Venezuela: Oil Production Reaches New Five-Year High, Joint Venture Sparks Controversy

Caracas, July 13, 2024 (venezuelanalysis.com) – Venezuela’s oil sector has reached its highest output since early 2019.

The latest OPEC monthly report registered the production by state oil company PDVSA and private partners at 851,000 barrels per day (bpd) in June as measured by secondary sources. The mark represents a 21,000 bpd increase compared to June and the highest figure since Washington levied an oil embargo in January 2019.

PDVSA reported a higher output of 922,000 bpd, up from 910,000 bpd the prior month. Venezuelan officials have repeatedly vowed to surpass the 1 million bpd threshold. Oil exports remained stable in June, according to Reuters. 

The Caribbean nation’s most important economic sector remains heavily constrained by unilateral coercive measures. Since 2017, the US Treasury Department has levied financial sanctions, an export embargo, secondary sanctions and a bevy of other measures aimed at strangling Venezuela’s foreign revenues.

In October 2023, the Biden administration issued a six-month license allowing PDVSA to freely sell crude to global customers without needing unreliable intermediaries or to levy significant discounts. 

However, Washington reintroduced wide-reaching sanctions in April, arguing that the Nicolás Maduro administration had not fulfilled an electoral agreement with the hardline opposition. The Venezuelan government has rejected the charge, accusing its US counterpart of “economic terrorism.”

Sanctions saw Venezuela’s oil output fall dramatically, reaching decades-lows around 350,000 bpd in the second half of 2020. It has slowly recovered since then, though the industry has remained plagued by operational setbacks and corruption. Production had stagnated since Washington’s announcement to reimpose sanctions earlier this year before last month’s uptick.

The constraints imposed by coercive measures have led PDVSA to rely on private partners to boost production.

Joint venture Petrocabimas, which pumps light and heavy crude from wells in western Venezuela, was recently at the center of controversy as the minority shareholder, Spanish company Suelopetrol, denied reports that it was selling its stake.

Suelopetrol’s statement came in the wake of a public announcement by Globalable Holding, headed by Venezuelan corporate mogul Ricardo Cisneros, that it was revamping Petrocabimas with the goal of raising production from the present 12,000 bpd to 50,000 bpd in a few years. PDVSA, which owns 60 percent of Petrocabimas, has yet to clarify the conflicting reports concerning the firm’s minority stakeholder.

In its communique, Globalable stated that the alliance would follow the “Chevron model,” in reference to the US oil giant that has been ramping up activities in its Venezuela joint projects since receiving a US Treasury license in late 2022.

The need to circumvent sanctions has seen PDVSA surrender oilfield operations and crude sales to minority partners, notably Chevron, despite Venezuela’s legislation requiring the state oil company to assume those responsibilities.

The four joint ventures between PDVSA and Chevron are currently producing around 200,000 bpd. Venezuelan authorities are currently considering an extension of the Petropiar project between the two companies until 2047, with a US $2.39 billion investment pledge to raise output from 110,000 to 150,000 bpd.

Caracas has sought to improve conditions for foreign investors in a bid to boost economic recovery. President Nicolás Maduro recently announced his administration had secured investments from “BRICS countries” for the South American country’s basic industries.

India’s Jindal Group is reportedly set to take over a Venezuelan state-owned iron ore complex and is also lobbying the US Treasury Department for a license in order to acquire a minority stake in the Petrocedeño crude upgrader.

In the petrochemical sector, Turkey’s Yildirim Group, a major shipping and mining group, will invest $750 million to build an ammonia plant in eastern Venezuela after signing an agreement with state-owned petrochemical Pequiven.

The so-called “strategic alliances” involving public assets do not have the agreement details made public but they usually amount to time-fixed concessions that do not include changes to ownership stakes. Some sectors of the Venezuelan left have criticized overtures to the private sector due to their lack of transparency and reduced state role.