Venezuela Debts Mount, Production Falls, Meltdown Intensifies

by Ship & Bunker News Team
Thursday June 30, 2016

Despite a display of optimism earlier this week from Venezuelan officials that oil production will soon increase dramatically, Baker Hughes data reveals that the number of oil rigs in the republic in fact fell from 69 to 59 in May.

This comes on the heels of Saipem SpA of Italy suspending operations on 25 of its 28 rigs in the country, plus Venezuela's debt owed to Halliburton Co., rising by 7.4 percent in the first quarter to $756 million, and the debt owed to Schlumberger Ltd., the world's largest oil-services company, reaching a massive $1.2 billion as of March 31, according to an April 27 filing.

These and many other factors have caused Barclays Plc to estimate that Venezuela's oil production will decline by about 11 percent to 2.1 million barrels per day (bpd) by the end of this year – which directly contradicts a statement made this week to the press by Eulogio Del Pino, the country's oil minister: he said, "we are going to be raising production between 150,000 and 200,000 bpd" for an eventual total of 2.9 million bpd.

Del Pino is basing his prediction on the ability of PDVSA, the country's national oil company, to carry out production improvements at its refineries and petrochemical sector, but if the International Energy Agency is to be believed, Venezuela's steady production decline continues largely because oil service companies aren't being paid. 

That view is shared by Baptiste Lebacq, an analyst at Natixis SA; he says, "The situation is becoming more and more difficult for oil services in Venezuela," and he adds that with regards to PDVSA undertaking self-improvements, it will be "very difficult" for the company to pay contractors with oil prices at the current levels.

In its estimation of Venezuela's immediate production future, Barclays notes that the nation's output could fall as low as 1.7 million bpd by year-end in the worst case scenario, and if its rapid social decay is any indication, that worst case may be just around the corner: reporting on escalating looting and violence in Caracas on June 28, The Washington Post writes, "The long economic decline of the country with the world's largest oil reserves now shows signs of morphing into a humanitarian emergency."

But Venezuelan officials are nothing if not indefatigable: Franciso Perez Santana, Head of Mission at the Venezuelan Embassy in Barbados, is reportedly trying to persuade Barbados to purchase oil under the PetroCaribe agreement set up by former Venezuelan president Hugo Chavez: he reasoned to reporters, "In Jamaica with PetroCaribe, there is a social program to build houses and others to help people with their health: it is not just to buy or sell oil or to set up an oil refinery to produce petroleum products, it is also for the people's development."