Venezuelan Oil Output Heads to 29-Year Low

Venezuela is set to pump the least oil in almost three decades, just when it needs petrodollars the most.

Output is expected to slump to 1.84 million barrels a day next year, the lowest compared with official government data since 1989, according to a survey with four analysts compiled by Bloomberg, Rigzone reported.

Rig counts hit a 14-year low in October, as drilling companies, including Schlumberger, reduce their exposure in the nation due to unpaid bills.

Owner of crude reserves larger than Saudi Arabia’s, Venezuela is teetering on the brink of default. Production of oil, the key commodity that brings in badly needed dollars to service Venezuela’s debt, will shrink for the seventh year.

It is not only that output is declining, says Thomas Olney, an analyst at consultant Facts Global Energy. Quality is going down as well, chipping away at revenues for state-owned oil company Petroleos de Venezuela SA.

“Drilling is coming off in Venezuela, crude quality is deteriorating rapidly,” Olney said in a phone interview from London. “The US sanctions make it even more difficult for Venezuela to buy the chemicals needed in the drilling process. Of course, this all makes it more challenging for Venezuela to continue generating cash.”

Olney recently revised down his production estimate for next year to 1.95 million barrels a day, from 2 million previously.

Venezuela’s foreign exchange reserves have dropped below $10 billion. The government has scheduled a meeting with bond investors for Monday, after announcing plans to renegotiate its massive debt burden.

PDVSA did not return an email seeking comment. Venezuela’s Oil Ministry did not immediately return a call seeking comment.

Refiners on three continents say that the quality of Venezuelan oil has been going downhill more noticeably this year. Buyers have turned away some cargoes, while claims for discounts on others are mounting, according to people with knowledge of the situation.

In the US, Phillips 66 rejected cargoes of Venezuelan Merey 16 oil due to high salt content. Excess water and contaminants such as salt accelerate corrosion of pipes and equipment, resulting in unwanted downtime just as refineries are running hard to meet growing global fuel demand.