Venezuela: Oil Production at near 30 Year Lows

It isn't news that Venezuela is in economic chaos. People are fleeing the country. And now oil production is near a 30 year low. Per CNN:

The country's oil output in January fell to its lowest level in nearly 30 years, not including a brief oil strike in 2003, according to S&P Global Platts. A monthly OPEC report published Monday revealed Venezuela pumped 1.6 million barrels of oil per day last month. Production in January was down 20% from a year ago.

The article also points out that 95% of all Venezuelan exports is oil.



What is interesting about this decline is that oil prices have stabilize in the $60 range.

So how is it that Venezuelan oil production is in massive decline?

Oilprice via Univision gives one reason: 10,000 people left the oil company (PDVSA) in just one week of January. Per the article, as of August 2016, the company employed 143,000. So that's a 7% decline. And, of course, the article just speaks about one week. Who knows how many more have left between August of 2016 to February 2018?

Of course, a lost of employees is just the driver. What's beneath the surface?

Via The Guardian, we know that an oil mechanic can make more busking in Colombia than working for $11 a day in Venezuela.

Reuters lists some key reasons:

Insufficient investments, payment delays to suppliers, U.S. sanctions, and a brain drain have hammered Venezuela’s oil industry . . . An alleged crackdown on oil graft in the last few months, seen by critics as an effort by President Nicolas Maduro to consolidate power, has sown panic across the energy industry and all but paralyzed state oil company PDVSA, according to people at the firm and in the sector.

We know via the New York Times that there are unsafe work conditions in the oil industry.

We also know that President Maduro handed the PDVSA reigns over to a general with no oil expertise.

The crackdown on oil graft was needed; however, Maduro just handed power over to the military. The military will no doubt take their share of the profits. Maduro did need to do something, but perhaps he should have set up an amnesty situation where this paralysis of the PDVSA would have been avoided. Also, maybe he could have put in an independent audit group to put better controls in place. Sure, you have to replace some of the top brass, but cleaning house causes issues, as well.

So how much further can Venezuela's oil production fall? Via the Reuters article here are the predictions (all starting points may not be the same):

Just as a baseline, Reuters states that the country produced 2.072 millions barrels per day in 2017.

Francisco Monaldi of Rice University: 250,000 - 360,000 versus the December average.

Control Risks and Oxford Economics: 470,000 (starting point not stated).

Energy Aspects: 200,000 (appears to imply versus 2017).

Per CNBC, RBC Capital Markets is going all out at 700,000 to 800,000.

So we're looking at 10% to 40% declines.

Random thoughts:

First: the PDVSA will continue to lose employees.

Second: I doubt it is easy to replace lost employees and retrain new ones so it'll take a long time for Venezuela to recover.

Third: it doesn't help when you have a general in charge who doesn't know anything about the oil industry.

Fourth: The big question is how much of this production decline can US shale cover and how much can it not?

Fifth: The big other question is how much longer due Venezuelans put up with this?

Sixth: I think there is a general belief (at least via IEA) that oil prices could spike sometime between 2020 - 2022 due to lack of current exploration. If this does occur, will Venezuela even be able to participate in this oil spike?