Is Venezuela's Oil Sector On the Mend?

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Written by Daniel Graeber for IIR News Intelligence (Sugar Land, Texas)

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Summary

A California-based energy company with no apparent presence outside the U.S. claims it's in talks to work in Venezuelan oil fields. U.S. imports of the heavy crude are on the rise, but it would take some heavy lifting to offset years of mismanagement.

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A New Deal with PDVSA?

With U.S. imports of heavy Venezuelan crude oil on the rise, a California-based company claimed it was bucking trends by moving closer to reaching a deal with state-backed Petroleos de Venezuela (PDVSA).

The Pacific Coast Energy Company said Friday it was close to finalizing a deal under acting Venezuelan President Delcy Rodriguez to work alongside PDVSA on developing and operating the oil fields in Venezuela.

"We're excited about the opportunity to help Venezuela revitalize its oil fields and have raised a total of $800 million in equity, debt and trade finance to fund initial operations," said Klaus Hasbo, Pacific Coast Energy's chief executive officer.

Data from Industrial Info show few projects controlled by Pacific Coast Energy, with no obvious presence whatsoever outside of California. The company nonetheless claimed it has more than 30 years of experience handling the heavier type of crude oil found in Venezuela.

Industrial Info Resources is tracking progress at Pacific Coast Energy's Orcutt Hill Crude Oil and NG Production Plant in Orcutt, California. Readers can learn more from a detailed plant profile.

To be sure, U.S. companies are taking on more Venezuelan crude oil, though formal deals have yet to materialize as strongly as envisioned after U.S. military forces seized former President Nicolas Maduro from his compound in Caracas in January, ostensibly on drug charges.

The U.S. Office of Foreign Assets Control, part of the U.S. Department of the Treasury, has removed interim President Rodriguez from the Specially Designated Nationals list, allowing her to conduct business in the U.S. and with U.S. entities.

By April, U.S. supermajor Chevron Corporation bolstered its position in heavy oil through assets swaps with PDVSA. Through its subsidiaries, Chevron received an additional 13.21% working interest in the joint venture Petroindependencia, bringing its total interest to 49%.

Petroindependencia is a joint venture of Chevron and PDVSA that operates a plant bearing its name in the coastal state of Anzoategui. According to Industrial Info Resources data, the plant can process about 40,000 barrels per day (bpd) of crude oil. Readers can learn more from a detailed plant profile.

Delegates from ConocoPhillips also had examined the emerging opportunities in Venezuela, though Chief Executive Officer Ryan Lance said that reforms so far in the post-Maduro Venezuela are "woefully inadequate." Others have said the country is "uninvestible."

By June, parts of the country were in ruins following twin earthquakes near the coastal state of La Guaira, closing the country's international airport indefinitely. But few refineries were impacted by the disaster. Industrial Info Resources is tracking all eight refineries in Venezuela, which remain operational.

Readers can learn more about these refineries from a detailed list of plant profiles.

U.S. imports are on the rise as well. Much of the U.S. refining sector is tailored to process heavier slates of crude oil like Western Canadian Select. With imports from Middle East producers scarce because of the ongoing conflict between the U.S. and Iran, U.S. refiners are leaning more on producers in the Americas.

Data from the U.S. Energy Information Administration (EIA) show Venezuela delivered 630,000 bpd on average over the four-week period ending July 24, for a 9,979% year-over-year increase.

By the Numbers

• 1 million bpd in Venezuelan oil production in June, OPEC reported
• 9,979% year-on-year increase in U.S. imports of Venezuelan crude

Interest Has Waivered

Production, however, has been relatively stable. Secondary sources reporting to economists at the Organization of the Petroleum Exporting Countries (OPEC) put Venezuelan oil production at about 1 million bpd for June, compared to last year's average of 937,000 bpd.

But it would take years to overcome chronic under-investment and poor management of the nation's energy sector. Much of its infrastructure is deteriorating, complicating efforts to improve it in a country that's been previously saddled by international sanctions.

A recent report in The Wall Street Journal found few companies are willing to go all-in on Venezuela, considering its uncertain political future. While Maduro is in jail in New York, much of the original regime remains in place.

"Few of them are really jumping into the water," José Ignacio Hernández, a consultant at advisory firm Aurora Macro Strategies, told the newspaper of corporate interest. "It's like when you're trying to sell your house. You have a very successful open house with 100 people attending, but then nobody calls."

Key Takeaways

• Venezuela is exporting more, but foreign companies still seem a bit shy
• Production, meanwhile, remains relatively stable compared to the Maduro era

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About Industrial Info Resources
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news, and analysis on the industrial process, manufacturing, and energy-related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified, and verified plant and project opportunities. Across the world, Industrial Info Resources is tracking over 250,000 current and future projects worth $30.2 trillion (USD