• 2 days Iraq Begins To Rebuild Largest Refinery
  • 2 days Canadian Producers Struggle To Find Transport Oil Cargo
  • 3 days Venezuela’s PDVSA Makes $539M Interest Payments On Bonds
  • 3 days China's CNPC Considers Taking Over South Pars Gas Field
  • 3 days BP To Invest $200 Million In Solar
  • 3 days Tesla Opens New Showroom In NYC
  • 3 days Petrobras CEO Hints At New Partner In Oil-Rich Campos Basin
  • 3 days Venezuela Sells Oil Refinery Stake To Cuba
  • 3 days Tesla Is “Headed For A Brick Wall”
  • 3 days Norwegian Pension Fund Set to Divest From Oil Sands and Coal Ventures
  • 3 days IEA: “2018 Might Not Be Quite So Happy For OPEC Producers”
  • 3 days Goldman Bullish On Oil Markets
  • 4 days OPEC Member Nigeria To Issue Africa’s First Sovereign Green Bond
  • 4 days Nigeria To Spend $1B Of Oil Money Fighting Boko Haram
  • 4 days Syria Aims To Begin Offshore Gas Exploration In 2019
  • 4 days Australian Watchdog Blocks BP Fuel Station Acquisition
  • 4 days Colombia Boosts Oil & Gas Investment
  • 4 days Environmentalists Rev Up Anti-Keystone XL Angst Amongst Landowners
  • 4 days Venezuelan Default Swap Bonds At 19.25 Cents On The Dollar
  • 5 days Aramco On The Hunt For IPO Global Coordinators
  • 5 days ADNOC Distribution Jumps 16% At Market Debut In UAE
  • 5 days India Feels the Pinch As Oil Prices Rise
  • 5 days Aramco Announces $40 Billion Investment Program
  • 5 days Top Insurer Axa To Exit Oil Sands
  • 6 days API Reports Huge Crude Draw
  • 6 days Venezuela “Can’t Even Write A Check For $21.5M Dollars.”
  • 6 days EIA Lowers 2018 Oil Demand Growth Estimates By 40,000 Bpd
  • 6 days Trump Set To Open Atlantic Coast To Oil, Gas Drilling
  • 6 days Norway’s Oil And Gas Investment To Drop For Fourth Consecutive Year
  • 6 days Saudis Plan To Hike Gasoline Prices By 80% In January
  • 6 days Exxon To Start Reporting On Climate Change Effect
  • 6 days US Geological Survey To Reevaluate Bakken Oil Reserves
  • 6 days Brazil Cuts Local Content Requirements to Attract Oil Investors
  • 7 days Forties Pipeline Could Remain Shuttered For Weeks
  • 7 days Desjardins Ends Energy Loan Moratorium
  • 7 days ADNOC Distribution IPO Valuation Could Be Lesson For Aramco
  • 7 days Russia May Turn To Cryptocurrencies For Oil Trade
  • 7 days Iraq-Iran Oil Swap Deal To Run For 1 Year
  • 9 days Venezuelan Crude Exports To U.S. Fall To 15-year Lows
  • 9 days Mexico Blames Brazil For Failing Auction

Breaking News:

Iraq Begins To Rebuild Largest Refinery

Alt Text

Chinese M&A Wave Could Be Bad News For Investors

Chinese shareholders might not benefit…

Alt Text

The Billionaires Betting On Space Travel

Humans have always had a…

Nick Cunningham

Nick Cunningham

Nick Cunningham is a freelance writer on oil and gas, renewable energy, climate change, energy policy and geopolitics. He is based in Pittsburgh, PA.

More Info

Venezuela Could Lose A Lot More Oil Production

Venezuela

After defaulting on debt, Venezuela’s crisis continues to unfold, threatening to worsen the state-owned oil company’s production.

PDVSA reportedly told employees that they needed to carry out an austerity campaign, looking for ways to cut costs by 50 percent. The internal memo said that savings needed to be found amid the “national economic emergency” while avoiding any hit to the company’s oil production. Profits at PDVSA fell by 90 percent in 2016 compared to the year before.

But it is hard to see how the company can prevent a deeper slide in output after slashing spending to such a degree. Bloomberg reported that PDVSA is demanding financing plans from its joint venture partners, and that any projects will be halted if they do not receive financing. The memo included a long list of other cost saving measures: credit card use for employees will be limited, employees should use video conferencing instead of traveling; company vehicle use should be curtailed; and the use of electricity, water, cell phones, internet cards, computing gear and PR will all see reductions.

Venezuela’s oil production has been sliding for years, but the descent accelerated in 2015 amid low oil prices and a deteriorating cash position for PDVSA and the government. Production dipped below 1.9 million barrels in recent weeks, the lowest level in more than three decades.

The problems will only grow worse, especially because they tend to snowball. Without cash, PDVSA will struggle to import diluent to blend with its heavy oil – the result could be steeper production losses. Again, without cash, existing facilities cannot be maintained, likely leading to an accelerating pace of decline. An array of refineries are “completely paralyzed,” the head of an oil workers union told Bloomberg. Defaults on more debt payments could spark retaliation from creditors, which could eventually put oil exports in jeopardy.

In short, the woes in Venezuela’s oil industry contributed to the crisis, but the dire economic situation will accelerate the decline of oil production. Related: Venezuela To Try US Citizens & Former Citgo Executives As Traitors

A group of analysts told Bloomberg that they expect Venezuela’s output to average 1.84 mb/d in 2018, a level that seems surprisingly optimistic given the pace of decline underway. Other analysts predict output will plunge much lower.

The austerity drive is not limited to PDVSA. Venezuela is ordering its embassies around the world to renegotiate rents at their diplomatic missions, hoping to squeeze some pennies out of every corner of the government. Some diplomatic personnel, according to Bloomberg, are owed several months’ worth of wages. Caracas is even considering shutting down some embassies for good.

Meanwhile, PDVSA is soliciting its joint venture partners to put up more financing for oil projects. “We are speaking to our allies, with our strategic partners, which are Rosneft, Eni, Repsol, Statoil, and they are willing to continue working with us, to continue financing our projects to boost crude and gas output in the short-term,” Cesar Triana, PDVSA’s vice president for gas, told Reuters.

PDVSA’s Cesar Triana said the company hopes to add 500,000 bpd in 2018 – a statement that seems pretty detached from reality. Most analysts see Venezuela’s production continuing to fall for the foreseeable future.

Without cash, and without access to the international bond markets, PDVSA is trying to find some arrangement to prevent oil producers and oilfield services companies from completely abandoning the country, a situation that would definitely lead to sharper production losses. Last year, PDVSA gave oilfield services companies like Halliburton and Schlumberger promissory notes in lieu of payment, an offer that the firms had little choice in accepting. PDVSA will likely try to double down on such strategies. “They remain in the country, working with us,” Triana said in an interview with Reuters. Related: $40 WTI Is Now More Realistic Than $60

Despite his confidence, the relationship between PDVSA and its partners is almost certainly deteriorating. In a separate report, Reuters said that the oil company is siphoning oil from its joint venture projects in order to supply its domestic refineries.

PDVSA ordered the Petropiar joint venture to turn over 45 percent of its oil output, a volume of oil that was supposed to be exported. PDVSA runs the project in conjunction with Chevron, and according to Reuters, did not offer Chevron any repayment. Reuters said that PDVSA has also diverted oil from joint ventures with Statoil and Total SA. PDVSA seems to be growing more desperate – the volume of oil diverted from the Petropiar project picked up in recent weeks, doubling from 1 million barrels in October to 2 million barrels in November, Reuters reported.

In a sign of how bad things are getting, President Nicolas Maduro ordered a purge at Citgo, PDVSA’s U.S.-based refining subsidiary, ostensibly to root out corruption, but likely because Maduro is looking for someone to blame. The government arrested 50 people, including Citgo’s president. “Money is running out, the economy is about to collapse and the government is looking for a scapegoat -- corruption -- ahead of what appears to be one the most difficult years in the Chavez era,” Diego Moya-Ocampos, a political risk analyst at IHS Markit, told Bloomberg.

By Nick Cunningham of Oilprice.com

More Top Reads From Oilprice.com:




Back to homepage


Leave a comment
  • Roger Spring on November 26 2017 said:
    Companies who accept IOU's from a failing government and failing country are not going to get paid. Extending credit to Maduro or PDVSA is only delaying the end of their Socialist paradise. Stop throwing money away and let's get this over with, its inevitable they fail.
  • Peter on November 26 2017 said:
    Venezuela is turning into a failed state. They have manged to chase out most of their business and technical talent while destroying their currency, agricultural production and the economy. It almost seems like the leaders of Venezuela read Ayn Rand's novel "Atlas Shrugged" and worked to reproduce the dystopia of that novel.
  • RefMan on November 27 2017 said:
    The problem has never been a lack of money, it is just being siphoned off by corrupt PDVSA and Government officials
  • Dennis DeLoach on November 27 2017 said:
    They should call Sean Penn and ask for a loan he said it is a great country and better than the USA and Bernie Sanders might help out also.
  • Will on November 27 2017 said:
    CLASSIC MOVES FROM VENEZUELA:
    - They antagonize the private sector, nationalize 80% of food production & distribution, put inept leaders in charge, then blame fraud & falling priduction on Obama
    - They give monetary leadership to a brainiac who believes the word 'inflation' doesnt exist
    - They print so many Bills, said cash doesnt fit in 3 jumbo jets. They then attempt to pribt even more Bills but run out of sources of paper to pribt Bills.
    - The President doesnt like the Congress, so he simply installed a new one friendly to him.
    - Boasting the largest petrol reserves in the world appoints an untested General to lead pdvsa in an extremely technical industry.
    - Maduro appoints a family member of hugo chavez to lead Citgo...the guy has approximately ZERO experience.
    WOW..... Venezuela has truly converted itself into a sad joke, a third world hole.

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News