CAPITAL: Caracas

MONETARY UNIT: Bolivar

REFINING CAPACITY: 1.2 million b/d

OIL PRODUCTION: 2.8 million b/d

OIL RESERVES: 72.6 billion bbl

GAS RESERVES: 142.5 tcf

The year 1999 was one of turmoil for Venezuela and its national oil company, Petroleos de Venezuela SA.

Operating under a succession of leadership, the company had to contend with internal political charges that it had become too much like any other multinational firm with excessive emphasis on market share and bottom lines and not enough on the country`s economic and political objectives.

Pdvsa also reinforced relations with OPEC, playing a large role in 1999 production cuts that helped oil prices rebound. Late in the year Pdvsa proposed a plan it said would help OPEC more efficiently manage fluctuations in world crude prices.

Domestic priorities were downstream, mainly the natural gas and petrochemicals sectors.

Pdvsa and Petrobras agreed to form Petroamerica, a binational joint venture to tackle downstream and upstream projects in Venezuela and Brazil. They said other Latin countries might join later.

And Venezuela and Iran discussed swapping European and Western Hemisphere customers to cut transport costs and hike returns on crude sales.

GAS utilization

The Ministry of Energy & Mines in June announced a plan under which Venezuela`s gas production would rise to 14.5 bcfd in 2010 from 6 bcfd in 1999.

Venezuela`s proved gas reserves are 142.5 tcf, sixth largest in the world. All but about 9% of that is associated gas, most gas is in eastern Venezuela, and the country produces virtually no nonassociated gas.

The chief customers are refineries on the Paraguana Peninsula, the El Tablazo petrochemical complex, and large electric utilities. Given heavy use of gas in lease operations, it was unclear in 1999 whether much gas is available for sale.

The considerable demand in the west would require a major investment in connecting the eastern and western gas systems, and such a project was being planned.

Contributing to uncertainty in gas matters were a chaotic legal regime for gas, regulation that keeps prices extremely low, high royalties and taxes, competition from a large hydropower industry, state monopolies on gas transport and storage, and a stagnant electric power sector.

The state gave Pdvsa gas monopoly rights in 1976, but the company proved incapable of improving matters on its own. A law drafted in 1999 would clarify all gas provisions, set up a reasonable pricing system, transfer upstream gas regulation to the ministry, and open the gas sector to international and domestic private and state participation.

In addition to linking eastern and western gas systems, Venezuela wanted to pipe gas 200 km to Margarita Island off northeastern Sucre state and expand distribution systems in Valencia, Maturin, Maracay, and Barinas.

Upstream developments

Exxon Mobil, Pdvsa, and Veba Oel started up Cerro Negro extra-heavy crude production from the Orinoco Belt at 60,000 b/d at yearend 1999 for shipment 180 miles to the Jose Industrial Complex. Production was expected to double in 2001 on completion of a new coker. Target was 1.5 billion bbl of production during 35 years.

Pdvsa expected private companies to drill as many as 50 wells and work over 74 wells in the eastern Anaco district in 1999 at a cost of $320 million.

It reckoned that Anaco output would rise to 200,000 b/d within 5 years from 80,000 b/d in early 1999. Pdvsa said the 80,000 b/d represented a quadrupling of production by private companies in Anaco in 2 years.

Foreign oil companies began openly criticizing Venezuela in light of poor E&D results on license blocks taken in the late 1990s.

The count of active rigs held all year at 55-60, 75% of them land units.