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Venezuela's Oil Industry Struggles to Reach Pre-Strike Production Levels - 2003-12-04

One year after a crippling strike shut down Venezuela's oil industry, as well as its economy in general, the political divisions remain deep and the effects of the strike continue. The continuing battles between President Hugo Chavez and his opponents have inflicted an especially heavy toll on Venezuela's state-owned oil company, Petroleos de Venezuela. Officials in the Chavez government say Petroleos de Venezuela has almost fully recovered from the strike that all but completely shut it a year ago. Not long after workers returned to the oil fields in February of this year, they say, the process of recuperation got under way and production returned to levels close to what they had been before the strike.

But Elio Ohep, editor of the Caracas-based Petroleum World newsletter, speaking to VOA by telephone from Caracas, says the production of nearly 3.5 million barrels a day that was normal several years ago is only a dream now.

"The production now is around 2.5 or 2.6 million barrels every day and 50 percent of that is done by the third parties, companies that came in the first, second or third round, about ten years ago," he said.

The third parties are foreign oil exploration and production companies that operate in Venezuela's oil fields under license agreements. Since many of these companies had foreign technicians on hand during the strike they were able to at least maintain their equipment and the wells where they work. But, Mr. Ohep says, the state-owned company did not properly maintain some wells and, as a result, they are now unable to pump oil from some sites unless they drill again.

"It is very costly to drill a new well," he explained. "Who knows how much money you spent on that well through five or six years of exploration and now you have to do it again next door. Obviously, the oil is still there, but you cannot get it out with the existing well. You have to drill a new one and that is very costly."

The situation in Venezuela is being watched closely by petroleum industry experts here in Houston and all around the world. Diminishing production in Venezuela could have an impact on the world market.

Amy Jaffe, an energy studies professor at the James Baker Institute for Public Policy at Rice University says the damage to Venezuela's oil fields will be difficult to overcome.

"What we are seeing in Venezuela is that there are some reservoirs that were either over-produced after the strike or not maintained properly during the strike and there are some experts who believe that Venezuela will have a huge struggle over the next two to five years to even stay at two million-barrels-a-day, given the damage that has happened to their oil fields during this sort of unstable period," she said.

The Chavez government and some former Petroleos de Venezuela executives have traded charges over the past year as to who was responsible for the damage to oil wells. President Chavez has accused some striking workers of sabotage while strike supporters say the incompetence of workers who came in after the strike caused the damage. Amy Jaffe says the strike was only part of a larger problem that began when Mr. Chavez assumed office in 1998.

"President Chavez, when he came into power, asked very important people from the Venezuelan oil industry to step down, people who had been running that industry for decades," added Ms. Jaffe. "So you had a wave of very competent technical people who left the country at that time. Then you had a second wave because we had the strike and many, many of the most highly qualified people in the industry were fired."

The problem with maintaining an oil production industry, Ms. Jaffe says, is that highly trained technical people are needed from a number of fields. She says the political climate in Venezuela has kept many of these people from going there and that the people put into these jobs by the Chavez government are not as qualified as the ones they replaced.

Opponents of President Chavez recently succeeded in collecting signatures on a petition to hold a referendum that could force him from power. Chavez supporters, however, scoff at the effort to remove him and claim broad support, especially in poor communities across the nation. But observers say, whichever side wins the political struggle, a great deal of damage has already been done to Venezuela's once-mighty oil industry and it may be impossible for it to ever fully recover.