Rosneft quietly takes helm at PdV heavy oil plant

Venezuelan state-owned PdV's PetroMonagas heavy crude upgrader has restarted as a blending facility and is currently producing almost 90,000 b/d of Merey grade after PdV's Russian minority partner Rosneft took operational control of the project around October, Venezuelan government and Russian oil officials tell Argus.

PdV, which nationalized four upgraders in 2007, remains in nominal control of the upstream and processing operations at PetroMonagas with a 60pc stake, compared with 40pc for Rosneft. But the Venezuelan company has now taken a backseat to its Russian partner.

Rosneft's effective takeover of PetroMonagas is part of a strategy initiated by oil minister Manuel Quevedo last September to boost crude production by shifting operational control of critical joint ventures to minority partners, including Rosneft, Chinese state-owned CNPC and Spain's Repsol.

Quevedo's objective is to reinforce management and technical skills that PdV has lost because of labor flight, part of mass migration driven by the Opec country's economic decline. But the transfers have been done informally, with no contractual adjustments, to avoid a backlash from the opposition-controlled National Assembly that has threatened to block new oil agreements.

Although Rosneft is now at the helm of PetroMonagas, its technicians have been unable to restart units that upgrade Orinoco extra-heavy crude to 16°API Merey synthetic crude, mainly because US sanctions against PdV impede imports of replacement parts, the officials said.

A Rosneft official at PetroMonagas described the sanctions as a "minor inconvenience" since the upgrader originally built by ExxonMobil in the late 1990s was designed to yield the same Merey grade that PetroMonagas is producing anyway, through the less complex process of blending Orinoco crude with lighter domestic grades, using imported naphtha to transport the Orinoco crude from the oil belt.

"The upgrader is shut down but we don't need it to produce Merey," the Russian official told Argus, adding that Rosneft currently lifts all of the output that is booked by PdV and the Russian firm as debt service that PdV expects to fully repay by March 2020.

The quiet informal shift to minority operators has helped to raise Venezuela's crude production to almost 900,000 b/d in early January from about 650,000 b/d in September, a senior oil ministry official said.

PetroMonagas was producing almost 90,000 b/d of Merey or 75pc of its 120,000 b/d nameplate capacity in early January compared with about 40,000 b/d in August 2019, according to PdV officials at the Jose complex where the upgrading and blending plants are based.

The 105,000 b/d PetroSinovensa plant was producing about 85,000 b/d in early January, compared with 72,000 b/d in September. PetroSinovensa's Merey output is expected to reach 90,000 b/d by end-February, the PdV officials added.

PdV is still nominally in charge of PetroSinovensa, but CNPC technicians "are now the real operators," an oil union official at the project said last week during an Argus visit.

A CNPC official at PetroSinovensa wearing red PdV overalls confirmed the Chinese company "is more involved operationally" since the facility restarted in October.

The only one of four Orinoco upgraders that has resumed its original upgrading operation is 190,000 b/d PetroPiar, a PdV joint venture with 30pc partner Chevron. The plant is now producing 26°API Hamaca synthetic crude following a period of blending last year.

PetroPiar is producing around 130,000 b/d of syncrude, compared with less than 100,000 b/d in September. PdV expects output will reach about 150,000 b/d by March.

A PdV official at Jose said Chevron has been "giving operational direction" since blending operations restarted in October, after export bottlenecks were resolved with Rosneft's help.

"Our friends at Rosneft helped PdV solve the tanker shortage and restart Orinoco blending operations," the oil ministry official confirmed.

Chevron lifted the first Hamaca cargo of 2020 from PetroPiar this month. The company operates in Venezuela under a sanctions waiver that is likely to be renewed by the US Treasury when it expires on 22 January.

Two othewer upgraders at Jose, PetroCedeno with minority European partners Total and Equinor, and PdV's wholly owned Petro San Felix, are off line. Some equipment from Petro San Felix has been cannibalized to maintain the other plants.

In a national speech today, Venezuelan president Nicolas Maduro acknowledged that US sanctions hurt the country in 2019, but he said they failed to achieve their goal of ejecting him.