3rd Marginal Round. “We had different expectations, there were differing opinions (within our company) about how much we would get. In general, I would say that the final number exceeded most expectations.”

Dr. Giusti also noted that PDVSA is progressing on schedule, despite undertaking a corporate restructuring. “We are realigning our resources—exploration and production will be a single unit all around the country. That means we’re going to have added value all around, because we can optimize our working capital, we can make more efficient managers.”

Mindful of the turmoil caused by restructuring in other countries’ state oil firms, Dr. Giusti said such a transformation is never easy. “However, we believe that we have selected a moment that is particularly positive for this. For example, in 1996, for the third year in a row, we had the best (financial) results ever—we had a net profit, after tax, of $4.5 billion. And that was after paying to the shareholder, the government, between taxes, royalties and dividends, over $10 billion. By doing this at this moment, we have t he flexibility of addressing the transformation by, let’s say, reducing to a minimum the traumatic effects.”