A Venezuelan plan to revive stagnating oil output is risky and could be undermined in the long-term by state oil company PDVSA’s soaring debt.This year, Venezuela’s output fell to its lowest level since a 2003 strike, partly because of reluctance among some oil service firms to work with PDVSA, which has fallen behind on payments.Venezuela, seen by OPEC as home to the world’s largest crude reserves, has watched output decline since the government nationalized many foreign-owned oil projects in the Orinoco region and service companies on older fields.It is betting on a comeback through a series of large joint venture projects in the Orinoco region with foreign companies like TNK-BP, Total, Statoil and Chevron due to start early production next year.By streamlining dealings with suppliers, PDVSA aims to pump 140,000 more bpd of oil by the end of this year from existing projects in the Orinoco, a 5 per cent increase, and advance toward a goal of doubling output in the next decade.A similar move in 2007 backfired, resulting in lengthy legal and operational setbacks as some contractors failed to deliver.PDVSA recently decreed an “emergency” in its vast Orinoco oil belt from July to September after it struggled to get enough drills and other equipment into one of the world’s largest untapped hydrocarbon deposits.That means it can bypass the normal bidding process and award contracts directly to fast-track development in the remote, inhospitable region that requires huge outlays on basic infrastructure like roads as well as oil services.This time, PDVSA’s efforts will be hampered by a poor record on paying for services and by a recent history of forced takeovers that have spooked businesses.It owed $10.9 billion to service providers at the end of last year, raising doubts about its ability to pay.“There has been an effort to have competitive bids, but the profit margins are regulated and there is fear of expropriations,” Reneiro Contreras, president of the Venezuelan Association of Contractors, told Reuters.President Hugo Chavez uses oil export revenues to finance his flagship health, education and housing programs for the poor. He is expected to further boost spending ahead of the 2012 presidential race.Those companies that are prepared to work with PDVSA despite the risks often charge more than usual or demand payment up front, Contreras said.US-based oilfield services provider Schlumberger said that as of May, Venezuela was installing rigs at almost the same rate as in 2008, a record drilling year, suggesting it is serious about ramping up output in coming months.But Patrick Esteruelas, an analyst at Moody’s ratings agency and expert on Venezuela’s oil business said new production in the next few years will not greatly raise overall output.“It may be positive there is a substantial increase in rigs and an increase in production in the belt that could offset the decline in other areas, but at most, the effect will be to stabilize production,” Esteruelas said.One nagging problem for equipment importers is PDVSA’s insistence on paying in local currency, leaving companies holding piles of bolivars they cannot exchange for dollars due to strict foreign exchange controls.Meanwhile, the government is keeping up the pressure on companies to work with it in the region, even though it sets ceilings on the rates they can charge.“They have to do their calculations,” Energy Minister Rafael Ramirez said of the contractors last week. “A short-term relationship doesn’t interest us. With a long term relationship we will progress,” he said.The proven oil reserves in Venezuela are claimed to be the largest in the world, according to an announcement in early 2011 by President Hugo Chavez and the Venezuelan government. The reported proven reserves reach 297 billion barrels.Total recoverable reserves (proven and unproven) are among the largest in the world. The technology needed to recover ultra-heavy crude oil, such as in most of the Orinoco Belt, may be much more complex and expensive than that of Saudi Arabia’s light oil industry. From / Gulf today