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March 6, 2013 7:13 pm
With the largest oil reserves in the world, Venezuela has long been one of the biggest draws in the oil industry.
That was especially the case during the apertura petrolera period of the 1990s when it opened its upstream sector to foreign investors.
But Hugo Chávez’s ascent to the presidency in 1999 changed all that. He nationalised the oil industry, forcing foreign oil companies to cede majority control of their projects to PDVSA, the state-owned oil group. ExxonMobil had its assets expropriated after it refused to play ball.
Many experienced engineers fled into self-imposed exile after a crippling strike at PDVSA in 2002. PDVSA has been hollowed out. It bankrolls many social programmes, leaving little cash to spare for investment in its core areas of exploration and production.
It also has to subsidise domestic petrol, which sells for 8 cents a gallon, and to supply oil at knock-down rates to Venezuela’s allies, including Cuba.
Venezuela’s oil output has stagnated as a result. The country produced 3.5m barrels a day in 1998, but that dropped to about 2.5m b/d last year. Production could rise significantly if the country were able to harness the reserves of “extra heavy” oil that lie just a few hundred metres underground in the Orinoco Belt. The government has a number of projects to develop the resource, with partners such as China’s CNPC and Gazprom of Russia, but these have been slow to get off the ground.
Few think the situation will change much under Nicolas Maduro, who is expected to win the upcoming election. The cash demands on PDVSA will remain high, and there is little chance of a more investor-friendly approach. But even if the opposition leader Henrique Capriles Radonski wins, “the outlook for the oil sector is unlikely to significantly improve in the near term,” says the Eurasia Group, a political risk consultancy.
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