When Venezuelan leader Hugo Chavez survived a vote to oust him last week, the victory eased worries that the world’s fifth-largest oil exporter might erupt in political turmoil.
Yet trouble still lurks in the country’s massive oil sector, with industry experts warning that Venezuela needs long-overdue investment in aging oil fields.
Exploration and production have suffered under Chavez, analysts said, because the populist ruler diverts too much money from the state-run oil company’s budget to finance social programs for the poor.
If a better balance isn’t struck soon, they said Venezuela, a major supplier of fuel to the United States, faces a potential double whammy: The country could find itself marginalized within OPEC as other nations are given greater market share and that would mean less oil money available for Chavez’ social agenda.
At the moment, Venezuela’s daily output is about 2.5 million barrels, or 400,000 barrels below its official OPEC quota, according to observers inside and outside the country.
Total Venezuelan output had been above 3 million barrels a day as recently as 2001. But the country was hit by recession and a nationwide strike over the next two years, crippling the oil sector and leading Chavez to fire some 18,000 employees of Petroleos de Venezuela S.A., the state-run giant, for participating in the antigovernment protest.
‘‘It takes pretty substantial investment to sustain production, let alone increase it,’’ said Robert Cordray, a senior analyst at Washington-based PFC Energy Group who focuses on Latin America. ‘‘And it appears that that investment is not happening. If these (oil) fields are left to their own devices, it’s hard to imagine a scenario where they’re not declining.’’
The oil company, which owns the gasoline refiner and retailer Citgo Petroleum Corp., has spent only about a third of the $3.3 billion available for exploration and production in 2004, according to Cordray. Moreover, the amount allocated is down 33 percent from the $5 billion originally set aside.
Officials at the company did not return several calls seeking comment.
Notwithstanding the woes, there is immense outside interest in Venezuela’s oil sector. It is close to the United States, it is less volatile than some other oil-producing nations and it has estimated proven oil reserves of 78 billion barrels.
Chavez’ political victory has made foreign oil companies more comfortable investing in Venezuela because, while they may not agree with his politics, at least they know who they are dealing with, analysts said.
ChevronTexaco is looking into a possible $6 billion investment to produce heavy crude in the country’s Orinoco tar belt and upgrade a facility there, and Royal Dutch/Shell Group is said to be interested in a new project there, too.
‘‘We’re very anxious to try and grow our presence in Venezuela,’’ said Steven Tholen, chief financial officer of Harvest Natural Resources, a Houston-based company that has spent some $1 billion in the past decade and produces 20,000 barrels of oil a day in Venezuela, all of which is sold to petroleum giant.
He added: ‘‘From our standpoint, we’re apolitical.’’
However, one impediment to new foreign investment in oil exploration and production has been the country’s 2001 Hydrocarbons Law. It raised royalties private companies have to pay the government and guarantees the national company a majority stake in any new projects.
‘‘The companies will try to be creative to make them worthwhile projects,’’ said Elisabeth Eljuri, a Caracasbased partner at Macleod Dixon, a law firm involved in the energy business.
But negotiations have dragged on for years.
‘‘It has been publicly reported that a number of companies are out there knocking on (Venezuela’s) doors, trying to get crude projects,’’ Eljuri said. ‘‘However, they have been knocking for some time now.’’
The growth of foreign oil operations is particularly important because the company’s production has been steadily shrinking since 1998.
PFC Energy estimates the company’s average daily production in 2004 to be 1.43 million barrels, down from 2.91 million barrels in 1998, based on an analysis of filings with the Securities and Exchange Commission and data from Venezuela’s oil ministry.
By comparison, the amount of daily production controlled by international oil companies — of which the national giant has some equity interest — rose from 368,000 barrels in 1998 to 1.1 million in 2004.
Many oil analysts feared added turmoil if Chavez had lost the recall vote, as former workers sought their old jobs back. In that sense, his political survival was a positive development for global oil markets already jittery about the prospect of supply disruptions in Iraq and Russia.
Many analysts believe Chavez will spend what is required to maintain the strength the national oil company, which accounts for roughly half of the government’s revenue. And for now, any flaws in Chavez’ strategy are not outwardly apparent — funneling billions of dollars from the company into social programs has solidified his political base among the poor. And with oil prices soaring, the country is awash in oil money.
The challenge will come if oil prices decline sharply. That will leave the national oil company less money to play with, forcing Chavez to make a decision: Spend even less on exploration and production, begin cutting back some of the social programs or make it more enticing for foreign oil companies to do business there.