Oil production drop aggravates debt crisis in Venezuela

Nov. 17, 2017
Venezuela, a lovely country with wonderful people and dreadful governance, staggers toward bankruptcy.

Venezuela, a lovely country with wonderful people and dreadful governance, staggers toward bankruptcy.

Officials met with creditors in Caracas on Nov. 13 but offered no clear strategy for managing $140 billion of foreign debt, some now in arrears.

Russia on Nov. 15 agreed to postpone for 10 years repayment of $3.15 billion due from the Latin American country. But while that gave President Nicolas Maduro a photo opportunity and some time, it hardly relieved the crisis.

Venezuela is in a death spiral, put there by the bombastic socialism of Maduro and his late predecessor, Hugo Chavez.

Claiming to serve the poor, Chavez nationalized much of a once-thriving economy and bought regional fealty with underpriced oil.

Now, nearly everyone in Venezuela is poor. And the oil industry is decrepit.

Russia and China sustained the Chavez-Maduro mess-making machine for a while with loans repaid in oil. But that just delayed the inevitable.

Oil production, crucial to debt service, fell in October to 1.91 million b/d, nearly its lowest level in three decades, according to the International Energy Agency.

Petroleos de Venezuela SA can’t import all the diluent it needs for heavy oil and has trouble maintaining upgraders, IEA says.

Rystad Energy expects production to keep falling.

Unpaid service companies have suspended work, the firm says. The rig count has fallen to half its 2011 peak.

Production is plummeting in mature fields that need infill drilling.

“Some fields’ annual decline could hit as much as 30% in 2018,” says Rystad analyst Artyom Techen.

Rystad says deterioration from its already pessimistic base case might lower oil output in Venezuela’s mature fields by 800,000 b/d during 2018-21.

And the diluent shortage all but caps production from Orinoco heavy-oil fields to whatever upgraders can handle. Rystad cites slow remuneration to foreign suppliers.

So far, creditors waiting for overdue Venezuelan payments remain patient. They’d apparently rather hope Maduro keeps his promises than sue to seize his assets.

Of promises, of course, Maduro has plenty. Socialists always do.

(From the subscription area of www.ogj.com, posted Nov. 17, 2017; author’s e-mail: [email protected])