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Hugo Chavez, one of the oil industry’s biggest villains for over a decade, has died; and whilst he managed to ruin the Venezuelan oil industry, his demise does not necessarily beckon a boost to its fortunes.
During his term as president of Venezuela, Chavez stole land and revoked contracts from international oil companies such as ExxonMobil (NYSE: XOM) and ConocoPhillips (NYSE: COP), and managed to crush the national oil company Petróleos de Venezuela (PDVSA).
In the 1990’s PDVSA and its partners were producing nearly three million barrels a day from Venezuela’s oil fields, making it the third largest producer in OPEC. The long term plan was to increase this volume to around eight million barrels a day, which would have put Venezuela up there with Saudi Arabia and Russia.
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However, Chavez’s time in charge, characterised by corruption and incompetence, saw a decline in production to just 2.4 million barrels a day. This was despite the high oil prices which generally encourage more oil exploration, and the huge reserves, which in 2010 OPEC confirmed to hold around 300 billion barrels of oil, making them the largest in the world.
PDVSA plans to invest $140 billion by 2015 to develop Venezuelan oil, but even with Chavez’s death this seems unlikely.
It is true that in order return Venezuela’s oil industry to its former glory, and realise its true potential, then a huge levels of cash, resources and expertise must be committed; but first, whoever takes control of the nation must dismantle existing policies and structures which currently create an environment of political and economic uncertainty which deters foreign investment.
By. Joao Peixe of Oilprice.com
Joao is a writer for Oilprice.com