Venezuela oil flows inch up behind data fog

Venezuela's crude production is starting to rise after stabilizing in the final weeks of 2018, but persistent distortions in the government data is overshadowing the slight rebound.

In December 2018, official crude production data and the average estimated by secondary sources grew further apart, highlighting doubts over the integrity of the government's output assessment.

The December average of secondary sources is 1.148mn b/d, down by 33,000 b/d from November, according to Opec's Monthly Oil Market Report issued today. The Venezuelan government´s official December production figure published by Opec is 1.511mn b/d, representing an increase of 47,000 b/d from the previous month, bringing the gap between the two production figures for December is 363,000 b/d.

Argus determined that Venezuela managed to check its long production decline at around 1.15mn b/d in December, mainly because of key repairs to extra-heavy crude upgraders at Jose.

Newly releasedPdV production data for December shows that PetroMonagas, a joint venture between PdV and Russia's state-controlled Rosneft, and Sinovensa, a blending joint venture between PdV and China's state-owned CNPC, added a combined 30,000 b/d in December. The PetroPiar upgrading venture linking PdV and Chevron was stable.

Output is now on course to average around 1.2mn b/d in January, according to Argus estimates.

According to internal PdV analysis, the official figures are inflated by a series of factors starting at the wellhead, including tallying gas liquids, condensates and water into the volumes. The water cut in particular contributes to a systematic gap between operational data — which is reported to PdV headquarters by field managers — and the metered data that is overseen by the oil ministry. Field managers sometimes exaggerate the operational data to meet performance targets or obscure chronic upstream problems exacerbated by a lack of oil services and theft of oil and equipment.

A PdV manager says that the data is especially opaque in the company's mature western division around Lake Maracaibo.

"In the west, operational production data is manipulated compared with the inspected data," the manager explained. "Because this production goes to the internal market, it's hard to detect the alterations."

"Operational data is a lot higher than the inspected data. The question is, what happened to the crude that wasn't metered? The metered data is closer to reality."

For crude exports, the data is clouded by the presence of naphtha that is used as a diluent for extra-heavy Orinoco crude. The additive is becoming increasingly relevant as diluted crude oil (DCO) — which incorporates around 30pc imported naphtha — takes up a growing share of exports to the detriment of higher-value grades such as 16°API Merey blend. In recent months DCO exports have reached 300,000-400,000 b/d, or more than a third of total crude sales, compared with around 180,000 b/d at the start of 2018.

In PdV's original development model for the Orinoco oil belt, the naphtha used to transport the extra-heavy crude was stripped out at the joint venture upgraders and looped back by way of pipeline to the oil belt for re-use. But most of the naphtha is now imported and then re-exported as part of the DCO barrels, a process that PdV officials say privately is unsustainable commercially and contributes to heavy financial losses.

In November alone, PdV and its joint ventures imported 112,000 b/d of naphtha.

As for some secondary sources, PdV officials contend that there is a downward trend bias that has proven difficult to shake off. The gap between official and unofficial production data should now be around 200,000 b/d, they say.

Looking ahead, repaired gas re-injection that Shell is starting to carry out in northern Monagas state in eastern Venezuela could further bump up output, but declines in the troubled western division could outpace any gains in the east.

The small recovery in Venezuelan crude production still leaves the Opec country well short of its 1990s record output of more than 3mn b/d.

Secondary source data is used by Opec to monitor quota compliance, a factor that is not relevant for Venezuela because it is producing far below its allocation.