Earthquake recovery takes centre stage, but the same uncertainties about upstream investment wait in the wings, write Carla Bass and Carlos Camacho
Venezuela's twin earthquakes in late June left crude and natural gas production infrastructure largely intact, despite killing thousands, even as they shifted the political ground in ways that are still emerging.
The country's oil operations are concentrated in the Orinoco heavy oil belt east of Caracas and around Lake Maracaibo to the west — outside areas hardest hit by the quakes, such as the city of La Guaira. The destruction killed more than 3,800, a count that is expected to rise as thousands are still missing.
The earthquakes came as Venezuela is trying to rebuild its economy and oil industry in the wake of the US' 3 January incursion.Crude production is continuing apace, most operators say. It climbed to 1.2mn b/d in June from about 1.1mn b/d in prior months, with the government aiming for 3mn b/d in 2030.
Efforts to attract inward investment are also expected to continue as planned, industry sources say, although progress here was already slow as investors await greater certainty about operating in the country.
Interim president Delcy Rodriguez says oil regulations she approved this week will help provide "resources for the recovery and reconstruction of our country" after the quake. The regulations are meant to implement reforms passed earlier this year to allow firms other than PdV to operate oil fields. They also simplify taxes and trim the state's share of earnings and production — Caracas' take from crude production projects has fallen to 20-35pc for most projects, down sharply from an earlier standard of 83.33pc — and create more defined royalty tiers.
But Rodriguez must first get to grips with a country where many citizens want basic disaster recovery to take priority over oil contracts. Disapproval of the Rodriguez administration rose to 63pc in an AtlasIntel-Bloomberg poll conducted on 26-20 June, following the quakes, up from 59pc a month earlier. And 65pc disapprove of the government's earthquake response, according to the same poll.
Pressure release
The disaster could buy Rodriguez's regime a temporary reprieve from political pressure or catalyse a democratic transition, according to consultancy Teneo's political analyst Nicholas Watson. Most officials who worked under former president Nicolas Maduro — including some wanted by the US for drug trafficking — remain in place. But the US has said it is prioritising stability before moving to free elections.
The US has indicated it will reinforce the status quo. This includes not opening a path for opposition leader Maria Corina Machado to visit Venezuela after the disaster, although President Donald Trump later indicated this could change. He has still expressed solidarity with Rodriguez and committed to continue disaster recovery aid, while cutting humanitarian assistance to many other countries.
But in any case, investor uncertainty will do more to delay upstream development than earthquake recovery. Both existing and hopeful new producers have lined up to sign initial agreements, but "the push now is to turn those into contracts", one industry source said. Contract models included in the reform are workable if not perfect, industry sources say, but the energy ministry will still have a high level of discretion. Potential newer entrants are also wary about commercialisation of production, which involves selling, for example, lighter crude to PdV and receiving potentially heavier crude or fuel oil as payment in kind.
Cash flow also remains a problem. Disbursements of oil revenue that must go via a US Treasury Department fund could be more frequent, some operators say.
For now, some Venezuelans' main energy concern is having natural gas supplies for cooking turned back on as pipeline and building inspections continue, if the building was lucky enough to stand.
