Foreign firms stick it out in Venezuela despite economic crisis

4 September 2018 (Last Updated September 4th, 2018 11:44)

At the time of writing, a total of 40 companies other than PDVSA have an equity share in upstream projects located in the western and eastern producing areas of Venezuela.

Foreign firms stick it out in Venezuela despite economic crisis

At the time of writing, a total of 40 companies other than PDVSA have an equity share in upstream projects located in the western and eastern producing areas of Venezuela. Of these participants, 35 are foreign companies that remain in Venezuela in spite of the economic crisis and the severely crippled oil and gas sector. Most of them are not receiving their corresponding cash take or losing money from their partnerships with PDVSA to develop and produce hydrocarbons.

However, from a longer term perspective having access to the vast hydrocarbon reserves of Venezuela compensates the current country risks and any joint venture cash losses. Whenever the economic and political crisis in the country ends, the foreign operators that remain as partners will be able to improve their joint venture terms in exchange for the capital needed in the sector.

Figure: Participant companies in the Venezuelan upstream sector

Source: GlobalData Oil and Gas                                                                                                                                                                        © GlobalData

Chinese and Russian companies in particular, have invested the most in the Venezuelan oil and gas sector during recent years. China, through its Development Bank, has provided more than $60bn in loans to Venezuela. In 2018 it has given an additional $5bn loan to support oil developments. Likewise, Rosneft has provided a total of $6.3bn in loans since 2014.  For most of these loans, the creditors agreed to receive payment through cargoes of heavy crude and fuel oil. However, the companies have formally or informally also gained operatorship in key upstream fields located mainly in the Orinoco Belt. Together Rosneft and the China National Petroleum Corporation (CNPC) have participation in assets accounting for 15% of the proved remaining reserves in the country.

Moreover, the Russian company has been given the right to export the production from Venezuela during 30 years and the 20% royalty that is to be paid to the Venezuelan state will be paid in kind.

For the rest of the operators the economic performance of their Venezuelan oil and gas positions varies. Nonetheless some upstream projects have already recovered their initial investment, in particular the ones corresponding to joint ventures that were formed during the opening of the sector in the 1990’s. In particular most of the Maracaibo and East Venezuela basins joint ventures have recovered their initial investment.