Recent events in Venezuela have caused a stir in the energy industry, with abundant news outlets, industry journals and energy players of all sizes and interests turning their attention and pondering risks, uncertainties and deciding whether to take advantage and be early movers into a region known as a prolific petroleum province with privileged access to Western markets.
The AAPG Explorer, consequently, is featuring abundant material on Venezuela, and some Venezuelan professionals, including several AAPG members, would like to add a few comments in the context of fast-evolving events that point to the revitalization of the Venezuelan energy industry, essential to produce financial resources for the country in the face of stabilization and return to democracy and a market economy.
Legislation and Regulation
Transparent and predictable hydrocarbon legislation and regulation are essential to dissipate uncertainty and support investment decisions. Jesús Aboud, a geophysicist with a deep knowledge of Venezuelan Hydrocarbon laws, commented, “Point modifications were swiftly made to the existing Hydrocarbon Law, with a view at fast-tracking business opportunities for new and existing actors. Private investment is now prioritized with new forms of participation, and the fiscal regime was made flexible and simplified to streamline the economics of capital-intensive projects. This, however, is a temporary solution, as there are already projects for a modernized and sleeker Hydrocarbon Law.”
Human Talent
With a history of more than 100 years of oil and gas industry tradition, Venezuela built a solid base of upstream, midstream and downstream infrastructure and human resources. It didn’t happen overnight, of course, as both human resources and infrastructure marched hand in hand along a lengthy build-up that took decades to develop. International oil companies that initiated the Venezuelan oil industry gradually incorporated local professionals, workers, and managers. Then, after the (amicable, it must be said) nationalization in 1976 and up until 2002, PDVSA was successfully run by and with Venezuelan managers and technicians to become the history of success that is already known.
A GP-class drilling barge on Maracaibo Lake. Photo by author.
“PDVSA was run with a flair for technology, modern managerial practices and ideas and a long-term policy of human resource creation and retention. Many generations of professionals were formed for the upstream, mid-stream and downstream functions, R&D outfits were created, and national and international universities played a crucial role in forming the new generations,” said Hans H. Krause, a long-career Venezuelan geologist who was awarded the AAPG Michel T. Halbouty Outstanding Leadership Award in 2018.
During the downturn, some professionals of the oil and gas industry stayed in the country and many others migrated, and it became common to see Venezuelan professionals of several service companies, IOCs and international institutions and universities.
There will be more about this in Emily Smith Llinás’ articles in this and last month’s issue of the Explorer. Part of the workforce that migrated will stay out of the country and part will probably return to join those who stayed, helping to fill generational gaps.
“Their knowledge, commitment and dedication are key for Venezuela’s recovery. We see, for example, geoscience students that consistently excel and turn into capable professionals, currently serving in Venezuela and many other countries, as well as student teams that frequently stand out in international academic contests like IBA and Evolve, despite resource-constrained conditions,” said Antonello Lilliu, a geophysicist with a long career in PDVSA and other companies, professor at the Earth Sciences Department of Universidad Simon Bolívar of Caracas and former president of the Venezuelan Geophysical Society (SOVG).
Infrastructure
Production, transport, storage, and processing facilities have suffered from a lack of maintenance and even cannibalization for years, a situation widely known that can only be corrected with fresh resources from new and existing actors.
“Infrastructure is the main bottleneck for a swift recovery,” said Tomás Mata, a petroleum engineer with a long career in production in PDVSA and other international operators, and active speaker on the Venezuelan petroleum industry and its potential.
“Yes, the bottleneck is challenging, but Venezuelan labor and service companies, many of them currently idle and ready to reactivate, have a track record in construction and maintenance of production, transport and refining infrastructure,” said Mata. “Add capital investment and swift supply and you start to see the picture.”
Exploration and Production Opportunities
Venezuela´s commercial basins host 633 oil and gas fields of all sizes, operated exclusively by PDVSA or with private companies and some national oil companies. Most fields are inactive or producing way below their potential, having undergone long years of operational stagnation. The supergiant extra-heavy Orinoco Oil Belt (OOB) stands out, in an early development phase.
“The first phase is brownfield optimization, and integrated pilots demonstrated already the uplift achievable with up-to-date technologies and completion techniques across multiple field families. Incremental reserves from optimized production and reservoir management in mature fields of light, medium and heavy oil are obvious opportunities for majors, but also for medium and small operators that could find niche opportunities. Also, geologically complex areas can support backyard exploration to add new reserves in old places, as past experiences show,” added Mata.
“Venezuelan onshore oilfields offer attractive growth opportunities to specialized operators that will try to make the most of the ongoing changes taking positions via negotiations, purchases and M&As,” said José Francisco Arata, a Venezuelan geologist and entrepreneur who has explored and produced successfully in Colombia.
Additionally, the onshore basins offer high-value exploration frontiers.
“In the Maracaibo, Eastern Venezuela and Barinas–Apure Basins, there are plays that remain underexplored or completely untouched,” noted Carlos Sánchez, a veteran exploration geologist with extensive experience in Venezuela and one of the founders of VAPA, a Houston-based nonprofit organization advancing innovation in the energy sector.
For investors, these underdeveloped plays represent a rare combination of proven petroleum systems and substantial upside potential. In the offshore domain, several gas-prone offshore basins are attractive in a gas-thirsty world, with large discovered and prospective resources capable of long-term supply to European and U.S. markets.
Jairo Lugo and Raul Ysaccis, subject matter experts in Venezuelan geology, will present on the prospectivity of Venezuelan petroleum systems and offshore basins in AAPG´s upcoming Venezuela Technical Symposium and E&P Summit on May 19-20 in Houston.
A Recovery Scenario
Claudio Martínez is a reservoir manager with wide experience in Venezuelan assets who regularly follows the Venezuelan oil and gas industry and has modelled recovery scenarios with his team.
“In one of our central scenarios, an early increase of 500,000 bpd in 1.5 to 2 years can be obtained from reactivating select mature fields in east and west Venezuela (the ‘low-hanging fruits’) with an investment of $3 to $6 billion, including recovery of infrastructure. In the following two to three years, additional 550,000 bpd could be added by reactivating prioritized projects in the OOB and overhauling the refining infrastructure with an investment of $9 to $15 billion,” he said.
“Taking Venezuela to 3 to 3.5 million bpd,” continued Martínez, “can be achieved in five additional years by further expanding the OOB with capital investment of $20 to $25 billion for an increase of 1 to 1.5 million bpd, and developing and diversifying the natural gas value chain, including LNG and manufacture of advanced petrochemicals with a $5 to $8 billion of capital expenditure”.
Wrap Up
Inflection points often create new opportunities for the energy industry to get involved in new scenarios. So far, those new opportunities and scenarios do look good for Venezuela. Following a long politically- driven decline that affected a petroleum industry once recognized globally for its efficiency, technical excellence and sound management, early signs of recovery are beginning to emerge. Political stability and institutional legitimacy took a meaningful step with the events of January, and a structured transition is now under way, progressing with increasing clarity. As usual, risk and uncertainty drive decisions and new and existing actors follow the evolving landscape, ready for intelligent engagement. The fact is that energy provinces do not disappear; they simply wait. When skilled people work with rigor and imagination, curious minds revisit legacy datasets with modern tools. Then, new ideas emerge and performance follows geology.
Venezuela remains one of those provinces, ready for those who can distinguish noise from fundamentals. Having demonstrated in the past capacity to build and lead, in this new scenario Venezuela looks ready to do it again.