Few countries have been hit harder by declining crude oil prices in recent months than Venezuela, reports energy business advisory firm Douglas Westwood (DW). Falling oil prices have compounded Venezuela’s debt situation because crude oil represents about 95% of the country’s exports. Although Venezuela is a member of OPEC and claims the world’s largest volume of oil reserves, the country’s national debt, continuing inflation (60% according to BBC News), and low credit rating, coupled with neglected and under-developed downstream facilities, continue to make its energy sector an unattractive investment opportunity for international oil companies, reports UK-based DW.
The country’s troubles reached epic proportions in 2007 when its government began seizing foreign-owned upstream assets, which resulted in an 80% fall in drilling activity. Meanwhile, Venezuela’s national oil company, PDVSA, has been hit by arbitration filings by a number of companies, including, for example, a court ruling to repay US$1.6 billion to ExxonMobil.
As a result, the increasing debt held by both PDVSA and the Venezuelan government has led Moody’s to downgrade Venezuela to the third lowest rating, making it extremely difficult and expensive to access international lending markets. In January, Moody’s downgraded Venezuela's government bond ratings to Caa3 from Caa1. Moody’s listed two key drivers for the downgrade, the first being the country’s default risk, which “increased substantially as external finances continue to deteriorate due to a strong decline in oil prices,” reported Moody's. The second driver is that, in the event of the country’s default, Moody's believes that the loss given default (LGD) would likely to be greater than 50%. As of 26 March 2015, the country’s total external debt topped $95.1 billion, which represents 24% of the country’s gross domestic product, reports DW.
However, Venezuela’s offshore oil and gas potentials offer hope, according to findings by DW. The advisory firm predicts that Venezula’s offshore production could increase from 149,000boe/d in 2014 to 473,000boe/d by 2019. The majority of the production increase is expected to come from the Perla and Mariscal Sucre gas projects, which will contribute to a rise in offshore drilling during the next four years.
“Given that gas prices have not fallen by the same degree as oil prices, a quick ramp up of production could come to PDVSA’s rescue,” states the advisory firm. Although DW does not believe that the increased level of production will rescue PDVSA or Venezuela in the short term, it might help the country to “weather the storm.”
Perla map by Repsol
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