In a move reminiscent of the Hugo Chavez years when Venezuela nationalized its oil industry, stripping by default many foreign oil companies of their assets, oil companies are once again preparing to abandon operations in the nation that houses the largest oil reserves on the planet.
Venezuela has given the go ahead to all PDVSA partners to leave their JVs. They will be allowed to sell their shares or return them, with one caveat: they must forgive any past debts and unpaid dividends, four people close to the matter told Reuters.
The situation in Venezuela, however, is so bleak that even taking the loss of not being able to collect monies due has been seen by some as an acceptable term. Equinor, Inpex, and TotalEnergies have already left Venezuela under these terms—the latter losing $1.38 billion after transferring its previously held stake to a PDVSA unit.
In all, eight foreign oil companies that had JVs with PDVSA have either transferred their ownership or given up their shares over the last five years, according to Reuters. Seven smaller firms, Reuters said, don’t have a presence in country anymore, and 15 of the JV projects with PDVSA are simply inactive.
One oil executive whose firm recently abandon its operations in Venezuela told Reuters that none of the stakes held are recoverable at book value. “Among those remaining in the partnerships, few hope to ever recoup pending dividends or commercial debts from PDVSA.”
In reality, after its oil industry was hit by U.S. sanctions, and suffering years of underinvestment and mismanagement, Venezuela is likely incapable of repaying creditors and foreign JV partners, although it has shipping some crude oil intended to pay for some of its debt. Crude oil production in Venezuela has been on a steady and tragic decline for well over a decade, with production sinking from 3.5 million bpd in 1998 to less than 1 million bpd today.
The news that Venezuela could allow foreign oil companies to exit by selling shares or simply returning them comes just two years after it was rumored that PDVSA was mulling some major industry reform that would increase private company activities in Venezuela’s oil industry—a step away from its usual fare of limiting the role of private companies.
By Julianne Geiger for Oilprice.com
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