At the dawn of the 1920s, Venezuela had drilled its first oil wells and was just two years away from the eruption of almost a million barrels of oil from the Barroso No. 2 well on the shores of Lake Maracaibo — an event that would amplify the country’s oil ambitions and alter its fortunes forever.
Few would have guessed that almost a century later, Venezuela’s oil production per citizen would be lower than in 1926. Once a major OPEC producer, Venezuela has witnessed a spectacular fall in oil production over the last 20 years under Hugo Chávez and Nicolás Maduro. In 2019, U.S. sanctions hastened this decline. Will Venezuela ever reclaim its place as a top oil producer?
With state oil company PDVSA saddled with crippling debt, poor management, and corruption, resuscitating Venezuela’s oil industry would clearly require foreign investment. Several international oil companies maintain limited operations in the country, while others have exited completely.
For investment to flow on the scale required to restore Venezuelan output to pre-Chávez levels, numerous hurdles would have to be overcome, according to large Western oil companies we interviewed for a recent report. Given U.S. sanctions and Maduro’s track record, it is unlikely that investment conditions will improve under his regime. But Venezuela’s appeal to oil majors would be uncertain even with new leadership.
Perhaps the biggest barrier is U.S. sanctions, which effectively ban Venezuelan crude exports to the United States and dollar transactions with PDVSA and threaten action against foreign companies deemed to be supporting the Maduro regime. Venezuela’s onerous fiscal and regulatory framework would also need revision, companies say.
Venezuela’s government take is among the highest in the world—above 90 percent —and most companies can only operate as minority partners with PDVSA, which manages most projects and sells the crude they produce. With PDVSA in shambles, most Western oil companies would prefer not to partner with it under current rules. Taxes and royalties on less profitable fields would also need to be reduced to compensate for numerous costs and risks, even under the most optimistic political scenario.