Caracas, May 13, 2023 (venezuelanalysis.com) – Venezuela’s oil sector has continued its slow recovery as the industry remains mired in wide-reaching US sanctions.
The latest OPEC monthly report placed the Caribbean nation’s April crude output at 724,000 barrels per day (bpd), as measured by secondary sources. The figure rose from 700,000 bpd in March.
For its part, state oil company PDVSA reported a higher number of 810,000 bpd, up from 754,000 bpd the prior month. Exports were likewise strong in April as PDVSA’s customer list has grown following a renegotiation of contracts to secure upfront payments.
The April production measured by secondary sources is the highest since the first trimester of 2020. In the past six years, the oil industry has been targeted by financial sanctions, an oil embargo, secondary sanctions and a raft of other measures from the US Treasury Department with the goal of crippling Venezuela’s main source of foreign income.
PDVSA’s output fell strepitously from 1.9 million bpd before the first measures all the way to around 350,000 bpd in the second half of 2020. It then doubled over the next 18 months and has hovered around 700,000 since late 2021.
The Nicolás Maduro government has set 1 and 2 million bpd targets on several occasions, but the industry remains plagued by operational setbacks, a brain drain and a decaying tanker fleet, as well as unreliable intermediaries and corruption. A recent probe centered on PDVSA has led to dozens of arrests over the alleged embezzlement of billions of dollars.
Oil Minister and PDVSA President Pedro Tellechea recently presented an “Integral Productive Recovery Plan” for the company to kickstart a “sustainable recovery.”
“I demand zero bureaucracy, better efficiency and planning,” he reportedly said during an internal meeting. “We are tasked with recovering Venezuela’s most powerful industry.”
However, with production and exports heavily constrained by US coercive measures, Caracas’ best prospects for a short-term output increase rest on Chevron. The energy giant has minority stakes in four joint ventures with PDVSA which have been extracting and exporting a combined 100,000 bpd of crude on average in recent months, about half of their maximum capacity.
The California-headquartered company has vowed to ramp up production to 160,000 bpd this year and 200,000 bpd in 2024, according to Reuters. The ability to increase exports hinges on dredging operations in Lake Maracaibo which Caracas is not currently in condition to carry out.
Last November, Chevron became the first corporation to receive a license from the Treasury’s Office of Foreign Assets Control (OFAC) to resume drilling and exporting crude from its Venezuelan ventures. The sanctions waiver was for a six-month period but is expected to be automatically renewed.
The license drew controversy over clauses blocking the company from paying taxes and royalties to the Venezuelan government. However, a Reuters report seemed to confirm an interpretation from certain analysts that the prohibitions were not relevant since the joint ventures are the ones that pay taxes and royalties. Chevron is reportedly injecting tens of millions of dollars a week into forex exchange tables run by banks in what could be a way to meet its obligations in bolívars and not run afoul of the Treasury restrictions.
At the same time, the news agency described the contract between PDVSA and Chevron as “oil-for-debt,” meaning that the Venezuelan company’s share of profits is being used to cancel debts owed to the US counterpart estimated at US $3 billion.
The Biden administration had previously greenlighted oil-for-debt swap deals for Italy’s Eni and Spain’s Repsol in mid-2022 in an attempt to address Europe’s energy crisis. The two corporations have a number of joint projects with PDVSA but had been forced to wind down operations under the threat of secondary sanctions.
In early May, PDVSA granted Eni and Repsol a permit to export natural gas liquids (NGL) from the Cardón IV project which is jointly owned by the two European firms. They intend to export condensates, a by-product of natural gas production.
Apart from Western firms, Venezuela has also relied on long-term allies such as Iran. Caracas and Tehran have a running swap agreement to exchange Venezuelan crude for diluents, spare parts and technical assistance for oil extraction and refining operations.
According to Bloomberg, Venezuela could likewise increase dealings with China in the near future. The Caribbean nation has steadily met its obligations in long-term agreements that saw Caracas pay back extensive loans with crude shipments. Beijing would reportedly be weighing the possibility of opening new credit lines and increasing investments in joint oil ventures.