Caracas Chronicles

It’s the kind of number that gave even seasoned oil-industry watchers whiplash: according to OPEC figures, PDVSA’s oil production fell by 120,000 b/d last month alone. Wanna know how dire a figure that is? Venezuela’s oil production just declined by an amount similar to an entire (if small) petrostate’s production, in just one month.

Let’s not mince words, 120,000 b/d/month is a crazy rate of decline. For the last six years, industry watchers had been seriously concerned that PDVSA’s production had been falling by around 50,000 b/d per year. Not too long ago, we were reading analysts express concern out loud that production could decline by as much as 200,000 b/d this year. It just dropped by more than half that amount in a month!

Worse, last month drop represents a 30-fold increase in the rate of output decline, and the first time output has declined in all three main production regions (West, East and Faja) all at the same time.

The Wall Street Journal picks up the tale:

The decline of 120,000 barrels a day, to 2.37 million barrels a day, underscores the inability of state energy company Petróleos de Venezuela SA to maintain oil-industry investments, as the region’s largest petroleum exporter suffers from a debilitating cash crunch, widespread food shortages and civil unrest.

In recent months, major oil services companies, including Halliburton Co. and Schlumberger Ltd., said they were cutting back on operations in Venezuela as the country struggles to pay multibillion-dollar debts with partners.

“This is very surprising,” said Francisco Monaldi, a Latin American energy policy fellow at Rice University in Houston, who closely tracks Venezuela’s oil industry. “If you want to point to the biggest problem, it is cash flow, which for PdVSA now looks worse than we had imagined.”

The takeaway here is that PDVSA is just as cash strapped as every other part of the Venezuelan state. The result is a real emergency: production declines on this scale, if sustained, would leave Venezuela with zero oil production within just a couple of years.

I’m not saying that that’s what will happen. But until and unless the government shows a credible plan for injecting adequate resources into the industry it’s hard to see what would lead the pace of decline to slacken.