Labor Disputes and Oil Drill Shortage Cause Problems for Venezuela’s Oil Industry

Industrial unrest, technical challenges and corruption claims have recently plagued Venezuela’s state-owned oil company Petróleos de Venezuela, (PDVSA).

Caracas , July 23, 2007 ( – Industrial unrest, technical challenges and corruption claims have recently plagued Venezuela’s state-owned oil company Petróleos de Venezuela, (PDVSA). On July 18, Luis Vierma, the exploration and production vice president PDVSA, the state oil company, told Venezuela’s National Assembly’s comptroller committee, that PDVSA is in a state of “significant operational emergency.”

PDVSA accounts for about half of government revenues and three quarters of export revenues and has been the backbone for funding the Chavez government’s social programs.

In May PDVSA took over operations of major oil projects that had been run by ConocoPhillips, ExxonMobil, Chevron, and Total. The projects are in Venezuela’s oil-rich Orinoco River basin. Also nationalized were 46 oil rigs, most of which are also centered around the oil rich Orinoco River basin.

PDVSA’s annual plan for 2007 set a target for 191 active oil rigs to produce a projected 3.3 million barrels per day of crude oil. However, Vierma told the National Assembly that only 112 oil rigs (33 of which belong directly to PDVSA), are currently operational and it is estimated that only 120 will be up and running by the end of the year, a deficit of 36%.

"Venezuela is moving toward technological independence, but it will take a long time," Vierma continued.

A new law requiring contract winners to put 10% of the contract value towards social programs, and increased international demand for oil rigs are factors thought to have contributed to a reduced number of contract applications through PDVSA’s bidding process.

The Minster for Energy and president of PDVSA, Rafael Ramirez, told the newspaper El Universal last week, "There’s an international shortage of rigs. The cost associated with oil in OPEC countries has risen 40 percent and an offshore rig is being hired at no less than 400,000 dollars per day; double that of last year."

In an effort to combat the shortfall, PDVSA announced on July 20 it would invest US$3.5bn in new drilling rigs. The statement also said that PDVSA has reached an agreement with China for the acquisition of new rigs – an initial thirteen rigs to be imported directly from China and future Chinese rigs to be assembled in Venezuela.

While the Paris-based International Energy Agency, which analyzes the international oil market, estimates that that oil production in Venezuela has fallen to 2.37 million barrels a day, Ramirez maintains that production remains steady at 3 million barrels of crude per day. At least part of the discrepancy can be traced to differences in the type of oil being included in the totals.

Two-pronged industrial dispute at PDVSA

In addition to the problem with the oil rigs, PDVSA is also facing two labor conflicts. The first dispute relates to the collective contract for 2007-2009, which has been under negotiation since April. Venezuela’s oil workers are represented by four major union federations, all officially aligned with the UNT (National Union of Workers). The loyalties of hundreds of individual unions are divided amongst the four federations.

A technical commission of representatives from the four federations has been appointed to negotiate the collective contract with PDVSA. However, union leaders have raised concerns over the slow progress and “uncertainty” surrounding the negotiations.

The Minister of Labor José Ramón Rivero said on July 21 that the situation within PDVSA is “absolutely normal,” and that the negotiations between the technical commission and PDVSA representatives was going well, with 34 clauses of the new collective contract, under negotiation since April, agreed upon, and 41 still pending.

José Bodas, general secretary of Fedepetrol-Anzoátegui, has called into question the legitimacy of technical commission appointed to negotiate with PDVSA, saying that the committee is unelected and comprised of “union bureaucrats”. Bodas called for the election of a new negotiating committee that is “truly representative of the base,” as well as calling for democratic elections for a new leadership of a single, united, union federation of oil workers.

This week, beginning Monday, July 23, oil workers have called for pickets at the gates “of all oil installations” throughout the country, both administrative and operational, including ports, refineries and oil rigs, demanding the removal of the Manager of Human Resources, Dario Merchan, a relative of Ramirez, who they claim has delayed negotiations for the collective contract 2007-2009, and protesting what they say are the daily violations of the existing collective contract and failure to pay workers entitlements. A further demonstration supported by more than 160 unions affiliated with Fedepetrol has also been called for the August 2nd, in front of the Presidential palace, Miraflores.

The other industrial dispute centers around the nationalization of 46 oil rigs in the Orinoco Oil Belt last May, with allegations that not all of the oil workers formerly employed in the old joint ventures have been reemployed by PDVSA.

Ramirez has repeatedly denied that there have been dismissals and that all of the 1,342 oil workers are being incorporated into PDVSA and argued that some unions had tried to incite conflict, so that the control of the rigs did not pass over to other unions, according to the newspaper Últimas Noticias of July 10.

In contrast, Bodas, who has described the situation in PDVSA as a “time bomb,” argued that 268 workers remained in “limbo.” “If we achieve 100% absorption of the operators it will be a triumph of the mobilization of the workers,” he added.

Argenis Olivares, a representative of the Sindicato Nacional Unitario de Trabajadores Petroleros (Sinutrapetrol) said last week that this situation is simply a problem of opportunism, although “it cannot be denied that in some middle levels of PDVSA there is ingovernability.” According to him, some unions were taking advantage of the fact that the minister was out of the country and that the situation would soon be resolved.

In addition to the technical difficulties and industrial unrest facing PDVSA, allegations of corruption have also surfaced, relating to the bidding process of for oil rigs and other oil-services providers contracted by PDVSA.

On July 19 Luis Tascón, a pro-government member of the Venezuelan National Assembly said he was convinced there was evidence of “irregularities” and corruption and demanded Minister Rafael Ramirez give an explanation to the National Assembly.

Tascón was quoted in the New York Times as saying, “Our sovereignty is at risk if we allow Petróleos de Venezuela to remain in this situation.”

As yet, Venezuelan President Hugo Chavez has not publicly intervened in the debate.

While Venezuela continues to export about 1.4 million barrels of oil per day to the United States, it is looking to expand markets through joint ventures with state oil companies from China, Iran, Vietnam, and Belarus.

With oil prices hitting an 11-month high of $78.40 a barrel in London last week, Chavez remains confident, “Oil is going straight to $100 [per barrel]. No one can stop it,” Chávez said yesterday.