Venezuela rig disaster further dents PDVSA image

CARACAS Fri May 14, 2010 4:36pm BST

Related Topics

CARACAS (Reuters) - The reputation of Venezuela's state oil company PDVSA has taken another hit with the sinking of an offshore gas exploration platform it was leasing in the Caribbean Sea, raising doubts about its ability to develop potentially huge undersea reserves.

All 95 workers were rescued after the Aban Pearl platform vanished below the waves, apparently after water flooded one of the giant submarine rafts supporting the football field-sized structure.

But the fact that it took place just weeks after a deadly explosion at a rig operated by BP Plc in the Gulf of Mexico triggered one of the world's worst oil spills focused attention on PDVSA's accident-strewn record.

Experts say the situation took a turn for the worse several years ago, after President Hugo Chavez fired half the company's managers and senior engineers following a 2002 strike.

"It's well known that a lot of technical people were lost in Venezuela and there's a lot of old equipment," said Amy Myers Jaffe, Wallace S. Wilson Fellow in Energy Studies at the Baker Institute at Houston's Rice University.

Following so close on the heels of the Gulf of Mexico disaster, Jaffe said, any offshore accident was bound to get a lot of attention -- but that the parallels go only so far.

"What's different is there was already concern about the quality of the Venezuelan industry," she said. "What's not different is it means that, if I have an operator and they don't do things correctly, there's going to be an accident."

Before Chavez's purge, PDVSA had boasted leading figures from the world's oil industry among its ranks. But recurring operational failures since then -- especially in its refining network -- have tarnished the company's image abroad.

In the worst cases, company officials have conceded that there are problems in an institution that is the main financier of Chavez's socialist "Bolivarian Revolution."

After an explosion in 2005 killed five workers at PDVSA's 955,000 barrel per day Paraguana Refining Complex -- one of the biggest refinery complexes in the world -- the manager conceded that the frequency of fires, blasts and oil leaks had almost doubled compared with the previous year.

PDVSA's production figures also have been at odds with calculations from other sources. Doubts grew in 2005 after PDVSA withdrew its shares from trading in the United States.

But Thursday's rig accident was a double blow for the company and for the OPEC member nation's government.

Firstly, the Aban Pearl was the first offshore rig to be wholly operated by PDVSA, and the facility was often shown on state television as an emblem of the country's progress.

Secondly, gas production from the well it was exploring, Dragon 6, had been earmarked for domestic consumption in a nation that has been ravaged by power shortages and blackouts and is importing gas from Andean rival Colombia.

The accident was also a blow to the rig's co-owner, Aban Offshore of India. Its shares lost almost a fifth of their value in Mumbai on Friday as analysts said the accident would hurt the offshore services provider's revenue.

Energy Minister Rafael Ramirez told Reuters the sinking would not delay production at the project, which he expected to begin in 2012 -- but that looked to be optimistic.

Venezuela wants to attract foreign companies to help it tap its offshore gas fields. But its nationalization of service companies and assets and its failure in the past to make timely payments have made would-be investors wary.

Thursday's accident will have done little to boost confidence among possible partners.

(Additional reporting by Marianna Parraga and Enrique Andres Pretel in Caracas and Bruce Nichols in Houston; Editing by Walter Bagley)

FILED UNDER: