News Release

Fast output recovery of oil and gas still challenging with easing of US sanctions on Venezuela

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Addressing the US Treasury Department’s partially lifted sanctions on Venezuela’s oil and gas sector, Adrian Lara, principal research analyst, Latin America Upstream Oil and Gas for Wood Mackenzie said, “Although still conditioned by a subsequent renewal, this new easing of sanctions can certainly be considered a positive move towards the recovery of the Venezuelan oil and gas sector. However, it does not guarantee a rapid or permanent recovery of production, given the required investment needed to deal with current infrastructure repairs and bottlenecks.”

The partially lifted sanctions are through a new six-month license authorising transactions in the country’s oil and gas sector. The license is to be renewed only if Venezuela can meet commitments leading to a fair voting in next year’s presidential election. The US government also amended two other licenses to remove the secondary trading ban on certain Venezuelan sovereign bonds and PDVSA debt and equity. However, a ban on trading in the primary Venezuelan bond market remains in place.

“This new license also benefits companies that have sought to increase imported oil from Venezuela as means of receiving payment for debt, owed to them by PDVSA and the Government,” said Lara. “We don’t expect a major impact on international oil markets as of now. The impact on current oil and gas production will be limited over the next year.”

According to Wood Mackenzie, Chevron remains the operator leading production growth in the country, with an estimated current spare capacity above 230 thousand barrels per day (kbd). The company will now be able to increase the use of local oil and gas service providers, which can lead to a ramp up of its production targets.

“With subsequent renewals of this license, there can be an impact on investment in the sector. Several international oil and gas companies have participated in domestic projects of different maturity and can negotiate with PDVSA to start or ramp-up production,” said Amanda Bandeira, research analyst, Latin America Upstream Oil and Gas for Wood Mackenzie.

Added Lara,The government of Venezuela can indeed gain from this lift on sanctions and increase its oil-related revenues to palliate its economic hardship. As for its commitments to positively manage the democratic process of the country, it remains to be seen how the US government will assess the situation after six months and whether the easing of sanctions prevails.”