A U.S. sanction waiver expiry later this year could see the number of drilling rigs in Venezuela’s Orinoco Belt slashed by half, putting additional pressure on Caracas by further reducing already low oil production rates.
Bloomberg reports that the sanction waivers that Washington granted U.S. companies still operating in the sanction-hit country are due to expire in late October. These are extended waivers that originally expired earlier this year but the government decided to extend them for three more months. The companies involved, however, had asked for six months, which is not a good sign for the prospect of any further extensions.
“Almost half the rigs are being run by the Yanks, and if the window shuts down on this in two months, then that’s really going to hurt Venezuela unless the Russians and the Chinese come in,” an analyst with consultancy Caracas Capital Markets told Bloomberg.
Among the U.S. companies operating in Venezuela are Chevron, Halliburton, Schlumberger, and bankrupt Weatherford. If they all stop drilling new wells, production of crude in Venezuela would drop sharply: new wells need to be drilled continuously just to maintain current production.
For the U.S. companies, this would mean further writedowns, after a total US$1.4 billion in writedowns on Venezuelan operations since 2018.
Yet it is quite possible that China and Russia will step in and help Caracas. Earlier this month, the news emerged that a Chinese company had sealed a deal with PDVSA to repair its refineries. PDVSA will pay for the services in oil products.
Besides Chinese companies, Russian ones are also bound to expand their presence in Venezuela if U.S. sector players are forced to move out. This is hardly the end result of the sanctions that the Trump administration had in mind, but it might end up being a side effect.
By Irina Slav for Oilprice.com
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