Mery Mogollon, Platss S&P Global

CARACAS
Energiesnet.com 10 20 2023

The Venezuelan oil sector may see a gradual recovery after the partial and temporary lifting of US sanctions on that country’s production and export of oil and natural gas, but opposition voters still distrust government promises to allow transparent and free presidential elections Oct. 22, according to analysts.

Venezuela’s united opposition is holding a primary election Oct. 22, with 10 candidates. Maria Corina Machado, a free market advocate, is the leading candidate, according to polls. However, President Nicolás Maduro government has banned Machado from running for office for 15 years on charges of hiding assets and income while she was a legislator, according to the New York Times.

“Two processes are taking place simultaneously,” said Jesús Seguías, political analyst and director of the polling company Datincorp. “On the one hand, the negotiations for the country to get out of the economic crisis and, on the other hand, the elections to choose a candidate to run against Nicolas Maduro in 2024. Both processes are connected, but the most relevant implies the lifting of some financial and oil sanctions.”

Seguías said if Machado wins in the primary, she will have a big challenge.

“The triumph of Maria Corina Machado on Oct. 22 will leave the Venezuelan political situation in limbo while it is being elucidated what the opposition will do with a popularly elected candidate who will not participate in the presidential elections and that the government will not let her participate in,” Seguías said.

The Venezuelan government, besides signing two political agreements with the opposition Oct. 17 in Barbados, has made some additional concessions, such as coordinating with the US government weekly deportations of migrants and releasing five of the 273 political prisoners counted by the nongovernmental organization Foro Penal Oct. 19.

US sanctions

The US Treasury Department’s Office of Foreign Assets Control issued four general licenses, partially suspending for six months the sanctions on the Venezuelan oil and mining sector, on Oct. 18.

On Oct. 17, Trinidad and Tobago’s minister of energy and energy industries, Stuart Young, announced the extension until 2025 of the OFAC license allowing the exploitation of the offshore gas field off the Paria Peninsula, enabling his government and operator Shell to negotiate with the Venezuelan government.

Maduro hasdescribed as a “victory” the result of the dialog between his government and the opposition that led to the temporary lifting of US sanctions.

José Vicente Carrasquero, a political analyst and professor at the Universidad Simón Bolívar in Caracas, said if Machado wins with a significant participation of the citizens, it will be difficult for the government to keep her disqualified because international criticism is likely.

“In any case, candidate or not, Maria Corina becomes the great voter, the person whose support will be decisive in the presidential elections,” Carrasquero said. “Maduro, as a result of the lifting of sanctions, at first is going to feel emboldened, believing he has an international backing he does not have, but he is also going to get economic strength he did not have.”

Analysts agreed that the recovery of oil activity will be gradual as the opposition and the government negotiate.

“The US has given the temporary green light for the Venezuelan government to resume exporting oil, without resorting to the black market, which means a very large increase in revenue for Maduro, ” said economist Francisco Monaldi, director of the Latin American Energy Program at Rice University’s Baker Institute in Houston. “We could expect Chevron, with its OFAC license, to continue to recover oil production,” he said.

“Other companies could get their own licenses and make some investment,” Monaldi said. “China’s CNPC could export at full price, but whether they invest to increase production depends on the six-month term of the licenses. The Russians are an important player but are not included in the license. Increased production would be irrelevant to the international market. The unknown of the primary elections is not who will win but with how many votes will win.”

Production potential

Einstein Millan, an energy analyst who is critical of the government and the opposition, described Venezuela’s potential production recovery.

“In Venezuela there are some 18,700 wells, of which between 4,200 and 4,500 are in production,” Millan said. While the remaining14,200 wells are closed, production can be recovered in about 7,000 wells, or 50% of them, with investment and technology, he added.

These wells have a production capacity averaging 150-200 b/d each, Millan said.

PDVSA in 2022 estimated that it would need a minimum of 60 wells to sustainably recover production above 2 million barrels. It produced 770,000 b/d in September, according to its internal documents.

Currently, there is only one operational drill in Venezuela, according to OPEC’s Monthly Oil Market Report.

spglobal.com 10 20 2023