PDVSA, Venezuela's oil gem far from its golden age

A pillar of Venezuelas economy, PDVSA was in its heyday one of the five top oil companies on the planet.

The state-owned enterprise has now failed to make interest payments on some of its debt, meaning it's entered "selective default," just like the government.

The fate of the company, founded in 1976, is closely tied to that of Venezuela, which is dependent on oil and sales of its heavy crude for some 96 percent of its export earnings.

Its bonds represent 30 percent of Venezuela's external debt -- estimated at around $150 billion -- which the government is seeking to renegotiate.

President Nicolas Maduro owes the difficulties to a fall in oil prices -- which have halved since 2014 -- and US government sanctions, which prohibit any US person or bank from buying the country's debt.

But many economists, like Cesar Aristimuno, blame a drop in production, which is at its lowest level since the 1990s, excluding a strike observed between December 2002 and February 2003.

Currently Venezuela produces 1.9 million barrels per day, compared with 2.3 million barrels in 2016.

Before the late President Hugo Chavez came into power in 1999, that figure stood at 3.1 million barrels per day.

Revenues mirrored the decline, from $122 billion in 2014 to $72 billion in 2015 -- to $48 billion in 2016.

It's a stark contrast from a decade prior, when the industry newsletter Petroleum Intelligence Weekly ranked PDVSA as one of the world's leading companies, with even more power than giants Shell or Chevron.

So why such a tumble?

Experts point fingers at a lack of investment and exploration and inadequate maintenance of oil installations.

"PDVSA is virtually the only source of foreign exchange in the Venezuelan economy, and the government has spent everything without looking at oil investments," said Risa Grais-Targow, the Eurasia research group's Latin America director.

'PDVSA is ruined'

The group's windfall was primarily used to finance huge public spending and a budget deficit of around 20 percent of its GDP.

"PDVSA is ruined. Why? Because it has become a bank," said Jose Gonzales, director of the consulting firm GCG Advisors.

Beginning in 2005, the enterprise has fed a government fund to the tune of some $130 billion, according to economist Orlando Ochoa.

To build up the fund the budget was prepared using an oil base price lower than in reality, Ochoa told AFP.

According to oil services company Baker Hughes, Venezuela has only 39 active wells, compared with 83 in October 2013. This threatens the "ability to improve production," said expert Jesus Casique.

Prices have been rising in recent months and Venezuelan crude now exceeds $55 per barrel -- the highest level since 2015, even though it is far from its average price in 2014 of $88.42.

But PDVSA has lost efficiency: the group has seen its workforce explode from 40,000 to 150,000 employees in 18 years, and producing a barrel rings up at $40, Gonzales said.

Corruption is another scourge, with a court probe underway over 10 contracts worth $35 billion that were over-billed upwards of 230 percent, for example.

PDVSA is also at the heart of Venezuela's geopolitical alliances: 36 percent of its production is used to repay loans to China and Russia, as well as sending crude oil to Cuba and the Caribbean under cooperation agreements, according to Aristimuno.

Only a small portion of the fuel feeds into the domestic market, where gas prices are the lowest in the world -- a kilogram of meat costs as much as 75,000 liters (19,812 gallons) of gasoline.

That's why, Aristimuno says, the country depends more than ever on the 750,000 barrels a day the US is buying -- just as Washington increases pressure on the Maduro government.