Diesel benchmark falls in a post-Maduro oil market that barely moved
To get that number higher is going to take a lot of money, work and time, according to S&P Global Energy.
Lots of money needed for a rebound
In an email summary of current conditions in the Venezuelan oil industry, S&P Global CERA analyst Jim Burkhard (NYSE: SPGI) spelled out what it would take for a post-Maduro rebound in Venezuelan production to occur.
“Venezuelan production could grow if sanctions are removed, but it would require at least several billion dollars of fresh investment to boost marketed production to 1.5 million b/d in the next 12-24 months — an increase of roughly 500,000 b/d from recent levels (including blended diluent),” Burkhard said in the S&P Global Energy summary. “To expand output even more — to 3 million b/d, for example — would require much greater spending on infrastructure in addition to upstream development costs, and it would take many years. Investment terms — including confidence they will endure — and the oil price environment need to be conducive to such investments.”
Before Hugo Chavez took over Venezuela and PDVSA, the Venezuelan state oil company, began a long decline, Venezuelan output did top 3-million b/d regularly.
Amrita Sen, director of market intelligence at Energy Aspects, said in an interview on CNBC that her company’s analysis concluded that “just to increase production by half a million barrels per day would take at least two years and $10 billion.”
“Going back to the heyday of Venezuelan production, you’re talking about 100 billion dollars, if not higher, and anywhere up to seven to 10 years,” she said.
Oil company stocks did rise Monday. As Steve Richardson, head of energy research at Evercore said, that was an acknowledgement that there are opportunities.
Richardson said there may be some “quick hit opportunities” to increase Venezuelan production in the near term “if the environment is conducive.”
Richardson noted that Chevron has continued to operate in Venezuela for several years after other companies, following years of conflict with the Chavez/Maduro government, either chose to leave or were expelled.
For companies not there, he said, investing in the country is “obviously a much different calculus” than for Chevron,” Richardson said.
“These companies have shale businesses in the lower 48 that are relatively low risk,” Richardson said. “They have offshore opportunities. Next door in Guyana is a huge discovery and lots of opportunities. So for these companies it’s a question of return versus risk.”
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