Edif. Petróleos de Venezuela, Torre Este Avenida Libertador, La Campiña Apartado Postal 169

Telephone: (02) 708 4111
Fax: (02) 708 4661

State Owned Company
Incorporated: 1976
Employees: 44,203
Sales: US$9.5 billion

Company History:

Petróleos de Venezuela S.A. (PDVSA) is wholly owned by the Venezuelan state and is the holding company for the national petroleum industry. Since 1978 it has been responsible for the petrochemical sector, and in 1985 it was entrusted with the development of the country's coal resources located in western Venezuela.

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 tne 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 to 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% 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 where by 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 expiry 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% 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 Andr&eacutes 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 US$1.17 billion.

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% after the first year, and by 20% in the second year. The new company would also receive technical assistance in exploring and refining from the former operating companies, which would be paid at a rate which 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 SA (Pequiven) to PDVSA. Pequiven has two petrochemical complexes: Morón in Carabobo state and El Tablazo in Zulia state. Morón manufactures fertilizers as well as several chemicals for the domestic market. The El Tablazo plant produces olefins, caustic soda, and chlorine, which are sold to other nearby industries.

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

During 1989, PDVSA produced around 1.6 million barrels of oil and condensate per day. It owns 12 refineries with an overall processing capacity of 1.75 million barrels per day, of which 945,000 million barrels per day are processed in Venezuela and the rest in the United States, Europe, and the Dutch Antilles. The most important domestic refineries in terms of capacity are 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% 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 are traditionally more in demand and afford 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% in 1976 to 27% in 1986, it was still too high in 1991 for PDVSA's key U.S. market, where heavy fuel oil amounts to only 8% of total demand.

PDVSA supplies the domestic market with approximately 335,000 barrels per day of petroleum products, which represent approximately 20% of total production. PDVSA supplies local markets through its four main operating subsidiaries, Lagoven, Maraven, Meneven, and Corpoven, which operate supply depots and about 1,600 petrol stations. The products sold are 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 has been its joint venture participation in foreign manufacturing and marketing companies which has 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 has just under 800,000 barrels per day of refining capacity and leases 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 owns refineries at Lake Charles, Louisiana, and refineries at Corpus Christi, Texas. Subsidiary Propernyn PDVSA bought 50% of CITGO from the Southland Corporation. In 1990 Propernyn became the sole owner of CITGO. On October 31, 1989, PDVSA acquired 50% 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 owns 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% of PDVSA's crude export package. The United States was PDVSA's main market, accounting for 54% or 891,000 barrels per day of total exports in 1988, with Europe in second place with 205,000 barrels per day or 12.4%.

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 has 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 have also contributed to the company's reserves. These discoveries have added between 10 and 12 billion barrels of light and medium grade crude oil to a reserve base which was disproportionately biased towards heavier oils.

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

Since the trend toward heavy oil has been reversed with the discoveries of light oil in Monagas and Apure, PDVSA has continued to concentrate its exploration efforts on finding light and medium oil, and between 1988 and 1993 has 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 will be concentrated on the Furrial-Musipán geological trend in Monagas where 51 wells are to be drilled and on the North-Central section of Lake Maracaibo where 43 wells are to be drilled.

PDVSA is also developing its large Orinoco oil belt using a new patented production method. This field covers an area of approximately 42,000 square kilometers and is considered one of the most important untapped reserves of heavy oil in the world. The estimated oil in situ is around two trillion barrels. The treated heavy oil is 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's crude reserves. Orimulsion is a rival product to coal and according to PDVSA is not intended to compete with heavy fuel oil. Commercial marketing of the fuel has started at a modest level of 20,000 barrels per day, but could reach 600,000 barrels per day by the middle of the decade.

Gas reserves in the country are estimated at 93 trillion cubic feet of gas. Current gas production is between 3.6 million and 3.8 million cubic feet of gas per day of which one-third is sold locally, about one-third reinjected into the reservoirs, 21% used by the oil industry and 5% flared. Major switching from oil to gas is 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 are expected to reach 6.5 million tons by 1995.

In its first year of operation, PDVSA received net income of US$825.6 million, increasing to US$1.88 billion in 1977, but with the decline in oil prices the company's net income also suffered, falling to US$731 million in 1988. For tax purposes, PDVSA is treated by the Venezuelan government like any other business entity. The company pays royalties, and income taxes are based on the export values of the oil and products sold. PDVSA does not enjoy any tax privilege except for the tax-free receipt of 10% of the net income from its subsidiaries' export sales which, for accounting and tax purposes, is viewed as a cost incurred by the subsidiaries. The government's fiscal share composed of royalties, income tax, and other taxes, amounted to US$5.64 billion in 1988, representing almost 60% of total revenues of US$9.51 billion.

PDVSA continues to invest in its production facilities with the intention of increasing production in a few years' time. It also intends to increase its presence in the European down-stream sector through acquisitions.

Principal Subsidiaries: Corpoven; Maraven; Lagoven; Interven; Refineria Isla (Cura&ccedil); PDV (U.S.A.); PDV (Europe) (U.K.); Intevep; Bariven; Pequiven; Palmaven; Carbozulia.

Further Reading:

  • 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.
  • Philip, George, Oil and Politics in Latin America, Cambridge, Cambridge University Press, 1982.
  • Coronel, Gustavo, The Nationalization of the Venezuelan Oil Industry, Lexington, Massachusetts, Lexington Books, 1983.
  • Sullivan, William M. and Brian S. McBeth, Petroleum in Venezuela: A Bibliography, Boston, G.K. Hall & Co., 1985.
  • "The Orinoco Oil Belt. Venezuela," Journal of Petroleum Geology, Vol. X.
  • Martínez, Aníbal R., Venezuelan Oil: Development and Chronology London, Elsevier Applied Science, 1989.
    PDVSA Contact Newsletter, Nos. 1-17, 1987-89.
    Lagovenews, Nos. 1-20.

Source: International Directory of Company Histories, Vol. 4. St. James Press, 1991.