Shell to repair eastern gas ops, cut flaring: PdV

Venezuelan state-owned PdV said it signed a comprehensive services contract with Shell to raise natural gas production, improve and maintain compression and reduce flaring in northern Monagas state.

The deal appears to break with years of estrangement between PdV and western oil companies that either have not been paid joint venture dividends or have been avoiding Venezuela for countries that are deemed relatively more stable, such as Brazil.

The agreement signed on 25 August in Caracas comprises up to 11 sub-contracts covering the provision of technical services, new equipment and parts procurement, repair of flow stations and liquids handling plants, improvement and maintenance of gas compression and reduction of flaring in the Furrial and Punta de Mata operational divisions, according to PdV.

The Venezuelan company did not indicate the value of the contract nor its duration. But the deal was signed on the same day that Venezuela signed a contract with Trinidad and Tobago to supply gas from the offshore Dragon field. Shell is expected to play a key role in that agreement, developing Dragon, transporting the Venezuelan gas and using it for LNG in Trinidad. According to Trinidadian officials, Shell's vice president for commercial operations in South America and Africa Mounir Bouaziz was in Caracas to sign the deal along with Venezuelan and Trinidadian officials.

Shell´s Venezuela office could not be reached to comment on the gas services agreement. The US office in Houston referred Argus to the company´s London office. Because of a UK holiday, Shell in London said it would comment tomorrow.

After 18 months of discussion, PdV awarded Shell the bid-free contract after evaluating proposed projects submitted by Shell. Criteria evaluated by the ministry and PdV included projected output increases and flaring reductions, the impact on PdV's upstream operations, project execution timetables and the operational condition of the assets to be repaired, the ministry said.

PdV is hoping that fresh gas supply can be used to re-inject into mature oil fields in Monagas, which forms part of PdV's eastern division, a traditional source of light and medium grades. Compression assets covered by the contract with Shell include the Pigap 1 and Amana (COA) gas processing, compression and injection plants near Punta de Mata, a ministry official tells Argus.

Pigap 1 and COA handle associated gas from flow stations at the Amana, Tejero, Musipan, Muri, Mulata, Carito and Santa Barbara fields. PdV also operates the 1.4bn cf/d Pigap 2 gas injection plant that was expropriated from US consortium Wilpro.

Venezuela has among the world´s largest gas reserves, but gas has traditionally taken a backseat to oil. Up to 90pc of Venezuela's gas production is associated with crude. Gas production has declined sharply in line with crude production. Gas output averaged 6bn cf/d in first-half 2018, down from 7.75bn cf/d in 2015, according to energy ministry data.

Senior national officials of Venezuela´s federation of oil unions (FUTPV) harshly criticized the contract, accusing Shell of indirectly propping up the autocratic government of president Nicolas Maduro. They and members of the political opposition warned that any contracts not approved by the national assembly would not be recognized by a future government. The assembly was replaced by a rubber-stamp constituent assembly in 2017 in a move widely condemned abroad.