Coyote Blog

In my earlier post, I commented that one reason a number of foreign oil fields may be "peaking" is not necesarily because they are hitting their production limits, ala "peak oil theory," but because state run companies tend to be terrible at making the intelligent long-term investments that are needed to maintain oil production in aging fields.  I observed:

There are a lot of things you can do to an aging oil field,
particularly with $60 prices to justify the effort, to increase or
maintain production.  In accordance with the laws of diminishing
returns, all of them require increasing amounts of capital and
intelligent management.

Unfortunately, state owned oil companies like Pemex (whose assets,
by the way, were stolen years ago from US owners) are run terribly,
like every other state-owned company in the world.  And, when
politicians in Mexico are faced with a choice between making capital
available for long-term investment in the fields or dropping it into
yet another silly government program or transfer payment scheme, they
do the latter.  And when politicians have a choice between running an
employment meritocracy or creating a huge bureaucracy of jobs for life
for their cronies they choose the latter. 

So today, via Hit and Run, we see this exact same effect in Venezuela:

No one sees an immediate crisis at Petróleos de Venezuela. But its
windfall from high oil prices masks the devilish complexity and rising
costs of producing heavy oil. Meanwhile, the company acknowledged last
month that spending on "social development" almost doubled in 2006, to
$13.3 billion, while its spending on exploration badly trailed its
global peers. And Petróleos de Venezuela's work force has ballooned to
89,450, up 29 percent since 2001 even as production declined
...
Petróleos
de Venezuela's cash is said to be running short as Mr. Chávez uses its
revenue to cement political alliances with Bolivia, Cuba and Nicaragua.
The company has borrowed more than $11 billion since the start of the
year, a rapid debt buildup that reflects a wager by Mr. Chávez that oil
prices will remain high indefinitely.