US pushes for quickest fixes to boost Venezuela oil output

WASHINGTON – The US is in talks with Chevron, other crude producers and the world’s biggest oilfield services providers about a plan to quickly revive output in Venezuela at a fraction of the estimated US$100 billion (S$127 billion) cost for a complete rebuilding.

Oilfield contractors such as SLB, Baker Hughes and Halliburton would focus their initial efforts on repairing or replacing damaged or outdated equipment and refreshing older drilling sites, according to senior administration officials who asked not to be identified discussing internal plans.

The idea is that with limited investment, Venezuela could boost production by several hundred thousand barrels over the short term, the sources said.

The go-fast approach is designed to fulfil the Trump administration’s goal of

swiftly increasing crude flows

in the wake of the US capture of Venezuelan strongman Nicolas Maduro, generating cash that could be used to help pay for rebuilding the country.

Longer term, President Donald Trump’s goal remains an industry revival that would bring output closer to the country’s 1970 peak of roughly 3.75 million barrels per day (bpd) from current production of less than one million bpd.

While analysts say achieving that bigger prize will take at least a decade, there are plenty of production gains to be had in the near term.

“There’s some low-hanging fruit that you could probably squeeze some life out of once again,” said Mr Tom Liskey, who heads Latin American research at industry consultant Enverus.

A representative for Halliburton said its goal in Venezuela “is to achieve quick wins and generate immediate production recovery”. Representatives for SLB did not immediately respond to messages seeking comment. Baker Hughes declined to comment.

A more immediate upswing in Venezuelan crude flows would align with several priorities for Mr Trump, who has prized American energy dominance both as a source of leverage globally and political capital at home, where he is seeking to allay cost-of-living concerns ahead of critical midterm elections in November.

A supply boost from Venezuela, however modest, is seen as not only helping to check crude and gasoline prices, but also expanding the US’ leeway to move against Iran without jolting the market.

Venezuelan crude sales will make money for both countries and “bring down oil prices even further”, Mr Trump told reporters on Air Force One on Jan 22.

“We are drilling more oil than at any time in the history of our country, by far. If you add Venezuela to it, it’s a tremendous part of the market,” he added.

Bringing state-of-the-art US equipment and techniques to Venezuela – where the oil industry has been throttled by years of sanctions – can revitalise existing wells and bring new production online within months, the Trump administration officials said. Some analysts have underestimated how dramatically operations could improve under free-flowing, regular relations, one of the sources said.

Even so, the country’s existing infrastructure has been plagued by decades of underinvestment and neglect – including in once-prolific areas in the east and around Lake Maracaibo where oil was first discovered a century ago. Environmental liabilities from years of oil spills and jury-rigged installations are another challenge.

If the Trump administration gives the green light for other US contractors to join rival SLB – the largest services company that has remained working in the country – in the initial phases, they are likely to employ tried-and-true equipment that will rehabilitate old wells, repair artificial lift pumps and install electric turbines at remote fields.

“The short term is workovers of PDVSA’s inventory,” Mr David Goldwyn, chairman of the Energy Advisory Group, said on Jan 22 in an Atlantic Council event, referring to Venezuela’s state-owned oil company. “It’s not technically difficult, doesn’t require a huge amount of capital.”

Chevron will initially focus on “leveraging what’s on the ground” in Venezuela, vice-chairman Mark Nelson said at a White House meeting on Jan 9. The company plans to increase production from its joint ventures (JVs) with PDVSA by 50 per cent within the next 18 to 24 months, he said. Currently, the JVs produce about 240,000 bpd.

The company said in a statement that it stands ready to help Venezuela “build a better future while strengthening US energy and regional security”.

Longer term, the US authorities – and oil companies in talks with the administration about entering Venezuela – see opportunities in drilling new wells and even tapping new underground reservoirs. US Treasury Department officials are weighing a surge of applications from crude producers, oilfield services companies and other firms seeking licences to enter Venezuela, the administration officials said.

The enthusiasm remains tempered by concerns about political stability and safety for workers in the country. Some industry leaders have stressed they need financial and security guarantees from the US – an option Energy Secretary Chris Wright appeared to foreclose in a Jan 22 interview with Bloomberg TV.

Despite having to write down losses in the past, US services providers are also buzzing about the opportunity to return to a country that boasts one of the world’s biggest oil reserves.

“We can mobilise in weeks,” Halliburton chief executive Jeff Miller told investors recently. “We can move fairly quickly as opportunities arise.”

Baker Hughes has the largest installed base of rotating and artificial lift equipment – machinery that speeds up crude production – in Venezuela, CEO Lorenzo Simonelli said recently. The infrastructure is key for production in the country, where crude is located in remote areas that do not always have access to electricity.

Oilfield services company Weatherford International has called Venezuela a massive opportunity.

“It’s the most interesting development that’s happened in our industry in a long period of time,” CEO Girish Saligram told investors in January at a conference in Miami.

Venezuela could be particularly attractive for servicers, which have suffered from a slowdown in US shale growth in recent years.

When Venezuelan oil production was at about three million bpd, the country was running roughly 75 rigs, according to Citigroup. Returning to that pace of activity would mean a market of US$10 billion in drilling and completion spending. The artificial lift and chemicals market could be another US$750 million a year, the bank said.

“Venezuela, with all that we are seeing, could be heading back to 1.5 million barrels a day,” said Ms Luisa Palacios, former chairwoman of Citgo Petroleum. “That obviously is not enough, but that gets you to stabilisation.” BLOOMBERG