Venezuela’s oil output decline accelerates

Venezuela’s oil output, already the lowest since 2009, is set to slide further this year as contractors scale back drilling after the cashstrapped country fell more than $1 billion behind in payments.

The Latin American nation’s oil production, which generates 95 percent of export revenue, will decline by about 11 percent to 2.1 million barrels a day by the end of the year, Barclays estimates. Output is falling largely because oil-services companies aren’t being paid, according to the International Energy Agency.

Venezuela’s economy has been in crisis since crude prices slumped, with sporadic looting as the desperate population fights for food and other essentials. President Nicolas Maduro has pledged to continue payments to bondholders, while the partners ofstate-run oil company Petroleos de Venezuela SA, known as PDVSA, aren’t paid. Further output decline in the OPEC nation, combined with disruptions in fellow members Nigeria and Libya, could leave the oil market short of supply next year.

“The situation is becoming more and more difficult for oil services in Venezuela,” Baptiste Lebacq, an analyst at Natixis in Paris, said by phone.As long as oil prices are at current levels, it’ll be “very difficult” for PDVSA to pay the contractors, he said.

Schlumberger, the world’s largest oil-services company by market value, was owed $1.2 billion by PDVSA as of March 31, according to an April 27 filing. Halliburton said last month the amount it was owed rose 7.4 percent in the first quarter to $756 million.

The number of rigs drilling for oil in Venezuela fell by 10 to 59 in May, the lowest level in more than a year, according to Baker Hughes.

Schlumberger has reduced activity in line with the drop in payments, the company’s president, Patrick Schorn, told investors last week at the Wells Fargo West Coast Energy Conference. It still works in the country and could boost operations if “new payments models” are implemented, he said.

Italy’s Saipem declined to comment on its operations in Venezuela. The company referred to comments from chief executive Stefano Cao, who said in April that it had idled all but 3 of 28 rigs in the country.

While Oil Minister Eulo- gio Del Pino declined to say whether PDVSA has delayed payments to contractors, he said the companies would remain in Venezuela.

“They have been operating in the country for more than 100 years,” Del Pino said. “They are not going to leave.”

Venezuela is preparing to take over some of the functions of the oil-services providers with the creation of Camimpeg, a new state enterprise under the control of the military. This is unlikely to solve the problem, according to consulting firms Energy Aspects and FGE.

“You’ll get more natural declines at a steeper rate” because these local providers don’t have the experience needed to maintain production levels at the country’s aging wells, said FGE analyst Thomas Olney.