Current Position of Venezuela in Hydrocarbon Reserves

A. selecting a producer country with a high potential of unconventional hydrocarbons’ reserves, and reviewing the current position in terms of production.

B. Analysing the exploration methods used by international oil companies and host governments to search for unconventional hydrocarbons and their suitability in terms of challenge and risk in light of the current price of crude oil.

C. Discussing possible future trends as to how the unconventional oil and gas industry itself might respond to the current market for petroleum.

Nowadays, conventional oil resources cannot meet the increasing demand of oil in the global markets. Therefore, oil industries and Governments are investing in unconventional oil sources which are produced or extracted by using different techniques. In this assignment, a brief discussion will be provided on several exploration methods used by international oil and gas companies. This assignment will also focus on Venezuela which has acquired 12^th spot in the oil and gas production rankings. In spite of having huge oil and gas resources the country is currently facing some issues from its Government. Therefore, a recommendation is also included in the assignment.

Oil Reserves

Venezuela has most hydrocarbon reserves in the world, even higher than Russia, UnitedStates and Oman. Different methods can be used to find out hydrocarbon reserves of Venezuela. Evaluation of oil exported by Venezuela was found by the Fundamental Bank of Venezuela (BCV) and a government owned petroleum corporation namedPetroleos de Venezuela, SA (PDVSA). Their combined report states that Venezuela produced 3.1 million barrels of oil on daily basis in the first half of 2010, with exports of 2.4 mbd which is lower than 2.8 mbd in 2009[1].Current oil exports generate rate of Venezuela is $61 billion[2]. However, another report published by the association of the Petroleum Distributing Countries states that average oil manufactured was 2.3 mbd for 2010 in Venezuela with only 1.6 mbd in terms of exports[3]. PDVSA has denied these claims of OPEC by saying that OPEC figures did not include the production in the Orinoco Belt from where the country gets large deposits of extra heavy crude oil.

PDVSA hired a British firm inspectorate to verify its oil export levels to investigate the 1mbd difference between the figures of Venezuela and OPEC. That British inspectorate reported that Venezuela produced 2.3 mbd oil on average in the year of 2010 which was close to the official figures[4]. Venezuela has produced a total of 297 billion barrels till 1 January 2014 which was higher than any other country in the world[5].

Oil Reserves

Gasoline

Venezuela is also known for producing the cheapest gasoline in the world. In 2011, the local gasoline price was 2.1 cents per liter or 8 cents per gallon at the official exchange rate. On the other hand, the international market price is 63.6 cents per liter. It is said that filling a tank costs cheaper than buying a can of soda in Venezuela[6].

Analysing the exploration methods used by international oil companies and host governments to search for unconventional hydrocarbons and their suitability in terms of challenge and risk in light of the current price of crude oil. 

Hydrocarbon exploration is a search by geologists for hydrocarbons stored beneath the Earth’s surface, such as oil and gas. Exploration related to oil and gas aregrouped under the science of petroleum geology. International oil companies and host governments use several methods to find out basic evidence of hydrocarbon generation in a location. Deciding where to drill can be considered as an art than a scientific method. The primary method of searching hydrocarbons starts with observing surface terrain. Location of the faults in the surface are very important as it indicates that potential structure traps may lie beneath the surface in reservoir rocks[7]. Observing anticlines is also a good idea as it also reveals the positions of structural traps. Mainly, three types of methods are commonly used to find out the location on hydrocarbons. Those methods are Geophysical Surveys, Remote Sensing and Wild Cat.

Geophysical Survey

Geophysical techniques such as electrical currents, anomalies related to gravitational force and magnetic force, heat flow, geochemical relationship and variations in density are used for petroleum explorations. Each technique serves to find out different set of characteristics which are used to find out hydrocarbons beneath the surface of earth.

Remote Sensing

Aerial photographs are used to locate and map surface features in the process which is called as Remote Sensing. Nowadays, satellite images are used as it shows larger areas on the surface of the earth. Satellites are used to capture picture from hundred miles up in the space but its features allow the scientists to see the pictures as large as possible[8]. Besides, satellite images allow the scientists to not only find out what human eyes cannot see but also help them to understand soil moisture, minerals and vegetation distribution and type of the soil.

Another method of remote sensing method is using imaginary created from a radar looking at the ground which is called Side Looking Airborne Radar (SLAR). Some of these imaginaries are taken by aircrafts or space shuttles. For example, the image in figure 1 was taken in South America which is showing a place that has never been explored before[9]. Before this there were no accurate images of this region was available because this area remains covered with clouds. However, after this image was taken, new opportunities are made.

Gasoline

(Source: Lovejoy2015)

Wildcat

Another very efficient exploration method is Wildcat. In this method, a well is drilled in a new area where no other wells exist. The primary target of drilling the wells is to discover accumulation of hydrocarbons. Only one out of ten wells can find oil or gas where only one out of fifty wells can provide economically significant amounts. Most of the Wildcats are drilled on a hunch, intuition or on a small amount of geology. The location of wells are decided by the images taken by SLAR[10]. To save money Wildcat wells are drilled at a smaller diameter than normal wells to save money because an average onshore well costs 10m dollars at present.

Exploration process of Crude oil

On the other hand, process of recovering crude oil is much more complicated and cost effective. At first, a well is created by drilling a hole into the surface with the help of an oil rig. To provide strength to the structure a steel pipe is placed inside the well. After that, to allow the oil to pass easily through the base, a hole is created[11]. Collection valves and installed with this system to maintain pressure when the crude oil is pumped.

Principal recovery

The first stage of crude oil recovery is known as principal recovery stage. In this stage, under the base of the oil rig, the crude oil flows naturally. The underground pressure forces the crude oil to come up to the surface. If the pressure is not enough then an artificial lift can be used to pump the oil. Nearly five to fifteen percent oil can be recovered by using this process.  

Tributary recovery

It is obvious that the natural flow of crude oil will reduce with time because of the underground pressure. Therefore, a backup process is used sometimes to extract crude oil from the well. A reservoir is used in this process that increases the pressure of the crude oil artificially[12]. Water or natural gas is injected into the well to drive the crude oil to the base where it becomes easy to pump the oil out. Using this process another 35-45 percent of oil can be recovered.

Tertiary recovery

Sometimes it becomes impossible to recover the crude oil using tributary process. Then, gas, chemicals and water are injected into the reservoir to increase the flow of crude oil. Then the oil can be collected to the surface[13]. Using this process, approximately five to fifteen percent oil can be recovered.

Exploration Methods for Finding Hydrocarbons

Cost effectiveness of the processes

The processes required recovering crude oil from beneath the surface including oil wells; equipment and facilities are highly cost effective. The total cost is called as production cost or lifting cost. The breakdown price of crude oil includes cost of production, cost for exploring and searching, oil well manufacturing cost, cost for transportation and selling and general expenses related to administration[14]. The total cost of recovering crude oil in the year of 2009 is shown in the below figure.

(Source: Peery2013)

According to Energy Information Administration (EIA), the report found in 2009 indicates that recovering crude oil cost $12 per barrel in 2009 in United States and $10 per barrel in Middle East. Crude oil recovery cost was $13 per barrel for Exxon Mobil in the year of 2013[15].

Discussing possible future trends as to how the unconventional oil and gas industry itself might respond to the current market for petroleum

Dramatic drops in oil prices in the year of 2014 have forced the oil companies to restructure their 2015 plan to increase their efficiency which can deal with the storm of decreasing profits.

Recently, WBH energy filed for bankruptcy which has forced many small and mid size companies to reassess their future[16]. Because of the drop in oil prices many supporting companies of oil and gas industry has taken cautious steps. Those companies have started to pull back by cancelling their orders for services and equipments needed.

Companies that do not have that ability to deal with this crisis alone are merging with other companies to save themselves. For example, Baker Hughes was bought by Halliburton Co, for $34.6 billion last year which is known as the one of the largest takeovers of a US energy company[17].

However, some companies are planning to increase their spending plan to deal with the crisis. Encana  is such a company that is planning to increase their spending plan from $2.7 billion to $2.9 billion in the year of 2015[18]. Enacana, however, had a tremendous advantage which allows them to take this step. Their low debt to equity ratio and its growth is supporting the company to survive in this critical situation.

Companies are planning to improve their productivity by improving engineering practices and project planning. Most of the companies are also trying to reduce their supply chain cost by expanding their supplier base. The companies are now working together with their suppliers to figure out efficiencies.

As the oil prices havegone down, oil and gas companies are looking for ways to reduce their organizational cost. According to[19], this is an easy job for the companies as most of them are using wrong methods and tools for drilling. Therefore, searching and choosing right methods will automatically reduce their cost. CEO of Packers Plus Energy Services have claimed that the company has a technology that can help other companies to increase productivity and decrease cost.  On the other hand, companies like Halliburton Co. and Schulumber Ltd are forced to release technologies like microseismic sensors that can monitorfracks a kilometer underground.

Geophysical Survey

Oil price is going down which has forced the companies to increase their efficiency. Therefoee, the companies has implemented a shift in employment. For example, Packers Plus Energy Services Inc. is recruiting maximum number of workers who are highly trained and skillful to handle sophisticated technology. According to[20], since the oil prices has gone down, the oil and gas companies are receiving 4 times more resumes then normal times. However, unfortunately, the budget is diminishing therefore, the chances are high that unemployment among the low skilled workers will increase. Mr. Yager who is a national oil field services leader has stated that it is a bad news for the workers indeed but it will help the companies to survive the crisis.

Because of the oil price drop, the competition among the oil companies has become fierce. As most of the companies are inefficient, no one can predict that who will survive and who will not. However, according to[21], the companies that are using all their resources to improve efficiency have the higher chances to survive. On the other hand, the companies that cannot cope up will fail.

in spite of Venezuela’s strong hydrocarbon resources, the country is facing mainly two primary issues to maintain their production.

Government of Venezuela is reinvesting oil and gas revenues into social programs rather than investing it into exploration, production and refining.

Venezuela’s state-run oil and gas company is known as Petroleos de Venezuela S.A. which was established in 1970. In 2002, a conflict between the company and the government led to a strike against the president Chavez. This strike brought the company’s operations to a halt. Because of that strike, the company lost several technical expertise that has affected the oil and gas production of the country.

PDVSA should immediately look for more foreign investments as the government is not re-investing in oil and gas industry. Production from the country has slowed down as their not enough money to maintain operations. Oil produced in the region in quite heavy, therefore, blending lighter oils and using upgrades is important to transport the commodity into the market. Therefore, it is also recommended that PDVSA must expand their and improve their accessories and machineries to support the production.

Venezuela is all set to take some major steps to secure their future in oil and gas industry.

Venezuela is planning to set up a three dimensional energy strategy that will secure its economy

Remote Sensing

Venezuela is also planning to open up its energy sector to consortia which is led by companies from India, Japan and Germany

Venezuela by opening up its energy sector is planning to join hands with those countries which will help them to eliminate the shortage of investment in their oil and gas productions.

Conclusion

From the assignment, it is clear that current rules and regulations have changed the exploration methods of the international oil exploration companies. However, the reason for Venezuela’s loss in production is their own government and their policy. Their government is not investing in oil and gas production purpose. The revenue the government is acquiring from oil and gas and production is being spent at social events. Therefore, PDVSA is not getting ample support to extend and enhance their ability to explore and produce more hydrocarbons. Because of these problems, the economy of the country is also coming down which has become the primary concern of Venezuela. Therefore, the Government is Venezuela and PDVSA jointly has taken some plans to secure their position in oil and gas markets. However, it is not clear that how the country will implement these ideas as the conflicts between the Government and PDVSA is still not finished. 

References

Bautista S, ‘A Sustainable Scenario For Venezuelan Power Generation Sector In 2050 And Its Costs’ (2012) 44 Energy Policy

Belonogov A and Kharchenko O, ‘Accounting Concept Development For Exploration And Mineral Resources Appraising’ (2014) 22 Journal International accounting

Benes J and others, ‘Accounting Concept Development For Exploration And Mineral Resources Appraising’ (2015) 31(1) International Journal of Forecasting

Esfahani H, Mohaddes K and Pesaran M, ‘An Empirical Growth Model For Major Oil Exporters’ (2014) 29(1) Journal of Applied Econometrics

Fonseca Monteiro M, Rosa L and Szklo A, ‘Will Venezuelan Extra-Heavy Oil Be A Significant Source Of Petroleum In The Next Decades?’ (2016) 61 Energy Policy

González Cruz D, ‘Hydrocarbons Reserves In Venezuela’ (2008) 19 Energy & Environment

Khatib H, ‘Oil And Natural Gas Prospects: Middle East And North Africa’ (2016) 64 Energy Policy

Ladopoulos E, ‘Hydrocarbon Reserves Exploration By Real-Time Expert Seismology And Non-Linear Singular Integral Equations’ (2012) 5 IJOGCT

Laine J, ‘Environmental Impact Assessment Of The Application Of Pyrogenic Carbon In Soil’ (2013) 4(10) Journal of Environmental Protection

Lovejoy W, Methods Of Estimating Reserves Of Crude Oil, Natural Gas, And Natural Gas Liquids (Routledge Revivals 2015)

Mansilla D, Venezuela And The International Crisis (Palgrave Macmillan 2015)

Wildcat

Martinelli G, Eidsvik J and Hauge R, ‘Dynamic Decision Making For Graphical Models Applied To Oil Exploration’ (2013) 230(3) European Journal of Operational Research

McGonagle C and others, ‘Development And Comparison Of Two Sampling Methods To Assess Dermal Exposure To Drilling Fluids And Crude Oil’ (www.iom-world. org, 2016) <https://www.iom-world. org/media/86861/iom-tm1301. pdf.2013> accessed 3 March 2016

Miller R and Sorrell S, ‘The Future Of Oil Supply’ (2014) 372 Philosophical Transactions of the Royal Society of London A: Mathematical, Physical and Engineering Sciences

Murphy D, ‘The Implications Of The Declining Energy Return On Investment Of Oil Production’ (2014) 372 Philosophical Transactions of the Royal Society of London A: Mathematical, Physical and Engineering Sciences

Peery A and Richards R, Geographic Layout Of Petroleum Drilling Data And Methods For Processing Data (Google Patents 2016)

Qin Q and others, ‘Oil And Gas Reservoir Exploration Based On Hyperspectral Remote Sensing And Super-Low-Frequency Electromagnetic Detection’ (2016) 10(1), Journal of Applied Remote Sensing,

Yusuf Y and others, ‘A Relational Study Of Supply Chain Agility, Competitiveness And Business Performance In The Oil And Gas Industry’ (2014) 147 International Journal of Production Economics

[1]H Khatib, ‘Oil And Natural Gas Prospects: Middle East And North Africa’ (2016) 64 Energy Policy.

[2]Marcelo Fonseca Monteiro, L Rosa and A Szklo, ‘Will Venezuelan Extra-Heavy Oil Be A Significant Source Of Petroleum In The Next Decades?’ (2016) 61 Energy Policy.

[3]H.S Esfahani, K Mohaddes and M.H Pesaran, ‘An Empirical Growth Model For Major Oil Exporters’ (2014) 29(1) Journal of Applied Econometrics.

[4]D Mansilla, Venezuela And The International Crisis (Palgrave Macmillan 2015).

[5]Santiago Bautista, ‘A Sustainable Scenario For Venezuelan Power Generation Sector In 2050 And Its Costs’ (2012) 44 Energy Policy.

[6]Diego González Cruz, ‘Hydrocarbons Reserves In Venezuela’ (2008) 19 Energy & Environment.

[7]J Laine, ‘Environmental Impact Assessment Of The Application Of Pyrogenic Carbon In Soil’ (2013) 4(10) Journal of Environmental Protection.

[8]G Martinelli, J Eidsvik and R Hauge, ‘Dynamic Decision Making For Graphical Models Applied To Oil Exploration’ (2013) 230(3) European Journal of Operational Research.

[9]W.F Lovejoy, Methods Of Estimating Reserves Of Crude Oil, Natural Gas, And Natural Gas Liquids (Routledge Revivals 2015).

[10]Q Qin and others, ‘Oil And Gas Reservoir Exploration Based On Hyperspectral Remote Sensing And Super-Low-Frequency Electromagnetic Detection’ (2016) 10(1), Journal of Applied Remote Sensing,.

[11]A.N Belonogov and O.N Kharchenko, ‘Accounting Concept Development For Exploration And Mineral Resources Appraising’ (2014) 22 Journal International accounting.

[12]C McGonagle and others, ‘Development And Comparison Of Two Sampling Methods To Assess Dermal Exposure To Drilling Fluids And Crude Oil’ (www.iom-world. org, 2016) <https://www.iom-world. org/media/86861/iom-tm1301. pdf.2013> accessed 3 March 2016.

[13]E.G. Ladopoulos, ‘Hydrocarbon Reserves Exploration By Real-Time Expert Seismology And Non-Linear Singular Integral Equations’ (2012) 5 IJOGCT.

[14]A.R Peery and R Richards, Geographic Layout Of Petroleum Drilling Data And Methods For Processing Data (Google Patents 2016).

[15]A.R Peery and R Richards, Geographic Layout Of Petroleum Drilling Data And Methods For Processing Data (Google Patents 2016).

[16]R.G Miller and S.R Sorrell, ‘The Future Of Oil Supply’ (2014) 372 Philosophical Transactions of the Royal Society of London A: Mathematical, Physical and Engineering Sciences.

[17]D Mansilla, Venezuela And The International Crisis (Palgrave Macmillan 2015).

[18]Y.Y Yusuf and others, ‘A Relational Study Of Supply Chain Agility, Competitiveness And Business Performance In The Oil And Gas Industry’ (2014) 147 International Journal of Production Economics.

[19]J Benes and others, ‘Accounting Concept Development For Exploration And Mineral Resources Appraising’ (2015) 31(1) International Journal of Forecasting.

[20]G Martinelli, J Eidsvik and R Hauge, ‘Dynamic Decision Making For Graphical Models Applied To Oil Exploration’ (2013) 230(3) European Journal of Operational Research.

[21]D.J Murphy, ‘The Implications Of The Declining Energy Return On Investment Of Oil Production’ (2014) 372 Philosophical Transactions of the Royal Society of London A: Mathematical, Physical and Engineering Sciences.