Venezuela: Oil Output Shows Steady Increase as PDVSA Reaches Out to Foreign Partners

Caracas, March 14, 2024 (venezuelanalysis.com) – The Venezuelan oil industry has continued its slow recovery amidst existing and prospective US-led economic sanctions.

The latest monthly report from the Organization of Petroleum Exporting Countries (OPEC) placed the Caribbean nation’s February output at 820,000 barrels per day (bpd) as measured by secondary sources.

The figure represents a 16,000 bpd increase compared to the previous month. It also marks seven straight months of production growth and the highest output since February 2019, when the US Treasury Department imposed an oil embargo.

For its part, state oil company PDVSA reported 877,000 daily barrels produced last month, up from 841,000 in January. Nevertheless, exports have not increased accordingly due to shipping delays and diluent shortages, as reported by Reuters.

Venezuela’s key industry has been targeted by coercive measures since 2017 as the US Treasury Department levied financial sanctions, an oil embargo, secondary sanctions and more in an attempt to strangle the country’s main source of revenue. Output plummeted from nearly 2 million bpd in mid-2017 to historic lows below 350,000 in 2020. It has since undergone a gradual recovery.

However, with limited financial means and persistent operational disruptions, PDVSA has turned to its international partners in a bid to ramp up production.

US oil giant Chevron, which received a limited license to reactivate extraction and sales from its Venezuelan operations in November 2022, recently announced plans to drill 30 new wells in the crude-rich Orinoco Oil Belt.

The company aims to hit its present output ceiling of 200,000 bpd in 2024 and eventually reach 250,000 bpd in 2025 with the new drilling operations. Chevron holds minority stakes in four joint ventures with PDVSA and their combined production stood at around 135,000 bpd late last year.

In recent weeks, Venezuelan Oil Minister Pedro Tellechea has disclosed meetings with international corporations, including Algeria’s Sonatrach SpA, Bolivia’s YPFB, Mexico’s PEMEX and most recently Brazil’s Petrobras, to explore hydrocarbon project prospects.

European firms Maurel & Prom (France), Repsol (Spain) and Eni (Italy) have likewise ramped up their Venezuela activities over the past months. 

Additionally, PDVSA has secured diluent shipments from Russia to boost its refining and blending operations and has looked to address delayed payments to Iranian counterparts as part of a long-term swap agreement between the two nations.

Caracas’ dealings with foreign firms are likely to come under the spotlight with an expected hardening of US economic sanctions against the oil industry.

In October 2023, the US Treasury Department’s Office of Foreign Assets Control (OFAC) issued General License 44 (GL44) allowing US customers to deal with Venezuelan oil and gas sectors. But the Biden administration has vowed not to renew the sanctions waiver once it expires in April to apply political pressure on the country after the Venezuelan Supreme Court ratified a political ban against US-backed candidate María Corina Machado ahead of this year’s presidential elections.

GL44 had a limited impact on Venezuela’s oil output as the US Treasury told companies that it was not a “call for investment.” Analysts have claimed that the country’s production would stagnate in case GL44 expires and 2024 revenues would fall by around $1.6 billion.

The license did improve conditions for PDVSA’s oil sales, allowing the company to deal freely with international customers without needing to resort to intermediaries and apply significant discounts in order to circumvent coercive measures. Indian companies, both state-owned and private, resumed Venezuelan crude cargo purchases after having been driven away by sanctions.

The non-renewal of GL44 would not in itself impose restrictions on PDVSA’s dealings with foreign partners since it only blocks transactions involving US persons and companies. However, in recent years the US Treasury Department has both levied and threatened secondary sanctions so as to dissuade enterprises from engaging in trade with Venezuela.

The reimposition of sanctions alongside increased extra-territorial enforcement could likewise lead to fuel shortages in the South American country. Given that PDVSA is barred from financial markets and many of its foreign bank accounts are frozen by the US and allies, the state-owned corporation has resorted to swap agreements, supplying crude in exchange for diluents or fuel.