Tuesday, May 9, 2017

How Venezuela Ruined Its Oil Industry

“SOCIALISM”:

How Venezuela Ruined Its Oil Industry.
So there are primarily two related causes that have resulted in the steep decline of Venezuela’s oil production, despite the sharp increase in the country’s proved reserves. The first is the removal of expertise required to develop the country’s heavy oil. This started with the firing of PDVSA employees in 2003 and continued with pushing international expertise out of the country in 2007.

Second, the Chávez government failed to appreciate the level of capital expenditures required to continue developing the country’s oil. This was in no small part due to inexperience among the Chávez loyalists that were now running PDVSA, but it may not have mattered in any case. When oil prices were high, Chávez saw billions of dollars that could be siphoned to fund the company’s social programs, and that’s exactly what he did. But he failed to reinvest adequately in this capital-intensive industry.
One of the amazing things about today’s low oil prices is that they’ve been achieved concurrent with a longterm decline in Venezuelan production. Assuming the country returns someday to sane and sensible government, the first thing they’re going to do is get those oil fields working again — and probably with very little regard to price.

That’s going to put the pinch on North American frackers, but the rest of OPEC is going to suffer, too, and perhaps to an even greater extent.
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