Monthly Archives: May 2010

Friday on-topic: Oil and water, mixed

Since it’s been a PDVSAish week and I’m far from Venezuela.

Oil-slicked lagoon at PDVSA oil well in Anzoategui state

(Click for full size) A lagoon full of produced water from a PDVSA oil well sits exposed to migrating birds between the Amazon-Gran Sabana megafauna hotspot and the Caribbean. Campo San Joaquin, Anzoategui, Sept. 14, 2008.

Don’t worry about the oil slick. A local squatter told us PDVSA comes once in a while and burns off the crude.

Keeping Citgo in PDVSA’s hands

Venezuela’s flurry of nationalizations in recent years has opened the country to the likelihood that at some point, it will lose its biggest overseas asset, Citgo Petroleum Corp. The country is facing 10 of the 129 pending suits at the International Center for Settlement of Investment Disputes, a branch of the World Bank that handles some international arbitration proceedings. Plaintiffs range from Infinito Gold, a tiny Canadian mining company that claims to have been cheated out of the Las Cristinas gold deposit in Bolivar state to Exxon Mobil Corp., the biggest publicly listed company in the United States, which claims to have lost billions of dollars in assets and future profits when Venezuela demanded control of an oil production, refining and export project in the Orinoco Belt. Exxon couldn’t come to acceptable terms, walked away from the country and filed for arbitration. The most recent cases are from Tidewater and Exterran of the U.S., both of which had assets seized a year ago when Chavez decided that crucial services such as maritime activity on Lake Maracaibo or natural-gas injection in eastern Venezuela should also be property of the state. If any of these plaintiffs prevail, they will be able to go to U.S. court and demand the handover of parts of Citgo, a unit of Petroleos de Venezuela SA, on the basis that it is property of the Bolivarian Republic of Venezuela and should be used to settle the debt from arbitration.

For them, grabbing Citgo will be less useful, however, if the unit is in debt. Anyone who grabs the refineries will have a useful asset with very little value. It will come with an obligation to pay debt to bondholders and few profits. Citgo’s maintenance and environmental standards are open questions. (Some workers there say things are as good as ever, while the U.S. government has cracked down on both environmental and worker safety violations at the company’s refineries in recent years. It’s unclear if this is because of politics, real problems, or something else.) It’s a standard anti-takeover scheme – spend the cash, borrow money, let maintenance slide a bit. Suddenly nobody wants to buy the company.

And surprise: After PDVSA President Rafael Ramirez insisted as little as a month ago that his company wouldn’t issue bonds this year, Citgo is borrowing $1.5 billion from the public in a bond auction. The notes will mature in 2017 and 2020. Citgo needs the money to pay for an upcoming investment program and to pay off debt, according to a solicitude I saw today.

The security being offered to bond-purchasers is a “first lien” on Citgo’s three refineries, inventory, its partial stake in other facilities such as pipelines, and “other assets.” I’m no lawyer, but as I understand it, this will put bondholders head to head with companies that win arbitration claims and want to grab the assets.

PDVSA-hired gas rig sinks

pearl

Aw shit.

Aban Offshore Ltd., India’s largest private-sector offshore drilling contractor, lost the Aban Pearl drill rig off the coast of Venezuela last night, the country’s oil minister and president said. Aban didn’t have website information about the supposed wreck on the media or Aban Pearl pages of its website.

The rig tipped 10 degrees at 11:23 p.m. because of a failure in its flotation system, Venezuela’s oil ministry said on its Web site. An ensuing inspection found a “massive” water leak in the floating columns that hold up the drilling platforms, according to the statement.

The rig a week ago completed the second gas successful gas well in Petroleos de Venezuela SA (PDVSA) Dragon field in the Caribbean Sea.

Chavez tweet

We like transparency. We don't like shipwrecks.

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Tranquility of devastation

Dunes at Pelluhue with dune grass crushed

Dunes at Pelluhue, the Pacific where it it belongs

The ocean rises and falls like always on the beach at Pelluhue, Chile. Salt spray in the nose. It’s a beach that could be in Oregon or Australia, quiet and lovely, the autumn sun cutting through the dry air of any west coast in the subtropics. There are no birds. There’s nowhere good to nest, as the tall grass is all plastered to the charcoal-covered dunes and the Monterey pines are tipped with rust, poisoned by salt water that recently inundated the land. The vast back-dune landscape is all sand and a few bubbling springs of fresh water, and if it weren’t for the occasional cement platform, each carefully crusted in patio, kitchen, or bathroom tiles, you wouldn’t know that the sandy beach was a neighborhood two months ago. It’s been erased. The springs are water supply, still running two months after the subdivision was scrambled by a tsunami, the remains promptly scavenged by robbers.

ruins on the beach at pelluhue chile, may 2010

What's left of the beachfront subdivision in Pelluhue. Smoke in background is from loggers burning ponderosa pine slash in the hills.

Two days ago, we found one home left in the beachfront town, sea algae pasted to the first-story walls up to the ceiling, the electricity meter frozen in time, the roof hanging off. In a shack back by the road, just four walls and a hanging piece of plastic as a door, a retired couple with maybe 20 teeth between them pounded nails, shuffling trusses into place to get a roof on before the rainy season takes hold for real. They said they figured it would be two weeks. I asked what they were thinking, rebuilding in a place that’s now so obviously a tsunami hazard, and the seƱor gestured at the view. A tranquil, broad river, flowing out to the sea. The dunes standing guard against storms. The sunlight glinting off waves and bits of rubble. “Where else do you get this?” he asked. And what else could he afford, I wondered.

In ConstituciĆ³n, the next real city up the coast, hundreds, maybe thousands of cormorants dried their wings in the dead brown forest of blue-gum eucalyptus on the town’s formerly festive river island. Hundreds of locals were on the low sand bar, partying and camping, the night of the tsunami. Most died. The riverbank facing the scene is full of pine shacks and small homes, ranging from about 3 meters by 4 to maybe 6 by 8, with corrugated zinc roofs. Troops and 15,000 volunteers in the “a roof for Chile” program have built something like 20,000 of these homes in 2 months, and the goal is to get everyone out of tents this year. A couple people told us nobody needed the camping pad we brought to donate, as everyone in the community had received a mattress, even those still living in tents. For all the efforts toward relief, the riverside community was not the cheeriest. Everyone is living in mud left by the tsunami. Many of those living there were teens and their children. The place was silent, peaceful, and smells of Chile’s ubiquitous wood smoke. A young mother with home-bleached hair told us that the tsunami wrecked the place, and then thieves came and took the remains.

tsunami escape route sign in constitucion chile may 2010

Tsunami escape route sign in Constitucion.

1 year later

Tarry wrack washes against the shore of Lake Maracaibo October 2009

Tarry wrack washes against the shore of Lake Maracaibo, the result of the constant oil spills into South America's second-largest lake. October 2009

Maracaibo’s maritime industry was nationalized a year ago. For workers, this was good news, as many provisional and part-time workers from private companies became full-time PDVSA employees, with a relatively good pay and benefits package. Unfortunately the result has been less favorable for the industry.

It used to be that when PDVSA, one of its joint ventures or a contractor needed, say, a crane, hauled out onto the lake to do a bit of maintenance work, they would call around to different barge companies, see who had time to do the job, and get the crane. Now, everyone calls the same number: PDVSA Servicios. PDVSA decides what job is most important and dispatches vessels based on the company’s own priority list. In theory this should be OK, as it’s in the company’s interest to conduct routine and preventative maintenance, to boost oil output, to rescue failing wells. But according to people who work at the lake, that’s not what happens.

Instead, they say, PDVSA hasn’t even maintained the vessels themselves. With a smaller fleet and a less contingent workforce, the company hasn’t got the boats or staff to do all the work that needs to be done. They prioritize emergencies above preventive maintenance, so it happens that companies send crews out to do maintenance work and then have to sit around waiting for hours or days for a piece of equipment to be hauled out onto the lake.

PDVSA vessel speeds past collapsing high-voltage tower on Lake Maracaibo, October 2009.

PDVSA vessel speeds past collapsing high-voltage tower on Lake Maracaibo, October 2009.