Venezuela, which claims to have the largest proven oil reserves in the world but has largely failed for decades to exploit them, would be in no condition to take advantage of the recently found oil in Guyana, experts say, even as the Caracas socialist regime threatens to invade its neighbor’s petroleum-rich Essequibo region.
Two days after holding a referendum asking for special powers to invade Guyana, strongman Nicolas Maduro announced the creation of a new Venezuelan state to be carved out of the neighboring country, and new state-run companies to exploit the region’s vast mineral and oil reserves.
The announcement was the latest development in a border dispute that goes back more than a century. Venezuela claims that it is the legitimate owner of about three-quarters, or 61,600 square miles, of territory currently controlled by Guyana.
The border dispute, which had remained in the back burner for decades in Venezuela, heated up in recent years, after the recent discovery of as much as 20 billion barrels of oil reserves in the Essequibo area and the announcement that a consortium led by Exxon-Mobil will develop the oil fields.
But experts say there is little chance that Venezuela — which for years has seen a constant decline of its oil production amid a collapse caused by corruption and mismanagement of state-run Petróleos de Venezuela, or PDVSA — could profitably exploit an additional 20 billion barrels of oil under the ground, if it gained control over the region.
“Venezuela has neither the capital nor the company to develop those reserves,” said Antonio De La Cruz, president of consulting firm Inter American Trends. “In the current state of the Venezuelan oil industry, there is zero possibility of being able to develop those oil reserves.”
PDVSA, once seen as one of the best state-run oil companies in the world, has been left unable to produce enough crude to even cover Venezuela’s internal fuel needs.
Years of negligence and corruption have siphoned billions of dollars from state coffers, and have led to a constant decline in the country’s oil output. From a high of more than three million barrels per day at the outset of the country’s socialist revolution in 1999, Venezuela currently produces less than 400,000 barrels a day, most of it actually the work of its partners.
Venezuela claims to have about 300 billion barrels underground, which surpass by a small margin the reserves claimed by Saudi Arabia, which is currently considered to have the world’s second-largest oil reserves.
Oil expert Gustavo Coronel, a former member of PDVSA’s board of directors, said that the 300 billion number is most likely an exaggeration that came about after some trickery conducted by the regime years ago to improve the country’s rating among oil exporters.
But even so, Venezuela still has vast oil reserves and has found itself unable to develop them, he said. “So it can’t really argue that it needs to take possession of the smaller reserves in the territory of its neighbor to expand its oil industry.”
PDVSA’s gradual collapse means that the bulk of the oil coming out of Venezuela is actually being produced by international oil companies that are still operating in the South American country through partnership agreements.
The Caracas regime could set up new partnerships with international oil companies to develop the new deposits it would gain if it was to take over the Essequibo region, but those firms would still be dealing with the difficulties they already face when considering setting up shop in Venezuela.
According to Venezuelan law, foreign companies can only get into the oil business by establishing a partnership with PDVSA, which would serve as majority shareholder, said Juan Fernández, former executive planning director of the Venezuelan oil company.
“But taking into account that PDVSA currently has null capacity in terms of producing or providing resources, financing or even qualified labor, then it is easy to understand why it has difficulties in finding partners willing to come in and develop those reserves,” he said.
For potential partners, entering into that type of agreement would in essence means they have to put up everything in terms of investments and the actual work and then provide more than half of the proceeds to PDVSA.
Added to this disadvantage is the overall risk of operating in Venezuela under a regime that is facing oil sanctions from the United States — and that at its inception launched a wave of expropriations that caused a number of oil companies to lose billions of dollars.
Although the Biden administration approved a partial lifting of the oil sanctions a few weeks ago, they could still be reinstated if the improving but troubled relationship between the two countries suddenly sours.