Venezuela gets serious about oil production?

No, seriously. Baker Hughes’ rig counts show a serious surge in drilling activity in Venezuela in recent months. Check it out:

Baker Hughes' Venezuela combined oil and gas rig counts

Yes that’s right, Venezuela’s rig count is at its highest since before Hugo Chavez took office. (Big hat tip to Patrick Esteruelas at Moody’s, who flagged the rising rig counts in a note yesterday.)

And look at it in comparison to other countries in the region: Venezuela is back to being the biggest drilling market in Latin America, for the first time in a decade.

Baker Hughes' combined oil and gas rig counts for major Latin American countries. Follow the pale blue line for Venezuela.

To look at it another way, here are how countries divide up the oil, gas and “miscellaneous” rig market in Latin America.

Baker Hughes Latin America rig count proportions

Percentage of rigs in each major Latin American country, always adding to 100%

The minor countries, including Trinidad and Tobago, Bolivia and Ecuador (all of them significant fuel exporters, but not major drillers) are all grouped together. The most remarkable thing to note here is that when Venezuelan drilling declined, back in the days of $10 barrels of oil and general depression across Latin America, drilling was a two-player game. Venezuela and Argentina dominated Latin America. Since then, Colombia, Brazil and Mexico have all picked up the pace. There are a few lessons in this chart. One is that when governments want to promote drilling, holes will be drilled. Another is that whenever it wants to, Venezuela can once again become the dominant fossil fuel country in the region. It has the oil, perhaps the world’s last great terrestrial oilfields. It just needs the incentives.

And finally, it looks like Venezuela’s government may be taking oil production seriously. Check this out, hoisted from commenter Otto:

“Están excluidos los nuevos desarrollos y los proyectos que incrementen producción. El criterio es que las empresas que estén trayendo dinero para producir más no sean pechadas”, dijo a Reuters Rafael Ramírez, quien también preside la estatal PDVSA… Pero según explicó el ministro, la producción incremental que logren las empresas mixtas quedó exonerada del pago del impuesto, así como la extracción de los nuevos proyectos de la Faja del Orinoco, que tienen por delante decenas de miles de millones de dólares para los próximos años.

And here is what that seems to mean: Mr. President does what he wants, but we sat him down and explained that his wacky Thursday-night decree was ill-advised, so we gutted it. It won’t apply to any expanded oil production, including new developments in the Orinoco Belt. Now back to your drill rig. Get to work before we expropriate you. Scoot.


4 thoughts on “Venezuela gets serious about oil production?

  1. Miguel Octavio

    The problem is that Pdvsa’s finances aee severely affected, sinceitowns 60% of the oil projects, it has to come up with the money for them, but with this tax, it seems hard Pdvsa will havethe resources to invest.What will the partmers do?

  2. Kepler

    Setty, thanks for this piece. I was scratching my head last night while reading what Ramírez said and I did not interpret them like you did. It seems to me this was not just Chávez’s idea and I don’t think Ramírez did not know. These guys are trying to push for whatever they can get and they are sometimes rather improvising. Good for them that Venezuela is so full of oil and foreigners want to invest in it…but in general it seems they throw out some challenge out there – not just Chávez – see how the industry reacts and then proceed.
    What garantee is the minister expressing there? None, really none. This “if they bring money they will not have those taxes” is rather vague. What is this “invest”? How much exactly and under what conditions?
    Chavistas are changing conditions every day, depending on what they see in their and Venezuela’s accounts.

  3. gustavo coronel

    It seems impossible to write about Venezuelan oil production without having to use a question mark, as you do in this note. Of course, the number of rigs is important. Veezuela loses a fifth of its oil production every year through the natural declination of its reservoirs. Therefore, like Humpty Dumpty (?, or Alice’s friends?) the oil industry has to run faster every year to stay in the same place .
    The problem is that keeping in the same place and , at the same time, expanding production requires twice the amount of activity. This is not taking place in Venezuela today . I admit that I lack solid figures but I know what is needed and I find no signs that what is needed is being put in place by PDVSA.
    It would be nice to know how much oil is being produced. REALLY. How many rigs are drilling new wells, REALLY. How much new production is being contributed by the new wells (remember thay have to be hooked to production facilities) What is going on in the Faja? There are so many question marks that we cannot do much more than guess. I think the Veezuela oil industry requires more transparency. Until we get better information we cannot make any intelligent predictions on where this idustry is going.

  4. westslope

    The growth in the Venezuela rig count since early 2009 appears to be faster than that of Colombia. Fascinating, and not what I expected.

    Hmmm…. Taken at face value…. this suggests that expropriating foreign property, and imposing punitively high royalties and taxes may be a perfectly viable way of stimulating the upstream oil sector. QED

    Rafael Ramírez just made me feel almost better about investing in the Venezuela oil sector. Here we have increasingly credible commitments to foreign investment partners and parallel duplicitous, misleading and simply false messages para el pueblo. Terrific.

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