By Mariela Nava , Marianna Parraga and Ana Isabel Martinez
CABIMAS, Venezuela, Feb 19 (Reuters) – In September, a rig used to drill wells in shallow waters completed the long trip from China to Venezuela’s oil-producing region of Lake Maracaibo. The passage of the big old rig named Alula just inches below the bridge connecting Maracaibo city with the oilfields of the lake’s eastern coast stirred excitement among residents and workers: they had not seen any new drilling equipment arrive for years due to U.S. sanctions.
The rig hit an oil pipeline as it passed through the lake and over the metallic spaghetti of 20,000 kilometers of pipes beneath the waters. Crude leaked for months before repairs could be made and the rig installed at the polluted lake late last year. The crude production increase has been small since then.
The story of the Alula is a cautionary tale for the foreign energy companies such as U.S. oil major Chevron that are looking to quickly expand in Venezuela and take on the short-term projects needed to boost the country’s oil output. Each step forward often brings a new host of challenges.
Other foreign companies with a toehold in the country include Spain’s Repsol, Italy’s ENI, France’s Maurel&Prom and China National Petroleum Corp.
U.S. President Donald Trump wants American companies to spend $100 billion to rebuild an oil industry that has suffered 20 years of neglect, mismanagement and underinvestment under the socialist presidents Hugo Chavez and Nicolas Maduro. Washington has been easing sanctions since its military incursion to snatch Maduro in early January by issuing a handful of general licenses that allow energy companies to export, import, invest and operate oil and gas projects in the OPEC member.
Early expansions could lead to the South American country adding as much as 500,000 barrels a day (bpd) of crude output in as little as six months from a current 1 million bpd, two executives from companies with assets there said.
U.S. Secretary of Energy Chris Wright said this month from Caracas he expects a “dramatic increase” in Venezuela’s production in the coming months.
The U.S. oil capital of Houston and Venezuela’s oil regions, meanwhile, are abuzz, mobilizing for an oil rush and for the business opportunities on offer to participate in one of the biggest repair jobs the energy industry has ever seen. It is an effort on the scale of work to boost Iraq’s production after the second Gulf War or to rehabilitate the Kuwaiti oilfields torched by Iraqi leader Saddam Hussein.
According to half a dozen industry workers, oil employees with experience in Venezuela and executives planning to work there, and numerous industry experts and analysts interviewed by Reuters for this story, the first phase in Venezuela would involve some relatively straightforward projects to get more oil flowing quickly: using rigs already in the country, refurbishing dilapidated wells and crude upgraders that are working below capacity, and repairing ports and pipelines operated by state oil company PDVSA. But even the easy projects are tough, they said, and after that, the work will get even harder.
In early February, a Reuters reporter who toured the Lake Maracaibo area saw oil industry junk, tanks overflowing with crude, abandoned oilfields, blackened shorelines, and long lines of vehicles to buy gasoline close to storage terminals and operational sites run by PDVSA. They were all visible reminders of how much work lies ahead, even to pick what might be regarded as the low-hanging fruit, in the region that is home to Venezuela’s oldest production facilities and has the country’s second-largest output capacity.
THE FIRST STEPS
Among the first steps companies foresee would be to execute projects like the one planned by China Concord Resources Corp, which brought the Alula rig to Venezuela last year.
The firm aims to increase a combination of light and heavy oil production from two fields to 60,000 bpd by the end of this year from 16,000 bpd in December through a $1 billion program that would require refurbishing as many as 875 inactive wells before new wells can be drilled. The company is now fixing many unplanned issues, from insufficient supply of the gas needed to maintain pressure at wells, to the loss of key technical data and lack of transportation for workers, a source from the project said, adding that those obstacles have prevented it from reaching output targets.
It is unclear if that project will proceed after Trump said companies from U.S. rivals on the global political stage – China, Russia and Iran – were no longer welcome in Venezuela. Under sanctions, companies from those countries were among the few that were willing to work there.
In contrast, Chevron – for years the only U.S. major producing crude in the country – is in prime position to achieve early gains. The company needs the type of light crude that China Concord is pumping and is competing with rivals to secure supplies in Lake Maracaibo.
Light oil and fuel that can dilute Venezuela’s tar-like oil are precious commodities for energy companies working in Venezuela. Without expensive crude upgraders or diluents, the country’s massive reserves of extra heavy crude cannot be transported or exported.
The promise of relatively easy to produce barrels is increasing the appetite of foreign oil companies for work in highly polluted or technically complex regions like Lake Maracaibo and Monagas North, which state company PDVSA has neglected in recent decades as part of its strategy to keep the focus on the prolific and heavy-oil rich Orinoco Belt further southeast.
Oil from around Maracaibo could also be cheaper for Chevron to produce than from other regions in Venezuela, especially as crude prices remain low, because it does not need to be treated before export, said a former employee who worked on the Venezuela operations.
Other options include reopening existing wells shut down due to lack of specialized equipment or power supply, reconditioning low-performing wells to increase output, and drilling new wells, the former employee said, adding that Chevron would likely have a long list of new well locations under consideration.
Chevron said it “has been a part of Venezuela’s past and remains committed to working in partnership for its future,” adding that it welcomes recent U.S. licenses and legal reforms in Venezuela.
The country’s oil ministry and PDVSA did not reply to requests for comment. China Concord could not be immediately reached for comment.
HEAVIER ORINOCO CRUDE
Companies with oil contracts and project stakes across the country are jostling for access to specialized equipment already there. There are up to 14 drilling rigs that have been in storage for years in Venezuela and are owned by Houston-headquartered SLB, one of the top global oil service providers, three sources with knowledge of its assets said.
SLB has been the main service provider to Chevron since it began its most recent drilling program in Venezuela in 2024 as part of a previous U.S. broad license. Like the U.S. major, SLB has many years of experience in the country.
The rigs that SLB has in Venezuela were deployed for PDVSA projects before the U.S. imposed sanctions in 2019. After that, U.S. companies and those abiding by U.S. sanctions could not operate rigs or specialized equipment there.
SLB said it continues to have operational facilities, equipment and staff in Venezuela, and is in “the early stages of collaboration” with customers on next steps. “We are confident that under the right conditions and safety environment, we can ramp up activities quickly.”
Drilling and workover rigs are much needed at the vast Orinoco Belt, where output typically involves a system of well clusters. However, diluents to blend with the extra heavy crude might be more urgent to drain oil inventories accumulated in recent months and boost exports.
Chevron and other PDVSA partners are focused on securing drilling equipment, access to crude upgraders and to light oil or naphtha that can be used for blending. The U.S. company would also need to renovate infrastructure owned by PDVSA – such as the Bajo Grande export terminal. And it would have to dredge the shipping channel in Lake Maracaibo – which has not been done properly for years because sanctions prevented companies from hiring the dredges to do the work.
For Chevron to significantly increase production at the Orinoco, it would require an overhaul of its Petropiar project’s upgrader, which turns the extra heavy crude into exportable grades. That facility also has not been fully repaired for years, two Chevron sources said.
Only five projects in Venezuela, from more than 40 joint ventures between PDVSA and foreign and local companies, have access to upgraders or blending stations to process the Orinoco’s extra heavy oil, a region that holds more than 80% of the country’s 303 billion barrels of estimated crude reserves.
Companies without upgraders would have to source expensive imported diluents to be able to export barrels, an option that would reduce their profitability — and one that also presents logistical challenges due to Venezuela’s limitations for discharging, transporting and storing them.
North American Blue Energy Partners, which has ties to American asphalt magnate Harry Sargeant, has been repairing at least one rig owned by PDVSA for months for its Petrocedeño project in the Orinoco. Finishing those repairs could bring the inactive equipment online relatively quickly, two sources close to the company said.
North American Blue Energy Partners did not immediately reply to a request for comment.
Thomas O’Donnell, an independent energy strategist, said many Venezuelan oilfields written off as depleted may still have significant production potential.
“A lot of those that were said to be dead, depleted, aren’t actually depleted. PDVSA simply didn’t have the skill or the equipment to keep running them and they were cherry-picking fields,” he said.
O’Donnell pointed to mature fields where the last seismic surveys were conducted in the 1990s or early 2000s using outdated 2D technology. He said companies could achieve substantial gains by going into fields already running and bringing them up to standard, potentially yielding “maybe 50 or 100% increase on what’s coming out now.”
LEGAL RISK REMAINS
An oil service company executive who has worked in Venezuela, speaking on condition of anonymity, said the country could increase overall production at existing fields to as much as 1.5 million bpd in less than a year, provided that oil producers get the licenses they need.
The person said Venezuela’s oilfields are “very forgiving; you can increase production a lot,” referring to the plentiful reserves. But the executive added that supply chain issues and major security concerns remain, particularly around Maracaibo.
The executive also noted legal uncertainty remains, as there is no guarantee that any agreements signed now would be respected by future governments.
Venezuela’s National Assembly in January approved a sweeping oil reform giving autonomy to foreign companies, but some of the new contract models – which were initially pushed by Maduro with little success – are still considered as risky by some potential investors, executives have said, adding that more regulation to govern those contracts is needed.
There are also constitutional questions about the long-term legitimacy of the reform passed. The U.S., the European Union and others have not recognized the results of parliamentary and presidential elections over past years that they deemed rigged.
Another major risk for investors is that future U.S. governments may change policy and ease the pressure that has forced Caracas to cede control of oil exports and revenue to Washington.
One worker at PDVSA’s La Salina terminal near Lake Maracaibo told Reuters the investment required will be enormous, according to his experience of 22 years working in the area. “Many companies arriving have the means to fix this, but it is yet to be seen if they will be willing once they see this disaster,” the worker said.
(Reporting by Mariela Nava, Marianna Parraga, Ana Isabel Martinez, Nathan Crooks, Sheila Dang and Deisy Buitrago; additional reporting by Sarah Kinosian. Editing by Simon Webb and Anna Driver)
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