Venezuela Oil & Gas Report Q3 2013 - New Report Available

From: Fast Market Research, Inc.
Published: Wed May 22 2013

The death of Hugo Chavez underscores an uncertain and potentially precarious outlook for Venezuela's oil sector. Despite sizable hydrocarbon potential, underscored by the world's third largest oil reserves, above-ground risks will cause the oil sector to continue to perform below potential without substantial reform. While new projects will come online to boost output, delays in payment, poor terms and chronic underinvestment in infrastructure remain sizable risks to the downside. Although with a far narrower than expected margin, at the time of writing Chavez's handpicked successor was set to take the reins of power in an uncertain transition period.

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The key trends and developments in Venezuela's oil & gas sector are:

* We have adopted a conservative approach in our forecast for growth in Venezuelan oil production, seeing more downside risk than upside in the near term absent a wider overhaul of the sector. With production flat in 2012 at around 2.5mn barrels per day (b/d), we expect output to rise slightly to 2.6mn b/d, driven mostly by new projects in the Orinoco belt.
* In the medium term, we expect output to remain below the stated output goal of 3.0mn b/d until the end of the decade, when we expect gains in production to accelerate as planned and proposed developments in the Orinoco belt come online. Our conservative forecasts assumes delays and problems that have been a hallmark of the country's oil sector, where production remains 1mn b/d below the 3.52mn b/d peak reached to date in 1997. The fall in output since underscores the deterioration in the country's business environment.
* With Venezuela increasingly reliant on the oil as other sectors of the economy shrink, and the spectre of rising inflation and crime among the factors that may have seen opposition candidate Capriles garnering a much stronger than expected share of the vote at 49.07% (according to official figures at the time of writing), there could pressure for reform given Maduro may lack the political and personal mandate of Chavez, who imprinted his power on the country with the force of his personality and not necessarily through institutions. Yet in the near term, we expect no change in policy that would support any alteration of our current forecasts.
* Despite Venezuela's unfavourable licensing terms and sour business environment, which have forced international oil majors including ConocoPhillips and ExxonMobil to exit the country, a significant amount of foreign interest remains and Asian players from India and China are still making large-scale investment as they seek access to the Orinoco belt. Of these, China remains the largest, and in May 2012 it increased its bilateral lending to Venezuela to US$36bn in exchange for an ever-increasing guaranteed annual oil shipment, which is supposed to be in the region of 700,000b/d by 2015.

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