I have previously covered Venezuela’s worsening economic situation, particularly in relation to its oil industry. More than a decade ago, after the late Hugo Chavez expropriated the assets of oil companies like ExxonMobil and ConocoPhillips (my employer at that time), I warned:
It won’t take too long before everything is nationalized, and Chavez has no more coffers to plunder and then must count on the revenue from the industries he has already plundered. Then, to his chagrin he finds that they aren’t producing like they used to, because he hasn’t invested in the infrastructure.
When Chavez made his grab for these assets in 2007, the Venezuelan state-owned oil company Petróleos de Venezuela, S.A. (PDVSA) fancifully announced that it would raise oil production to 5.8 million BPD by 2012. Instead, by 2012 Venezuela’s oil production had fallen by nearly 20% from its 2007 level.
Since then, oil production there has continued to fall. Venezuelan oil production is currently estimated at 1.5 million BPD, which is less than half the 3.2 million BPD production level of 2007. This drop in production was entirely predictable given the plundering of the oil industry there, even though on paper Venezuela holds the world’s largest proved oil reserves.(Related: Venezuela’s Oil Reserves Are Probably Vastly Overstated).
But matters are only getting worse.
Last month ConocoPhillips won a $2 billion arbitration against PDVSA over the 2007 expropriation of two oil projects in Venezuela. A number of news stories emphasized that ConocoPhillips would have difficulty collecting on this judgment since PDVSA has already defaulted on more than $2.5 billion in debt.
But this week Reuters reported that ConocoPhillips has moved to seize some of PDVSA’s Caribbean assets:
U.S. oil firm ConocoPhillips has moved to take Caribbean assets of Venezuela’s state-run PDVSA to enforce a $2 billion arbitration award over a decade-oil nationalization of its projects in the South American country, according to three sources familiar with its actions. The U.S. firm targeted facilities on the islands of Curacao, Bonaire and St. Eustatius that accounted for about a quarter of Venezuela’s oil exports last year. The three play key roles in processing, storing and blending PDVSA’s oil for export.
The story notes that this will further cripple Venezuela’s ability to export oil.
Venezuela’s loss of production is one of the major factors helping to push oil prices to the highest levels in three years. As I indicated in Barring Major Reforms, Venezuela’s Oil Industry Is Finished, it doesn’t look like the situation is going to improve anytime soon.
(For a more detailed timeline on the deterioration of Venezuela’s oil industry, see How Venezuela Ruined Its Oil Industry).