Further Decline in Venezuela Crude Output Unavoidable

Further Decline in Venezuela Crude Output UnavoidableFurther Decline in Venezuela Crude Output Unavoidable

Venezuela’s oil production plunged to a 13-year low in June as the economic crisis continues to eat into the nation’s only source of export revenue.

Venezuela’s oil production has declined by 170,000 barrels per day since the start of 2016, dipping to 2.18 million barrels per day in June, according to the IEA’s latest Oil Market Report, Oil Price reported.

Part of that was due to electricity blackouts that cut 120,000 bpd from the country’s output between April and June, but even with some of those issues resolved–rain has restored some output at hydroelectric dams–the IEA says that “further losses are expected in the second half of 2016.”

A year-on-year decline in oil production of 200,000 bpd “looks unavoidable as foreign oil service companies reduce their activity and international oil companies face repayment issues and daily operational challenges.”

But 200,000 barrels per day could be just the start. Venezuela's crude production has been gradually declining for more than a decade. The problem is that the declines are now accelerating.

In the mature oilfields, wells are depleting as investment falls short. The IEA says that even in the Orinoco Belt in the southeast, output is falling because Petroleos de Venezuela (PDVSA), the country's state-owned oil and gas company, is struggling to process the heavy crude due to a shortage of light crude for blending.

The economic crisis, as the IEA notes, is forcing companies to pack up and abandon assets in Venezuela because they have often not been repaid for services. Earlier this year, Schlumberger announced its decision to scale back its presence in the country because PDVSA was $1.2 billion in arrears to the oilfield services giant.

Halliburton was owed $756 million as of May. As others follow suit, Venezuela’s oil production could fall much farther. Aside from nonpayment, sky-high inflation on the order of 500% makes it costly and confusing to work in the country.