Falling Short Of Production Goals


BMI View: Venezuelan oil production will fall considerably short of the government ' s 2012 year-end production target of 3.5mn barrels per day (b/d). Indeed, we forecast t hat total oil production will average 2.86 mn b/d this year, representing a 16% increase year-on-year from 2011, but still well below publicly stated goals.

BMI 's forecast for average daily production in 2012 is considerably below Venezuela's goal of 3.5mn barrels per day ( b/d ) by year-end, as well as the current production level cited by the country ' s oil minister . According to minister Rafael Ramirez, average output has ranged between 3mn and 3.1mn b/d. However, because the country stopped publishing independently certified data in March 2011, true clarity into the country's production remains elusive. As such, we retain a more caut ious view. Indeed, Venezuela reported to OPEC an average production rate of 2.84mn b/d in August 2012 , which is much closer in line with our own data . A lthough w e forecast strong growth over the coming years, we do not see production exceeding the government's current goal of 3.5mn b/d until 2017.

Venezuela ' s long-term potential is undeniable, with the country ' s proven reserves now estimated to be the largest in the world. As such, despite unfavourable licensing terms and a sour business environment, the country will continue to rely on investment largely from Asian, Indian and Russian players to boost production. Similarly, the country ' s active rig count has reached 373 - a new record, providing further support to a sustained increase in production over time.

However, w e have consistently highlighted the downside risks of the current trend of investment into Venezuela's energy sec tor, with a significant level of the country ' s future oil production now tied up in preferential oil deals ( see our online service, May 23 2012, 'New Loans Have Caracas Over A Barrel ' ) . This remains a risk for both Venezuela and for its foreign investors. Indeed, the government has consistently mortgaged away its future oil production for financing today, much of which has then been siphoned off for Hugo Chavez ' s ambitious social agenda.

This has been systemically undermining the country ' s ability to invest in its own oil and gas sector, just as it is obligated to send an increasing amount of net exports to its debtors ( see 'Above-Ground Risks Limit Huge Potential' , August 17 2012 ) . Following Chavez's recent re-election, it seems likely that these policies will remain in place, leading to continued underinvestment in the sector and further restraining the country's long-term production potential.

Production To Take Off
Venezuela Proven Oil Reserves & Production, 2001-2021 ('000b/d)
This article is tagged to:
Sector: Oil & Gas
Geography: Venezuela, Venezuela, Venezuela, Venezuela

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