Lino Carrillo is a chemical engineer with more than 40 years of experience in the hydrocarbon industry in Venezuela and Canada, former operations manager at the Cardón Refinery and new business development manager at PDVSA. Since 2004, he has been working in Canada in the oil industry, where he provides consulting services to the industry. He has been a recurring source on the future of the sector, the need for agreements with creditors and partners, and proposals to reactivate the value chain—including the so-called “Energy Hub of the Americas” associated with the “Venezuela Tierra de Gracia” plan, as well as guidelines for reactivation with an emphasis on private investment and governance.
1. If you had to summarize in three milestones the roadmap for Venezuela to move from a collapsed oil sector to one that is competitive and aligned with the global energy transition, what would they be and what time frame would you place them in? (6, 24, and 60 months, for example).
Firstly, the collapse of the national oil industry is due to the evident mismanagement, both managerial and technical, of all its operations. An unscrupulous ideological model was imposed, with no clear direction other than to use the oil revenues generated by high oil prices to buy consciences, both internally and regionally, regardless of how they did it and without understanding the destruction they were causing in the process. It reminds me of the drunk who got paid every week and spent it with his buddies in bars, then came home broke and left the house in shambles. That’s where we are right now.
Unlike other countries in the region, even though Venezuela has a battered and dismantled industry, the country has immense natural and industrial resources, which leave any other country that wants to compete for the monetary resources needed to rescue the country’s industry at a disadvantage. The first milestone in the roadmap is the start of the new government led by Edmundo González Urrutia and María Corina Machado. This first milestone will be the starting point for all potential investors to begin moving decisively to return to the country and generate the economic recovery that is being promoted and the corporate revenues that would take much longer to achieve in other regions. Many companies are aware of this potential and are waiting for this political change. Next, as outlined in the government program “Venezuela Tierra de Gracia” (Venezuela Land of Grace), guarantees will be provided for all investments, ensuring respect for property rights and submission to international bodies to settle disputes or disagreements, thereby providing the support required by all investors. A third milestone corresponds to the new authorities in the industry and the relevant ministry, which must focus on promoting different options for privatizing assets in order to achieve the greatest possible recovery of their value. This will not involve offering fields, refineries, or any other infrastructure individually and as they stand, as this would not achieve the premise of maximum recovery of asset value. The plan is to put together integrated packages that will be attractive to investors because of the future added value that will result from repairs and technological upgrades, which will in turn generate economic recovery in the national productive apparatus.
This last milestone would take around 5-10 years for the entire infrastructure of the national industry.
The vision of the Energy Hub of the Americas envisions its development in light of the fact that we are currently undergoing a global energy transition. Once achieved, this vision will create one of the oil industries with the smallest environmental footprint worldwide.
2. You have pointed out that without agreements with partners and creditors, “Venezuela will not be able to recover.” What type of agreements would you prioritize (debt restructuring, operating agreements, joint ventures) and what sequence would you propose to stabilize cash flow and production?
Venezuela needs trade protection to prevent creditors, both national and industrial, from seizing any financial transactions that take place. This protection must come from regional economic powers and multilateral entities. Under this premise, and with the projections we have made of what will be achieved with the industry’s assets with the support of private sector investments, we will have the tools and foundations to begin restructuring the financial debt.
In addition, there is commercial debt owed to suppliers of services, equipment, and process inputs, which must be addressed in order to obtain the support needed to increase crude oil and gas production and the production and distribution capacity of gas and fuels for the population. The achievement of payment agreements and respect for duly audited and verified financial and commercial debts will be the spearhead for new operating agreements and will support the execution of technical audits that will enable concrete plans to be drawn up for the reconstruction of the industry. Additionally, there are plans to strengthen all existing joint ventures in both the east and west of the country. The focus will be on those that are actually producing and have plans to continue increasing production. There are many that are “sitting” on the papers they signed but have done nothing to produce a single barrel. There are also joint ventures with “geopolitical” partners. These companies will be subject to scrutiny and, if they are unable to generate income for the nation, they will have to be terminated.
Priorities will focus on joint ventures, which currently produce around 70% of all barrels of crude oil, so that by diluting PDVSA’s stake in these companies, additional investment will be encouraged and production will increase as soon as possible without requiring investment from PDVSA.
Similarly, work will be done with companies that have licenses for gas exploitation to achieve an increase in production that will improve the availability of gas for households and the country’s electricity and industrial sectors.
This strategy, together with other initiatives planned for the rest of the industry’s value chain, will enable cash generation through increased oil and gas production.
I would like to take this opportunity to highlight the importance that CITGO will have for the new government. CITGO will play a key role in marketing the country’s crude oil production and supplying fuel and gas for cylinders during the first days and months of the democratic transition. CITGO will ensure that crude oil is placed in markets where its value is maximized, avoiding flooding the markets and thereby depressing prices, while at the same time supplying the fuels required by the population through pre-established agreements that are only awaiting signature, whereby barrels of crude oil will be exchanged for barrels of those fuels. In addition, CITGO will provide logistical and technical support at refineries and in fuel distribution processes throughout the country, critical areas that will support initial efforts to engage the population and provide political grounding for the democratic transition during its early stages.
3. Should PDVSA continue to operate as an integrated company or focus on “holding and technical regulation” functions, leaving operations to joint ventures and private companies? How would you resize payroll, processes, and internal controls?
Under the premise that “the government is not good at making businesses,” PDVSA will eventually cease to exist. I cannot say exactly when, but the clear objective we have in the government program “Venezuela Tierra de Gracia” is that there should be no national oil company. What should exist is an effective and efficient regulatory body for the exploitation and management of all the country’s resources. That is why the Venezuelan Energy Agency is being introduced, which will exercise this function over the industry, including PDVSA for as long as it exists.
As for the process that would be undertaken to achieve this goal of reducing the size of PDVSA, it should be clarified that when investments from private companies are made, these companies, as many of those already operating in the country have done, will hire existing trained personnel as well as those from the diaspora who are knowledgeable about the business. In this way, we will see a process of redirecting PDVSA’s own personnel to these companies, very similar to what happened during the Oil Opening with the companies in the Orinoco Belt, where PDVSA personnel were absorbed by the new joint ventures.
4. In operational terms, what immediate interventions—such as workovers, improved artificial lift, restoration of diluents, pipelines, and upgraders—would be sufficient to increase production safely and sustainably in the early months of a transition?
As I mentioned earlier, CITGO will be a cornerstone for fuel availability and distribution in the country. In addition, it will support the importation of the diluents required to sustain bitumen production in the Orinoco Belt.
As for the requirements for safe recovery, and, I would add, sustainable production over time, the strategic plan I detail below establishes technical audits of all industry operations. These audits will validate the plan’s premises regarding pre-established repairs and maintenance plans. It is difficult to ascertain the actual condition of all wells and production facilities due to the secrecy surrounding the industry and threats made against current PDVSA workers and contractors. However, plans have been developed that will allow for the stabilization of production once it is achieved. Likewise, there are oil service companies with a recent history in Venezuela that will help and execute, as is common in the global industry, what is required to maintain and increase production.
There are also detailed plans for inspecting and validating the physical integrity of refinery facilities, gas pipelines, pumping and compression stations, oil pipelines, fuel distribution plants, fuel transport fleets, gas cylinder filling and repair plants, petrochemical plant operations, etc.
5. Based on your experience in Cardón, what key investments would you propose to enable the refining system to once again produce clean and reliable fuels? Which plants should be prioritized (hydroprocessing, catalytic reforming, catalytic cracking), and with what timeline and partners?
During the development of the “Energy Hub of the Americas,” all of the country’s refineries were reviewed and estimates were made for their recovery in two phases. The first phase is to return them to their 2002 condition. The second phase includes everything required to produce fuels that meet the quality standards of today’s markets.
The refining business generates the most revenue when operating at optimal capacity. Operating a refinery below this optimal level is not profitable, which is why the proposal covers the recovery of all facilities at each refinery, not necessarily all refineries, and each has estimated costs and return on investment. Due to the existence of deep conversion plants in Cardón and Amuay that allow the processing of heavy crude oil without the generation of heavy or residual fuels, investments in these refineries are more profitable than in El Palito or Puerto La Cruz.
In all cases analyzed, two years were assumed for the reconstruction of each refinery. For expansions to achieve international market quality standards, three years were estimated. Additionally, petrochemical developments were carried out to increase the value generated by the refining business. These businesses would consume part of what would be components for gasoline and liquefied petroleum gas, with which we seek to reduce fuel production in line with the energy transition and the reduction of fuel consumption. Likewise, with these petrochemical developments, we are promoting “nearshoring,” which is nothing more than turning Venezuela into an alternative source of raw materials for the production of synthetic fibers and other derivatives for the manufacture of plastics, which are currently imported from outside the hemisphere.
In addition, integration schemes with oil fields close to refineries were proposed to attract the interest of companies. With these schemes, investors would be guaranteed a market for their production or surplus crude oil, a local market with competitive prices, and the ability to export to regions that lack projects to meet demand. These integrated schemes offer attractive economies for investors.
Finally, assessments were made to convert refineries into bitumen upgraders for the Belt. Case studies were developed to produce bottomless crude oils, such as those produced by Sincor and Ameriven, or mixtures with bottoms, as done by Petrozuata and Petrolera Cerro Negro. These cases represent alternative businesses that may be attractive to producers in the Belt.
6. The “Energy Hub” model proposes integrating hydrocarbons, electricity, and industry to multiply the local economic impact. How would you operationalize this hub (economic zones, standard contracts, tax incentives, local content) and what metrics would you use to evaluate its success?
The “Energy Hub of the Americas” proposes integration from the well to petrochemicals; from steelmaking to enhanced crude oil recovery in the east of the country; the creation of industrial centers through the use of products such as low-value coke and pollutants for the generation of electricity, blue hydrogen, blue ammonia, and CO2 for enhanced oil recovery in the west of the country; and the complete electrification of the industry with electricity from Guri. This vision allows for the reactivation of the entire country where national oil industry assets exist.
In its concept, the Hub establishes that Venezuela must offer a fiscal framework that is competitive with alternatives in the region, and a legal framework that provides investors with the protections they seek in order to achieve returns that make investment attractive.
The great challenge that the Hub represents for those who will be tasked with promoting and implementing it is to rethink the industry as a whole that is worth much more than its individual parts. In this way, the proposed privatization is not the conventional one, professed by many, of isolated assets, but rather a privatization of the value chain and its integration with the rest of what the country has to offer in terms of related industrial infrastructure and the consumer market that will exist. These will be innovative contracts, just as the Oil Opening was innovative in its day, along with everything that was achieved at that time.
In this process of promoting the value of the industry’s and the country’s assets, the participation of national capital and companies will be essential, and to this end, they are expected to offer their services and capabilities and participate accordingly.
7. In a scenario of conditional licenses, what contractual and compliance frameworks would you propose to protect operations while also meeting ESG, anti-corruption, and data transparency standards?
When the new government takes office, I believe that there will be no licenses from OFAC, nor restrictions on reaching agreements with international investors and companies currently operating in the country. In any case, the contracts that will be signed will strictly comply with the country’s existing legal regulations. These contracts, in turn, will place the country’s interests in a win-win context with existing and new investors, and will include clauses for strict compliance with the agreed development and investment programs.
Priorities will include respect for the environment, labor legislation, and transparency requirements, alongside operational sustainability and increased production and revenue generation. The Venezuelan Energy Agency will play a vital role in this new era of the country’s oil industry and will use best practices in transparency to monitor the individual management of each company, the information and control of each barrel of crude oil or cubic foot of gas that is produced, processed, or exported; to facilitate management in order to streamline processes that allow for the expansion of the industry, and to ensure transparency in all management before the public.
As for existing contracts with joint ventures and so-called “Productive Participation Contracts” and other business schemes promoted by the current PDVSA administration, these will be subject to strict scrutiny to ensure that the contractual terms are favorable to the nation, and if not, they will be adjusted to comply with the law or terminated.
8. Following the technical diaspora, what specific strategy would you implement to repatriate talent and close skills gaps (operation, maintenance, integrity, HSE)? What “asset safety and integrity” program would you implement in the first 12 months?
The diaspora will return to Venezuela according to their personal needs and decisions. I am sure that many will return to offer their services for the reconstruction of industry and the country. The call has been made by María Corina Machado and Edmundo González Urrutia, and anyone who feels that call will return.
Regarding the asset security and integrity program that will be implemented from the first day of the new administration, a strategic plan has been developed that details all the activities to be carried out in all core, enabling, and support functions of the industry. This program is based on the premise of effective and rapid institutional takeover, where all existing employees who are familiar with the good and bad aspects of the industry and what has been done will be respected. They will be of great importance. Additionally, technical audits are planned to assess the deterioration of the facilities and determine the safety of continuing to operate and produce under the concept of “mandatory minimums.” If these are not met, or if operations cannot be supplemented with corrective measures or effective actions, the facilities will be taken out of service. Likewise, audits of financial, commercial, and administrative management of personnel and corporate operations are contemplated in terms of the protection of facilities and personnel.
9. To be accountable to society, what public scorecard would you adopt (production, recovery factor, plant availability, methane and venting emissions, supplier payment times, accidents) and how often would you publish it?
The strategic plan for institutional control of PDVSA includes a communications program to be led by the company’s new authorities and functional leaders. It is designed to demonstrate transparent management and will offer effective interaction with the driving forces in all regions where it operates, as well as with its employees. In coordination with the relevant ministry, management indices will be published to show the progress of the company’s operations and administrative control. It will also support communications with international financial and regulatory bodies as part of the strategy to attract the capital required to rescue the industry.
The views expressed by Lino Carrillo are of his personal ownership and responsibility, and do not necessarily reflect the position of PDVSA Ad Hoc.
