VZCZCXRO0179
RR RUEHAO RUEHCD RUEHGA RUEHGD RUEHGR RUEHHA RUEHHO RUEHMC RUEHNG
RUEHNL RUEHQU RUEHRD RUEHRG RUEHRS RUEHTM RUEHVC
DE RUEHCV #0512/01 0672107
ZNR UUUUU ZZH
R 082107Z MAR 07
FM AMEMBASSY CARACAS
TO RUEHC/SECSTATE WASHDC 8069
INFO RUEHWH/WESTERN HEMISPHERIC AFFAIRS DIPL POSTS
RHEBAAA/DEPT OF ENERGY
RUCPDOC/DEPT OF COMMERCE
RUEATRS/DEPT OF TREASURY
RUMIAAA/HQ USSOUTHCOM MIAMI FL
RHEHNSC/NSC WASHDC

UNCLAS SECTION 01 OF 03 CARACAS 000512 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
ENERGY FOR CDAY, DPUMPHREY, AND ALOCKWOOD 
TREASURY FOR KLINGENSMITH AND NGRANT 
COMMERCE FOR 4431/MAC/WH/MCAMERON 
NSC FOR DTOMLINSON 
HQ SOUTHCOM ALSO FOR POLAD 
 
E.O. 12958: N/A 
TAGS: ECON EPET EINV VE
SUBJECT: PDVSA AND MPPEP ANNOUNCE 2006 RESULTS: BEWARE THE 
FUZZY MATH 
 
REF: A. 05 CARACAS 02596 
 
     ¶B. 06 CARACAS 2489 
 
------- 
SUMMARY 
------- 
 
¶1. (SBU) Minister for People's Power of Energy and Petroleum 
(MPPEP) and PDVSA President Rafael Ramirez presented a 
consolidated financial report on their 2006 results on March 
¶4.  The end of year report details PDSVA's activities this 
past year, including much of its social participation. 
According to these numbers, PDSVA made a net profit of USD 
5.97 billion on worldwide revenues of almost USD 102 billion 
in 2006.  It spent USD 11.8 billion on social expenditures 
and transfers to the National Development Fund (FONDEN) and 
remitted over USD 27 billion to the BRV.  The figures (if 
they are to be believed) reveal a state oil firm increasingly 
geared to providing social services and working as an 
extension of the Venezuelan government, to the detriment of 
its oil production and refining responsibilities. 
 
------------------ 
IT'S RAINING MONEY 
------------------ 
 
¶2. (SBU) According to the abbreviated financial statements, 
PDVSA had worldwide revenues of USD 101.990 billion in 2006, 
of which USD 55.401 billion was earned in Venezuela.  This 
resulted in net earnings of USD 5.970 billion worldwide, of 
which USD 3.287 billion was earned in Venezuela.  PDVSA 
claims to have spent USD 20.755 billion on operations, 
including investing USD 5.832 billion.  PDVSA transferred USD 
6.855 billion to FONDEN and USD 229 million to FONDESPA in 
2006, which along with its in-house spending of USD 4.754 
billion resulted in total social expenditures of USD 11.838 
billion.  PDVSA paid USD 27.213 billion in taxes, royalties, 
and dividends, which represented about 51 percent of total 
government revenues.  (NOTE:  The entire PDVSA financial 
statement is available on Post's SIPRNET site. END NOTE.) 
 
¶3. (SBU) PDVSA's revenues increased 18.9 percent in dollar 
terms from 2005 to 2006, during which time the price for the 
average Venezuelan oil basket rose from USD 46.03/barrel to 
USD 56.44/barrel.  Despite the increase in revenues, PDSVA 
profits fell by 7.9 percent from 2005 and profit margins fell 
from 8 percent in 2005 to 5.8 percent in 2006. 
 
------------------- 
THOSE FUNNY NUMBERS 
------------------- 
 
¶4. (SBU) The table below shows the claims made by PDVSA in 
its report.  There are many gaps and the numbers provided do 
not match with private sector and Embassy sources.  Embassy 
estimates that total Venezuelan production is in the vicinity 
of 2.4-2.6mbd.  Private sector production in the Faja region 
prior to OPEC cuts was 422,000bd of syncrude.  Local 
consumption is approximately 500,000bd.  This would put PDVSA 
production in the 1.4-1.6mbd range, well below the 2.3mbd 
claimed in the report.  PDVSA appears to be taking credit for 
all of the production in the former Operating Service 
Agreement (OSA) fields, which we estimate to be around 
350,000bd (PDVSA owns on average 60 percent of the joint 
ventures that run the OSA fields).  PDVSA appears to be 
accurately reporting the production in the Faja.  (COMMENT: 
PDVSA has been exaggerating its production levels since the 
2002-03 strike, and this report continues the trend.  It does 
demonstrate the declining production in the former OSA 
fields, which produced around 474,000bd in December 2005. 
END COMMENT.) 
 
 
                       PDVSA  FORMER  FAJA  LNG  TOTAL 
                              OSAs 
 
PDVSA PRODUCTION       2316*  343     ---   ---  2659 
 
PDVSA EXPORTS          2267   ---     170   ---  2437 
 
CARACAS 00000512  002 OF 003 
 
 
 
VENEZUELA PRODUCTION   2316*  343     562   173  3394 
 
VENEZUELA EXPORTS      2632   ---     310   ---  2984 
 
*Includes 29,000bd from PDSVA Gas. 
SOURCE: MPPEP and PDSVA "Memoria y Cuenta 2006" Financial 
Statement 
 
NOTE: Post has sincere reservations about the accuracy of 
PDVSA's numbers listed above.  End Note. 
 
¶5. (SBU) The report also highlights PDVSA's diversification 
of export sources, noting a strategy to "diversify markets to 
mitigate the effects associated with the excessive dependence 
on traditional markets" (read: the United States).  56 
percent of Venezuela's oil exports went to the United States 
in 2003 and, according to this report, by the end of 2006 
only 45 percent of their exports went to the United States. 
(Note:  According to DOE, Venezuela exported 1.27mbd to the 
United States in December 2006, down from 1.53mbd in December 
¶2005.  End Note.) 
 
---------------------------- 
A LITTLE HELP FOR MY FRIENDS 
---------------------------- 
 
¶6. (SBU)  PDVSA spent USD 1.347 billion in 2006 to setup, 
staff and run Barrio Adentro II.  Barrio Adentro is one of 
the BRV's most popular missions (reftel B) and is staffed and 
run by Cuban doctors and technicians.  Stage II provides more 
clinical and diagnostic care than the basic Barrio Adentro 
clinics.  It appears that these costs and payments were in 
addition to the 89,000 barrels of oil a day sent to Cuba for 
the Cuban doctors and technicians working in Venezuela (worth 
approximately USD 1.8 billion/year at the average price for 
the Venezuelan basket of oil in 2006).  PDVSA also 
contributed USD 275 million in 2006 to the other Barrio 
Adentro programs and lists a USD 50 million expenditure to 
capitalize the opening of the state-owned bank Banco 
Industrial in Havana. 
 
¶7. (SBU) PDVSA also spent close to USD 189 million supporting 
international agreements between Venezuela and Argentina, and 
another USD 150 million for Venezuela's commitments with 
Uruguay.  According to the table, Bolivia only received USD 3 
million from PDVSA from their bilateral deals signed in 2006. 
 
----------------------- 
INVESTING IN THE FUTURE 
----------------------- 
 
¶8. (SBU) PDVSA's plan to increase oil production to 5.8mbd by 
2012 also gets attention in the report (reftel A).  The "Plan 
Siembra Petrolera" includes 47 major projects, 186 projects 
and 655 sub-projects, of which 30 major projects, 159 
projects and 236 sub-projects are currently being executed. 
PDVSA claims to have spent USD 5.940 billion on these 
projects in 2006 (though their abbreviated balance sheet 
indicates that it spent USD 5.832 billion total on all 
investments in 2006).  The list of 425 various projects 
includes completion dates ranging from 2007 to 2037 (Post 
assumes that the projects projected to be completed in 1905 
were typos). 
 
¶9. (SBU) According to PDVSA, 500 Venezuelan youth are being 
trained by Iran to work in the petroleum industry, and 
Portugal, Italy, and Gazprom are providing technical help and 
training.  PDVSA has employees studying at the French 
Institute of Petroleum (34), the Superior Institute of Energy 
in France (27), the University of Houston (48), Robert Gordon 
University in Scotland (50), the University of Burgos in 
Spain (172) and is developing other programs with Iran, China 
and Vietnam. 
 
-------------- 
PLANS FOR 2007 
-------------- 
 
 
CARACAS 00000512  003 OF 003 
 
 
¶10. (SBU) The 2007 PDVSA budget predicts national petroleum 
and derivative production to be 3.251mbd, of which 2.609mbd 
will be exported.  The budget forecasts that PDVSA will raise 
its production to 3.808mbd by the end of 2007.  None of these 
numbers are probable.  According to this budget, PDVSA will 
spend approximately USD 15.8 billion on operations, USD 13.7 
billion on investments, USD 2.8 billion on social 
expenditures, and remit USD 946 million to the government in 
dividends.  The budget estimates are based on USD 29/barrel 
of oil (the current price for the Venezuelan oil basket is 
USD 52.79/barrel) and an inflation rate of 12 percent 
(inflation is currently running in excess of 18 percent) and 
thus are equally unrealistic. 
 
------- 
COMMENT 
------- 
 
¶11. (SBU) The March 4 announcement and subsequent publication 
represent the first time that the MPPEP and PDVSA have 
presented their end of year results together as a 
consolidated report.  While the separation between these two 
entities ceased to exist years ago, this nonetheless marks an 
increased demonstration of PDVSA's integration into the 
Venezuelan state.  The report notes that, "the New PDVSA 
finds itself perfectly aligned with the Venezuelan State," 
and a majority of the 73 pages in the document refer to 
social and governmental activities rather than those related 
to the production and sale of petroleum.  As has been the 
case in recent years, the numbers offered by Minister Ramirez 
and this document are hard to swallow and do not match OPEC, 
DOE, or local analysts' estimates.  Even if the budgetary 
numbers are to be believed, they show a precipitous decline 
in the profitability of PDVSA and call into question its 
ability to continue to spend at the rate it did in 2006 and 
at the same time continue its (apparently ancillary mission) 
to extract, refine, and sell Venezuela's oil. 
 
BROWNFIELD