By CorpGov Editorial Staff
U.S. sanctions against Venezuela have impacted oil trade around the world, with companies from Sweden to Spain that partner with the country under pressure to depart and potentially lose billions of dollars of revenue. But ultimately, it may be the Venezuelan people who are hurt most.
Oil production in Venezuela
On Monday, April 20th, the world was shocked as oil futures dipped into negative territory – forcing sellers to pay buyers to take physical product off their hands. The global oil industry is facing the full power of an oil price crisis raging for the second month and in some oil rich regions the damage from market forces is painfully augmented by irresponsible choices and dangerous government policies. Venezuela is by far the worst example – once a leading oil producer, the South American nation is experiencing a complete destruction of its champion industry. Nationalizations, corruption, deteriorating security on the ground, and U.S. sanctions have driven all but the most resilient international players and suppliers out of the country. The national oil giant Petróleos de Venezuela, S.A. (PDVSA) has been sanctioned by the U.S. and turned into a pariah among oil companies. It faces severe financial trouble and a collapse in production.
Remaining International Players
After the U.S. Department of Treasury’s Office of Foreign Assets Control (OFAC) introduced sanctions against PDVSA on January 28, 2019, international companies were able to export crude from Venezuela for some period of time under oil prepayment agreements concluded long before the restrictions and allowing them to recover pre-sanctions PDVSA debts. According to multiple previous reports, including Reuters, over 40 JVs operated in the country. Many of them have been completely taken over by PDVSA following the departure of foreign personnel. The last widely announced departure was the Russian giant Rosneft PJSC.
According to a source familiar with the matter, there have been massive cuts in production levels among international JVs. Petroboscán, S.A. (Chevron Corporation) – once a flagship oil producer in Venezuela pumping over 100 thousand barrels of oil per day (bopd), the venture has seen its production shrink to an average of 60 thousand bopd from a peak of almost 80 in February 2019. It is operating under a special license from OFAC, which came up for review on April 22, 2020.
Petroregional del Lago, S.A. (previously Royal Dutch Shell PLC, later Etablissements Maurel & Prom S.A.) and Petroquiriquire, S.A. (Repsol, S.A.) have seen their production halved (from 18 thousand bopd to 9 thousand bopd).
Petrozamora S.A. (GPB Global Resources) – Since the beginning of the JV 8 years ago until February 2019, Petrozamora’s production reached up to 111 thousand bopd, but has fallen 40% from those levels. Historically it was the largest oil supplier to Nynas AB – a Swedish refinery, which is highly dependent on supplies of Venezuelan special-grade crude and therefore more-severely affected. In December 2019, soon after Venezuelan oil supply was terminated, the Swedish refiner defaulted on obligations and entered court-administered restructuring. Most Petrozamora field operations have stopped as no oil export income has been received by the venture since last year, making maintenance and production impossible.
The current situation suggests a further decrease is probable with all JVs winding down their operations further and further, cutting headcount, and evacuating remaining expatriates from the country. The Maduro authorities have effectively nationalized the remaining oil volumes, depriving the international operators of any income. According to some new agencies, the confiscated oil is supposedly exchanged by Maduro authorities for food and medicine using intermediaries in Mexico. This situation has limited all international JV operations to social, humanitarian, security and safety, environmental and maintenance needs.
Oil Exports Have Stopped
The combination of COVID-19, an oil price war, sanctions, and hijacking by the Maduro regime led to a complete halt in oil exports in April 2020. An authoritarian government has put a tight lid on any official statements on the situation in the country’s oil industry. If the remaining international operators are forced to abandon Venezuela completely, there may be environmental emergencies on neglected oil wells along with thousands of families without income to survive.
If the current regime does not change, international operators will be forced to abandon their social role in Venezuela. The faster the remaining international operators leave – and take their engineering expertise with them – the harder the restoration of oil production will be for any new prospective government. Oil fields will be looted for material, environmental pollution will spiral out of control, and trained personnel will disappear. The financial circumstances of a new government may become so dire that every day without oil production will translate directly into human suffering among Venezuelans.
A source at one of the JVs, who asked to remain anonymous, said it is “obvious that all remaining international partners are now in survival mode only. Having ceased all operational activity, they are trying to allow local people employed with the projects to have a source of income, food and medicine for as long as possible, and to provide security and environmental measures to avoid losses of life and injuries. The faster the regime in Caracas changes the better it will be for the industry”.