The chronic underinvestment in the upstream sector of Venezuela has led to a vicious cycle: whereby a steep decline of production has led to limited upgrading capacity for heavy crude, fewer export volumes of upgraded crude oil, less oil-related revenue and less rig activity and oilfield services.
By end of 2018 crude production in Venezuela was estimated at 1.1 million barrels per day (mmbd) versus 1.6 mmbd in January of 2018.
To mitigate this decline Petróleos de Venezuela, S.A (PDVSA) has tried to bolster its strategy for reactivating conventional fields in the Maracaibo area where thousands of shut-in wells are deemed economical to bring into production.
The total capital expenditure required to reactivate such wells vary on a case-by-case basis depending on the enhanced oil recovery particulars and required gas injection, but at a well level, it can range from a few hundred thousand to around one million dollars.
These wells are expected to achieve productivities of around 50 to 60 barrels of oil equivalent (boe) and have a significantly lower operating cost when compared to Orinoco Belt wells.
Remaining reserves by basin and Opex per barrels of oil equivalent (boe)
Source: GlobalData Oil and Gas
Newly imposed US sanctions on Venezuela will definitely weaken the finances of the current regime. As a result, the government will be pressured to negotiate with the opposition which will surely demand a transition of presidential power ideally through new elections.
Even in a scenario of effective government change and political stability, it will still take time to re-establish oil field services, rig activity and bring back technical personnel and engineers.
More importantly, any new fiscal terms, aiming at attracting more foreign capital or incentivising existing operators, will depend on the effectiveness of a new government in achieving unity among political factions to approve changes to oil and gas related laws.