Continued Venezuelan Oil Nationalizations Make No Sense
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Continued Venezuelan Oil Nationalizations Make No Sense
By Pietro Donatello Pitts (@PietroDPitts) 10 July 2017
Venezuela’s oil sector remains in the dumps to say the least. The OPEC country’s investment pool of small-to-large capped services companies, integrated majors and national oil companies has dwindled to just a handful, if that many. That’s why recent comments by constitutional lawyer and candidate to the constituent assembly, Hermann Escarra, make no sense what so ever. At least not to me.
The current scenarios facing PDVSA and the Venezuelan petroleum sector are unfortunate, self-inflicting and have only worsened over the years including -- financial mismanagement, a brain-drain of talent, investments in sectors not related to the oil and gas, unnecessary indebtedness at the state entity PDVSA, excess political influences in the oil sector and at the state company, the stand-and-wait attitude of petroleum sector investors, nationalizations without proper compensation, among others. These ills have produced a collapse in oil production, the life-line of this oil obsessed and dependent nation of nearly 30 million people. Let’s not forget the lingering economic, political, and humanitarian crises in the country with the world’s high inflation and homicide rates that keep Venezuela at the top of that ranking as well.
The latter point is one that has burnt Venezuela in the not so distance past. Just about a decade ago late populist Venezuelan President Hugo Chavez announced results of a long drawn out migration process that saw many companies in disagreement with proposals from the government and many more countless asset nationalizations or expropriations. ExxonMobil and ConocoPhillips always come to mind first just for their mere size in terms of assets and revenues and the goodwill value of what their presence in Venezuela or any emerging country potentially tells about the healthiness and attractiveness of a country’s petroleum sector and the opportunities that must exist. It’s no secret that the integrated majors including the prior two as well as Chevron, Repsol, Statoil, and Shell, among others, like to look for the elephant fields. In Venezuela, there’s a hell of a non-conventional elephant field located in the Hugo Chavez Orinoco Heavy Oil Belt, also known as the Faja. For the matter, the still prolific and reserve bearing Lake Maracaibo offers numerous conventional opportunities in relative shallow waters. Offshore Venezuela the natural gas opportunities are just as enticing, but that’s another story all together since foreign partners are still allowed to have a majority stake in the country’s gas ventures.
Venezuela’s oil sector was nationalized in 1976. PDVSA emerged from that process. The so-called nationalizations under the presidency of Chavez during the period dubbed 21st Century Socialism called for PDVSA to assume a majority stake in oil related joint ventures whereby the company was a minority partner. What nationalizations Mr. Escarra is referring to remain a mystery but PDVSA has already emitted an official statement dismissing his comments.
Escarra’s comments or not, the thought of uttering the word nationalization to investors in a country on the brink of a financial collapse, among others, is worrisome. The word triggers fear many investors have already experienced and many have no decent words to say about the process, having lost assets, their livelihoods and many of them still holding their breathe in hopes of a payment check arriving someday. Sadly, that day may never happen. Any future nationalizations without compensation will translate into no future foreign investments for a long time. Just looking back over the last decade, we can see what bad effects a nationalization process gone wrong can have on an oil sector and a country, in particular.
Pietro Donatello Pitts is a freelance multi-media content producer focused on covering Venezuela as well as other Latin American and Caribbean countries. He previously worked in Venezuela with Bloomberg Venezuela, LatinPetroleum, and Banco Santiago de Leon; in Mexico with Banco Mercantil del Norte (Banorte); and in the USA with investment banks Morgan Keegan and Jefferies & Company. He can be reached for potential freelance projects via Twitter at @PietroDPitts or via LinkedIn. His upcoming book “Venezuelan Oil Four Centuries,” is due out later this year.
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