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Venezuela’s State Oil Company Undergoes Reforms

Venezuela’s State Oil Company Undergoes Reforms

The relationship between the U.S. and Venezuela – which has been an icy one for years – took a hit after the Obama administration passed sanctions on individuals high up in the government. Venezuelan President Nicolas Maduro spun the move to his advantage, warning the nation that the U.S. was planning an invasion.

Washington’s move was not the most adroit display of statecraft as it provided a boost to Maduro at a time when his popularity is crumbling under the weight of a decaying economy.

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Still, while Maduro steps up his revolutionary rhetoric in public, behind the scenes the core institution of Venezuela’s economy appears to be tamping down its focus on revolution. The new management team at state-owned oil firm PDVSA is trying to professionalize its workforce and its operations. In the past, PDVSA employees were sent to pro-government rallies to support the late President Hugo Chavez. The workers wore red in support of Chavez’s revolution.

Now, according to a Reuters report, PDVSA, headed up by Eulogio del Pino since September 2014, is swapping out the red revolutionary dress in exchange for normal business attire. More importantly, PDVSA is reforming its business practices in an effort to revive flagging oil output.

PDVSA has decided to allow minority partners greater flexibility in using their own rigs and equipment – potentially saving millions of dollars. Company leadership is seeking more private investment by allowing greater outside ownership. Also, thousands of political operatives have been laid off, a sea change for a government that used PDVSA as a political arm for more than a decade.

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It is too early to tell if the newfound professional mantra deployed by del Pino will allow PDVSA to resuscitate its oil sector, but the government thinks it is on the right track. Oil production from the Orinoco belt, which holds the vast majority of Venezuela’s 298 billion barrels in reserves, is expected to tick upwards from 1.25 million barrels per day in 2014 to 1.37 million barrels per day by the end of this year.

But it is not as if PDVSA will suddenly transform into a normal oil company. After all, there is still plenty of political meddling from above – the new CFO is a relative of President Maduro’s wife, for example. Eulogio del Pino is making strides at transforming the company, but ultimately he reports to the President. That means he will only be able to go as far as Maduro is willing to let him.

By. Charles Kennedy of Oilprice.com

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