Petróleos de Venezuela S.A.

Edif. Petróleos de Venezuela
Avenida Libertador, La Campiña
Apartado Postal 169
Caracas, 1010-A
Telephone: (212) 708-4111
Fax: (212) 708 4661
Web site:

State-Owned Company
Employees: 46,920
Sales: $46.25 billion (2001)
NAIC: 211111 Crude Petroleum and Natural Gas Extraction; 211112 Natural Gas Liquid Extraction; 213111 Drilling Oil and Gas Wells

Petróleos de Venezuela S.A. (PDVSA) is wholly owned by the Venezuelan state and is the holding company for the national petroleum industry. PDVSA has proved reserves of 77.2 billion barrels of oil—the largest proved reserves outside of the Middle East. Along with its domestic exploration and production business, the company has refining and marketing operations in the Caribbean, Europe, and the United States. Its CITGO Petroleum subsidiary supplies gasoline to retail locations across the United States. The company has experienced turmoil in recent years due to the leadership of Venezuelan President Hugo Chavez. A labor strike in 2002 led to serious losses in oil production and more than 18,000 employees were fired as a result. Rafael Ramirez was named president of PDVSA in 2004.

Early History

Oil has been known and used in Venezuela since seepages were found on the shores of Lake Maracaibo during the colonial period, which ended in 1910. The first formal concession for its exploitation, however, was not awarded until August 24, 1865, when Camilo Ferrand procured the rights from the president of Zulia state. In 1876, a report submitted to the president of Zulia on the petroleum and asphalt deposits in the Maracaibo basin indicated the existence of an oil seep near Tarra, producing 5,760 gallons a day. The first oil company incorporated in the country was the Compañia Nacional Minera Petrólia del Táchira, formed on October 12, 1878. A succession of grants followed during the 19th century, and the systematic exploitation of the country's large hydrocarbon reserves started during the 27-year dictatorship of General Juan Vicente Gómez, which lasted from 1908 to 1935.

The major foreign oil companies were attracted to the country because of the expectation of large oil deposits, the country's relative political stability compared with the rest of Latin America at the time, and the favorable terms offered for the exploration of the country's oil resources. Venezuela, unlike the Middle East or Iran, devised a concessionary system whereby most oil companies could operate, regardless of nationality, and production costs were much lower than in the United States, which accounted for 70 percent of total world oil production at the time.

Venezuela's move toward controlling its oil industry took a significant step in 1943, when the new hydrocarbon law integrated all oil legislation. Five years later, in 1948, the Venezuelan congress passed a new income tax law, establishing the so-called 50–50 system that would become a landmark in relations between the international oil companies and the governments of the various oil-producing countries. This system refers to an agreement whereby concurrent owners bear all expenses equally. In 1959 the national government decided to grant no further concessions, thus ending a system that dated back to the previous century. A further fundamental step toward achieving full control of the country's oil wealth was taken in April 1960 when the Corporación Venezolana de Petroleo (CVP), a national oil company, was established to enable the country to acquire greater experience in all areas of the oil industry. CVP was to operate in competition with foreign concessionaires in the country and was to be the official instrument of the country's petroleum policy. The Service Contracts system was introduced in 1967 through a partial reform of the Hydrocarbons Law, allowing the nation to negotiate with foreign companies under more advantageous conditions.

During the administration of Rafael Caldera the initiative in oil matters shifted from the executive to congress, which increased corporation taxes on oil business and allowed the government unilaterally to determine reference prices for crude oil. The government also began to feel that the previous policy of awarding service contracts would not be successful because it would not provide a more viable alternative to the outright nationalization of the industry. At the same time it was felt that the companies—which would lose their concessions at a given date—were not investing enough to maintain their equipment and fields in working order, and without any guarantees of future profits the companies would disinvest and hand over the concessions in 1983, when the concessions expired, in a poor state. It was debatable whether the government would be entitled to the companies' capital equipment, and production appeared to be on the decline.

As a result, in 1971 the Hydrocarbons Reversion Law was enacted, aimed at ensuring the continuity and efficiency of the country's oil activities after the concessions expired in 1983. The law provided for all industry assets to revert to the nation on the expiration of the concessions, and for the government to appropriate all concessions not being exploited. In addition, the law established that companies would have to deposit 10 percent of their assets with the government to ensure that all such assets would be properly maintained by the companies until complete reversion took place.

Further steps toward nationalization were taken through a series of laws covering the natural gas industry, the domestic petroleum products market, and the merchant marine. By the autumn of 1973 the possibility of an early reversion before 1983 was introduced and started to gain acceptance, replacing the original plan to start nationalizing the industry from 1983. In his last presidential address, Caldera urged the new incumbent, Carlos Andrés Pérez of Acción Democrática, to nationalize the industry. The new government also believed that the oil industry was disinvesting; for instance, the number of exploration wells drilled had declined from 589 in 1958 to 148 in 1973, causing the reserves-to-production ratio to decline. On March 22, 1974, a committee was set up to prepare a draft bill whereby the state itself would maintain the industry and trade of hydrocarbons.

On August 29, 1975, the Organic Law Reserving to the State the Industry and Commerce of Hydrocarbons was enacted, allowing the government to take full control of the oil industry on January 1, 1976. The assets of the industry were acquired from the ex-concessionaires based on a net book value of $1.17 billion.

PDVSA Taking Control in 1978

The nationalization of the industry required the creation of a functional structure that would allow normal operation to continue within the new legal scheme. A holding company, PDVSA, was established to coordinate, supervise, control, and plan the activities of its subsidiaries made up of the 14 former operating companies. PDVSA's oil would be marketed through the major international oil companies Exxon, Shell, and Gulf, thus guaranteeing the company a stable market share. PDVSA reserved the right to reduce the volume of oil placed in this manner by 10 percent after the first year, and by 20 percent in the second year. The new company also would receive technical assistance in exploring and refining from the former operating companies, which would be paid at a rate that varied between 16¢ and 30¢ per barrel. The original 14 operating subsidiaries were integrated in 1977 into four major companies, Lagoven, Maraven, Meneven and Corpoven. On March 1, 1978, PDVSA assumed full responsibility for the country's petrochemical industry when the government transferred the ownership of Petroquímica de Venezuela S.A. (Pequiven) to PDVSA. Pequiven had two petrochemical complexes: Morón in Carabobo state and El Tablazo in Zulia state. Morón manufactured fertilizers as well as several chemicals for the domestic market. The El Tablazo plant produced olefins, caustic soda, and chlorine, which are sold to other nearby industries.

Although PDVSA was a state enterprise, it was expected to finance its normal investment program from its own resources, under a 10 percent cash flow mechanism whereby 10 percent of pre-tax export sales profits could be retained for the purpose of reinvestment by the company. The board of directors reported to an assembly constituted by the minister of energy and mines, who presided over it, and to those members of the Executive Cabinet designated by the president of the republic. PDVSA operated under broad policy guidelines issued by the government.

Company Perspectives:

Petróleos de Venezuela, S.A. (PDVSA) contributes to the national development based on a high sense of joined responsibility which flows in parallel directions heading both towards a common end while supporting part of the PDVSA's socio-economic structure and that of the country as well. This joined-responsibility principle governs all the operations within the oil business dynamic. PDVSA bears a great responsibility as a driven force for the national development, and in consequence, for keeping national security and its implications through the profits obtained from the commercialization of its products and its tax payments. Due to the new PDVSA's approach based on the relation with the environment and the importance given to people as owners of oil and as final destiny of the benefits resulting from hydrocarbons and their by-products activities, a wide sense of joined responsibility has prevailed. Communities, cooperatives and the main national industry have joined their efforts to become fully part of programs and projects surrounded by an atmosphere of cooperation and proactivity.

PDVSA in the Late 1980s

During 1989, PDVSA produced around 1.6 million barrels of oil and condensate per day. It owned 12 refineries with an overall processing capacity of 1.75 million barrels per day, of which 945,000 million barrels per day were processed in Venezuela and the rest in the United States, Europe, and the Dutch Antilles. The most important domestic refineries in terms of capacity were Amuay with 630,000 barrels per day and Cardón with 350,000 barrels per day. Prior to nationalization, Venezuela's refineries had been geared to use low gravity oil to produce heavy fuel oil for export to its traditional market, the northeast United States. At the time of nationalization, heavy fuel oil accounted for 61 percent of total products exported. After nationalization, PDVSA began to diversify its exports, seeking to increase its supply of white products—gasoline and jet fuel—which were traditionally more in demand and afforded a higher profit margin. With this goal in mind, between 1978 and 1987, the company decided to upgrade its refineries in Amuay, Cardón, and El Palito to reduce the proportion of residual fuels obtained in the refining process and increase the proportion of naphtha, gasoline, and distillates. With further upgrading and conversion facilities, the refineries were able to use a higher proportion of heavier crudes, which represented the major volume of reserves in the country. The upgrading of PDVSA's refineries was two-thirds completed when it was halted in 1986 because of low oil prices. Although heavy fuel yield dropped from 61 percent in 1976 to 27 percent in 1986, it was still too high in 1991 for PDVSA's key U.S. market, where heavy fuel oil amounted to only 8 percent of total demand.

During the late 1980s, PDVSA supplied the domestic market with approximately 335,000 barrels per day of petroleum products, which represented approximately 20 percent of total production. PDVSA supplied local markets through its four main operating subsidiaries, Lagoven, Maraven, Meneven, and Corpoven, which operated supply depots and about 1,600 petrol stations. The products sold were petrol, aviation fuel, diesel fuel, lubricants, kerosene, and asphalt, with petrol accounting for almost half of total consumption.

One of PDVSA's most important international marketing strategies at this time was its joint venture participation in foreign manufacturing and marketing companies, which had accelerated significantly since 1986, when oil prices fell below $10 per barrel and it was difficult to place oil. PDVSA decided to secure long-term outlets for its crude oil by increasing its presence in foreign downstream markets, mainly in the United States and Europe. It had slightly less than 800,000 barrels per day of refining capacity and leased a 300,000-barrels-per-day refinery in Curacao in the Dutch Antilles. PDVSA's first downstream venture outside Venezuela took place in West Germany in 1983 when it entered into a joint venture partnership with Veba Oel to supply 155,000 barrels of oil per day.

Through its ownership of CITGO Petroleum Corporation, PDVSA also owned refineries at Lake Charles, Louisiana, and refineries at Corpus Christi, Texas. Subsidiary Propernyn PDVSA bought 50 percent of CITGO from the Southland Corporation. In 1990 Propernyn became the sole owner of CITGO. On October 31, 1989, PDVSA acquired 50 percent of Unocal's downstream assets in the midwestern United States. With this acquisition, PDVSA gained access to a deep conversion refinery near Chicago with an installed capacity of 153,000 barrels per day, as well as distribution and marketing facilities in Illinois, Michigan, Iowa, Ohio, and Wisconsin. PDVSA also owned minority stakes in two refineries in Sweden and one in Belgium.

The proportion of light and medium crude oil in Venezuela's export package declined between 1976 and 1984, with a complementary increase in the volume of heavy crude exports. As a result of PDVSA's exploration record, this trend was reversed in 1985, so that by 1988 exports of light and medium crudes accounted for 50 percent of PDVSA's crude export package. The United States was PDVSA's main market, accounting for 54 percent or 891,000 barrels per day of total exports in 1988, with Europe in second place with 205,000 barrels per day or12.4 percent.

PDVSA's proved reserves rose from 18.2 billion barrels in 1976 to 58.35 billion barrels in 1989. This was the result of increased exploration activity and the addition of 26 billion barrels from the Orinoco oil belt. Prior to nationalization, only 33 exploratory wells had been drilled between 1971 and 1976, compared with 58 wells in 1976 and 225 in 1982.

PDVSA's success in exploration resulted mainly from discoveries made around 1987 at El Furrial in the eastern state of Monagas, with estimated reserves of 538 million barrels and with an upside potential of 1.1 billion barrels, in the Ceuta South-Southeast field in Lake Maracaibo with estimated recoverable reserves of one billion barrels, and in the Guafita field in Apure, next to the Caño Limón field in Colombia, with estimated recoverable reserves of 500 million barrels. Additional reserves from the Orinoco oil belt also contributed to the company's reserves. These discoveries added between 10 and 12 billion barrels of light and medium grade crude oil to a reserve base that was disproportionately biased toward heavier oils.

These discoveries were expected to have a profound impact on the country's crude export mix, as the Monagas prospects, which currently produced 80,000 barrels per day of light oil, were expected to reach plateau production—the stable production period before the field declines—of 500,000 barrels per day in 1994. The Ceuta field produced 100,000 barrels per day and was expected to reach 200,000 barrels per day in 1993.

Key Dates:

Compañia Nacional Minera Petrólia del Táchira is incorporated.
Venezuela passes a new hydrocarbon law that integrates all oil legislation.
The Venezuelan congress passes a new income tax law, establishing a 50–50 system.
Corporación Venezolana de Petroleo (CVP), a national oil company, is created.
Petróleos de Venezuela S.A. (PDVSA) assumes full responsibility for the country's petrochemical industry.
PDVSA oversees the development of the country's coal resources.
Hugo Chavez is elected president.
Strikes at PDVSA severely affect oil production.

Since the trend toward heavy oil was reversed with the discoveries of light oil in Monagas and Apure, PDVSA continued to concentrate its exploration efforts on finding light and medium oil, and between 1988 and 1993 planned to drill 112 exploration wells to add a possible 9.4 billion barrels of reserves to the existing 58 billion barrels. The exploration effort was concentrated on the Furrial-Musipán geological trend in Monagas, where 51 wells were to be drilled, and on the North-Central section of Lake Maracaibo, where 43 wells were to be drilled.

PDVSA also was developing its large Orinoco oil belt using a new patented production method. This field covered an area of approximately 42,000 square kilometers and was considered one of the most important untapped reserves of heavy oil in the world. The estimated oil in situ was around two trillion barrels. The treated heavy oil was known as orimulsion, with recoverable reserves estimated at 267 billion barrels, equivalent on a calorific basis to all of South Africa's coal reserves and to all of the United States' crude reserves. Orimulsion was a rival product to coal and according to PDVSA was not intended to compete with heavy fuel oil. Commercial marketing of the fuel started at a modest level of 20,000 barrels per day, but was expected to reach 600,000 barrels per day by the middle of the decade.

Gas reserves in the country in the 1980s were estimated at 93 trillion cubic feet of gas. At this time, gas production was between 3.6 million and 3.8 million cubic feet of gas per day, of which one-third was sold locally, about one-third reinjected into the reservoirs, 21 percent used by the oil industry, and 5 percent flared. Major switching from oil to gas was not envisaged until 1992, after completion of the Nurgas pipeline from Anozategui to the West.

In 1987 PDVSA started exporting coal from western Venezuela through its subsidiary, Carbozulia. Initial exports started at 500,000 tons but were expected to reach 6.5 million tons by 1995.

In its first year of operation, PDVSA received net income of $825.6 million, increasing to $1.88 billion in 1977, but with the decline in oil prices the company's net income also suffered, falling to $731 million in 1988. For tax purposes, PDVSA was treated by the Venezuelan government like any other business entity. The company paid royalties, and income taxes were based on the export values of the oil and products sold. PDVSA did not enjoy any tax privilege except for the tax-free receipt of 10 percent of the net income from its subsidiaries' export sales, which, for accounting and tax purposes, was viewed as a cost incurred by the subsidiaries. The government's fiscal share, composed of royalties, income tax, and other taxes, amounted to $5.64 billion in 1988, representing almost 60 percent of total revenues of $9.51 billion. During the early 1990s, PDVSA continued to invest in its production facilities with the intention of increasing production. It also intended to increase its presence in the European downstream sector through acquisitions. In 1992, the country allowed foreign investment in its oil fields for the first time since PDVSA was nationalized.

Upheaval in the 1990s and Beyond

Under the direction of Luis Guisti, PDVSA spent much of the 1990s determined to double production capacity. As part of this strategy, PDVSA focused its efforts on securing lucrative partnerships. The company worked with Shell, Exxon, and Mitsubishi on the Mariscal Sucre project, which was created to explore and develop liquefied natural gas (LNG) resources in the Paria Peninsula and the East Coast of Margarita. In 1996, the company opened up ten of its oil fields to foreign oil firms. As part of the specialized exploration and development contracts, foreign companies had to evenly share their profits with the Venezuelan government. In 1998, PDVSA restructured its organization and created three main divisions: PDVSA Exploration and Production, PDVSA Manufacture and Marketing, and PDVSA Services.

PDVSA's future changed dramatically in December 1998 when former paratrooper Hugo Chavez was elected president. Chavez shuttered many of Guisti's plans and focused on bringing the company back under tight government control. His poor treatment of company officials, the firing of many top executives, and his overall management of the oil company led to growing discontent. By 2002, PDVSA employees and opponents of Chavez planned to halt oil production, which had serious implications for the Venezuelan economy. Humberto Calderon Berti, the former Minister of Energy and Mines, offered his thoughts on the strike in an April 2002 New York Times article. "This can only end with the president resigning," he claimed. "All Venezuelans from all walks of life, from all social strata, from all the political and ideological sectors, must take part in the stoppage. This is about him or us. It is a choice between democracy or dictatorship."

By now, Venezuela's economy was faltering and there was major political unrest in the country. During this time, Chavez was briefly overthrown by a military coup. In an attempt to appease PDVSA employees and protesters, Chavez removed his appointees from the PDVSA board and tapped the former head of OPEC, Ali Rodriguez, to lead the oil company. Political turmoil continued, however, and a second major strike followed in December 2002. Overall, the work stoppage cost the Venezuelan government billions of dollars. Approximately 18,000 employees were fired for their part in the strike.

During this time, relations between the United States and Venezuela were strained. The United States did not support Chavez, and the populist leader accused the United States of endorsing the 2002 coup d'etat and even plotting an assassination attempt. Both countries, however, were in a unique situation. The United States depended on Venezuela for 15 percent of its oil imports and Venezuela exported 60 percent of its oil to the United States.

Although Chavez certainly had his opponents, he gathered support from the poor working class. Using revenues from PDVSA, he funded many social programs that provided education and food to poverty-stricken Venezuelans. Chavez idolized independence hero Simon Bolivar and his movement became known as the Bolivarian Revolution. Chavez's social programs were successful and in August 2004 he beat a recall referendum set forth by his opposition. Many expected him to win another six-year term in the 2006 elections.

As a result of the unrest over the past several years, PDVSA oil output was suffering. Production levels were falling by as much as 25 percent per year and, according to OPEC, the company's daily output was 2.6 million barrels a day—down from 3.3 million in 1997. Venezuela became increasingly dependent on foreign investment to increase its production. Nevertheless, Chavez increased royalties on refining projects in the Orinoco region from 1 percent to 16.66 percent in October 2004. New ventures would have to pay 30 percent in royalties and allow PDVSA to take a 51 percent stake.

PDVSA had faced a challenging chapter in its history during the late 1990s and early years of the new millennium. Although much of the upheaval appeared to be in its past, only time would tell if the company would bounce back from the devastating oil strikes of 2002. Venezuela's economy was dependent on the health of the oil industry. Indeed, continued foreign investment in the country's oil fields was necessary for success in the years to come.

Principal Subsidiaries

Lyondell-CITGO Refining Company LP (United States; 41%); Needle Coker (United States; 25%); Chalmette Refining LLC (United States; 50%); Merey Sweeny (United States; 50%); Hovensa LLC (United States; 50%); Ruhr Oel GmbH (Ger-many; 50%); AB Nynas Petroleum (Sweden; 50%); Monomeros Colombo-Venezolanos (Columbia; 47%); Petrozuata (49%); Fertinitro (35%); Metor, C.A. (38%); Carbones del Guasare S.A. (49%); Super Octanos, C.A. (49%); Ceraven (49%); Profalca (35%); Intesa (40%); PDVSA Petroleo, S.A.; Petroquimica de Venezuela, S.A. (Pequiven); Bitumenes Orinoco, S.A. (BITOR); Deltaven, S.A.; Carbones del Zulia, S.A. (Carbozulia); PDV Holding, Inc.; PDVSA Finance Ltd.

Principal Competitors

Exxon Mobil Corporation; Petróleos Mexicanos; Saudi Arabian Oil Company.

Further Reading

Coronel, Gustavo, The Nationalization of the Venezuelan Oil Industry, Lexington, Mass.: Lexington Books, 1983.

Forero, Juan, "Venezuela Woes Worsen As State Oil Company Calls Strike," New York Times, April 9, 2002.

Lifsher, Marc, "Strike in Venezuela Shows Signs of Winding Down," Wall Street Journal, January 8, 2003, p. A10.

Marquis, Christopher, "A Bitter Chavez Castigates U.S.," The New York Times, March 18, 2004.

Martínez, Aníbal R., Venezuelan Oil: Development and Chronology, London: Elsevier Applied Science, 1989.

Millard, Peter, "Venezuela Assails Past Oil Contracts," Wall Street Journal, June 8, 2005, p. B5D.

O'Grady, Mary Anastasia, "Oil Wells Refuse to Obey Chavez Commands," Wall Street Journal, May 20, 2005, p. A15.

Petras, James, E., Morris Morley, and Steven Smith, The Nationalization of Venezuelan Oil, New York: Praeger Publishers, 1977.

"Petroven—Petróleos de Venezuela S.A.," OPEC Bulletin Supplement, April 24, 1978.

"OPEC Member Country Profile—Venezuela," OPEC Bulletin Supplement, December 11, 1978.

"PDVSA—Petróleos de Venezuela S.A.," OPEC Bulletin Supplement, February 18, 1980.

"PDVSA Shifts Course Under Chavez Presidency," Oil Daily, June 1, 1999.

Philip, George, Oil and Politics in Latin America, Cambridge: Cambridge University Press, 1982.

Smith, Geri, "Killing the Golden Goose?," Business Week, March 14, 2005.

Sullivan, William M., and Brian S. McBeth, Petroleum in Venezuela: A Bibliography, Boston: G.K. Hall & Co., 1985.

—Brian S. McBeth
—update: Christina M. Stansell

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