Oil industry watchers pay attention to the number of oil and gas rigs in the field because they are an indicator of future oil and gas production. A country like Venezuela can have all the reserves in the world, but production in existing wells always declines over time. Without new wells, nationwide production will fall.
There are several organizations that try to count oil rigs. One of the most widely cited is Baker Hughes Inc. The company, the world’s third-biggest oilfield service provider (and I believe the biggest supplier of drill bits) follows the data for market research purposes and its spokesmen insist that companies have no reason nor much way to lie about the numbers. Baker Hughes workers count how many rigs are “consuming drill bits” for at least half the month. That means that the rig has to be penetrating new ground, not cleaning out an old well, replacing mucked-up tubing, withdrawing bits, or in transport. Baker Hughes says there were 54 active land rigs and 11 offshore Venezuela in March, up slightly from 52 and 11 a year earlier.
Schlumberger Ltd., the world’s second-largest oilfield service provider, also publishes a count. Its definition of what consitutes a rig is different, so its numbers are higher than Baker Hughes’. Current figures: 68 land, 17 offshore, down 24 percent year-over-year.
Then there are the PDVSA numbers.
“It’s a constant battle with the private companies,” Oil Minister Rafael Ramirez told me when I asked about the rig counts in 2008. He said they intentionally undercount Venezuela’s rigs, then got in an elevator before I or other reporters could ask for clarification.
Earlier this year I wrote to Eulogio del Pino, PDVSA’s vice president of exploration and production, to ask about something or another. I think it was about a process breakdown at Petrocedeño, but I don’t honestly remember. What I remember was his response: five rapid-fire text messages telling me that Baker Hughes and others miscount count rigs. He said they only count those that are leased, not the many that are property of PDVSA. I called Baker Hughes and they said he was wrong, that they include PDVSA rigs in their list.
Del Pino told me that I was welcome to pick any rigs off the PDVSA list and he’d be happy to tell me where they were so I could go and visit them. They are there, he wrote, apparently exasperated. The same VP said at an oil conference in early December that there were 140 rigs active in Venezuela.
PDVSA insists that it is the victim of a corporate conspiracy, as blockheaded anti-Chavistas seek to sabotage the company’s public image and credit rating through false data. It’s hard to judge who is right, though, when PDVSA doesn’t provide any data to refute the PDVSA and Schlumberger numbers.
My buddy Otto said in December that the Venezuela decline is in line with the worldwide decline. That was right up to a point, but this year’s sustained rise in oil prices has shown that Venezuela is less able to activate rigs compared to other countries. The Schlumberger report shows that Venezuela is the only significant producer to have fallen this amount in any of the recent months. This month, the world outside the U.S. rose 3.3 percent, while Venezuela fell 21 percent.
NOTE: I divided the worldwide figure by 40 and world outside the U.S. by 25 to keep all the figures on one scale and demonstrate the trend.
To try and determine future scenarios, the U.S. has resorted to satellite imagery to count oil rigs, according to one person in a position to know. I told Baker Hughes about that and the spokesman found it funny, saying that companies with oil rigs in the field have no way nor reason to hide their activity.
It makes sense that rig counts would be down. PDVSA stopped paying bills in 2008 and still isn’t caught up, even with oil at $85 a barrel. Drillers Helmerich & Payne*, Ensign** and at least one other drilling company have halted all work in Venezuela pending payment of old bills. While many companies report payment progress, I have yet to hear of rigs being reactivated.
The situation today may be even worse. The state newswire carried a story last week saying workers were undertaking wildcat strikes at the rigs belonging to Schlumberger Ltd., China National Petroleum Corp., Petrex (a unit of Eni SpA), and Precision Drilling Trust.
The apparent decline in drilling activity saves PDVSA money this month, but a decline in drilling now means that the country will miss out on thousands, even tens of thousands of barrels a day of production months from now, when oil prices are generally predicted to be even higher than they are today.
* “All 11 H&P rigs that formerly worked for PDVSA have completed their contract obligations and are currently idle. The Company will continue to pursue future drilling opportunities in Venezuela for these 11 conventional rigs, but it does not expect to return to work in Venezuela until additional progress is made on pending receivable collections and on conversion of local currency to U.S. dollars.”
** “The Company’s international operations experienced a reduction in contributions from its Latin American operations in the latter half of 2009 as all of the drilling rigs in Venezuela were stacked pending further negotiations with a major customer.”