By Marianna Parraga

(Reuters.) Venezuela has almost doubled its oil output this year compared to last year’s lows. The country’s state-owned corporation made deals that allowed it to produce and export more heavy crude.

This surprising turnaround began when state-run Petroleos de Venezuela (known as PDVSA) won support from small drilling companies by rolling over past debts. Later, PDVSA was able to obtain steady supplies from Iran of an important diluent. They increased output by 824,000 barrels per daily (bpd), in November. This was well over the first quarter of the year, and nearly 90% above the monthly average one year ago.

Uncertain whether it is able to keep up its production. Unpaid bills for years, poor management and most recently U.S. sanctioned sanctions, have hampered its ability to access specialized drilling equipment as well as foreign investments. Also, the restrictions have limited their customers to companies with poor trading records.

PDVSA has not met its 2021 target of 1.28million bpd. However, it achieved 1 million barrels daily for the first-time in almost three years. This was despite recent PDVSA gains.

The workers from the oilfields say that work continues to reopen them and there are more stations expected to be restarted. Oil experts say PDVSA is doing everything possible, and that further gains could be limited due to a shortage of additional rigs or functioning upgraders for the tar-like crude.

Francisco Monaldi from Rice University’s Baker Institute, Houston said that the base production for 2021 was far below PDVSA’s capacity. We are now at that level. He said that 2022 will see an increase in output and the need to invest in infrastructure upgrades and new wells.

Allies are here to help

In September, a swap between PDVSA and National Iranian Oil Company was the key turning point. This deal was crucial in generating exportable grades of the heavy crude oil from Venezuela’s Orinoco Belt, Venezuela’s most important region.

PDVSA has also been able to use hard-currency profits from domestic fuel sales, as well as higher oil exports in Asia to pay off some of its debts.

A few service companies also accepted payments in kind, mainly oil byproducts and residual fuel https://www.reuters.com/article/venezuela-usa-methanol-idAFL1N2S61XY later sold domestically and overseas, according to people familiar with the matter.

According to a PDVSA document, Reuters found that there had been 47 maintenance and workover rigs in operation in Orinoco Belt by mid-December. There were 29 additional rigs in other areas. The same report also showed that 19 other rigs were still inactive. It was not possible to find any active drilling equipment, necessary for the building of output.

PDVSA didn’t respond to our request for comments. PDVSA is subject to sanctions by the U.S. Department of Treasury. They did not reply immediately to requests for comment.

For a related graphic on Venezuela’s oil production over time, click https://fingfx.thomsonreuters.com/gfx/ce/mypmnazxyvr/Pasted%20image%201640210673359.png

RETRACING LOST GROUND

Venezuela’s crude oil production was 569,000 barrels/day last year. Its exports were averaged at 627,000 barrels/day as PDVSA flushed out its stockpiles. These numbers don’t include imported diluents and water in the crude.

Independent analysts and experts are unanimous in their belief that production is rebounding. According to Consultancy IPD Latin America, Venezuela’s crude production will be 640,000-660,000 BPD this year.

Antero Alavarado, managing partner, consultancy Gas Energy, stated that two of the Eastern Venezuelan crude projects, Petro San Felix, and Petrodelta, have partial restored production. They are now looking to finance their continued growth.

Two sources claim that companies offering coiled tubing services have assisted in the rapid reopening of wells within this region.

“PDVSA has amortized debt to providers,” Alvarado added. Alvarado stated that three of the company’s 750-horsepower import rigs were also repaired and will be activated next year.

Two separate projects are planned to increase output almost by doubling in 2022 in the nation’s Western Region, an area where theft of equipment has been rampant. These two projects, located in mature oilfields Tia Juana or Cabimas said people familiar with these ventures.

“Production is starting over here. Workers from Maracaibo Lake (northwestern Venezuela) said, “The workover rigs are not resting.” According to him, some of the inoperative flow stations will be reopened in 2022.

REST IN PEACE

Expect delayed debt payments to be a major problem. PDVSA could break agreements with oilfield service companies to resume work.

An executive of a contractor said that debt keeps increasing because companies get paid only a small fraction of the monthly PDVSA services they provide. He did not want to identify himself out fearing retaliation.

Another worker claimed that his company had been intermittently working this year because of payment problems.

Experts stated that to increase production in the Orinoco Region, which is dependent on diluents to maintain output, it will be necessary to add at least one oil upgrader to the Petromonagas project or the Petro San Felix project to get the full benefit of available diluents.

The infrastructure of PDVSA to store and discharge diluents has also become strained. Internal company documents show that there have been delays in exporting crude since Iran’s routine shipment. PDVSA has also had to hire tankers in order to store the diluents.