Is an oil production boom in Venezuela likely now?
What's the story
Despite US President Donald Trump's promises of massive investments from American oil companies, Venezuela is unlikely to see a significant increase in crude production for years. The country has the world's largest estimated oil reserves but has seen its output decline over decades due to mismanagement and lack of foreign investment. This was particularly after nationalization of oil operations in the 2000s, including those owned by Exxon Mobil and ConocoPhillips.
Obstacles
Investment challenges and legal hurdles
Potential investors in Venezuela's oil sector would have to navigate security concerns, poor infrastructure, and the legality of US operations against Maduro. Mark Christian from CHRIS Well Consulting said US firms won't return until they are assured of payment and some level of security. He also noted that these companies won't go back until sanctions against Venezuela are lifted.
Reforms needed
Legal reforms and past nationalization
Venezuela would also have to amend its laws to allow for greater foreign investment in its oil sector. The country nationalized the industry in the 1970s and forced a migration to joint ventures controlled by its state oil company, PDVSA, in the 2000s. Most companies negotiated exits and migrated, including Chevron while some others didn't reach deals and sought arbitration.
Uncertainty
Future production ramp-up depends on political transition
Thomas O'Donnell, an energy and geopolitical strategist, said if Trump can ensure a peaceful transition with little resistance, there could be a significant oil-production ramp-up in five to seven years. This would depend on infrastructure repairs and investment arrangements. However, he also warned that a botched political transition could lead to years of resistance from armed groups and guerrilla factions operating in Venezuela.
Prospects
Chevron's potential role in Venezuela's oil sector
Francisco Monaldi from Rice University's Baker Institute in Houston, said Chevron would be best positioned to benefit from any potential opening in Venezuela's oil sector. Other US oil companies would closely monitor political stability and wait for the operational environment and contract framework to unfold. Notably, Chevron is currently the only American major operating in Venezuela.
Production decline
Historical context and current production levels
Venezuela, a founding member of OPEC with Iran, Iraq, Kuwait, as well as Saudi Arabia, produced as much as 3.5 million barrels per day in the 1970s. This was over 7% of global oil output at the time. However, production fell below the two million bpd mark during the 2010s and averaged around 1.1 million bpd last year, just 1% of global production.