Mini Series: Repsol shines through for Venezuela

In one part of the world ships are now being rerouted via the Cape of Good Hope. The impact of the Yemeni militants in the Red Sea means that sailing time will be increasing by about 10 days, incurring costs of about $1million in additional fuel for each round trip between Far East and Northern Europe- but analysts are noting that these incidents are unlikely to impact oil supply, which is just as well.

Whilst the Unites States announces the formation of a task force to protect trade in the Red Sea from any attacks that disrupt maritime trade forcing companies to change the course of ships, the other side of the world is busying itself with ramping up production for those ships to transport.

Venezuela’s state-oil company PDVSA and Spain’s Repsol have agreed a new joint venture for Petroquiriquire, which includes the oil fields of Quiriquire, Mene Grande and Barua-Motatan, in a move to increase its crude and gas output to accelerate its debt repayment. The agreement, advised by Dentons, is set to boost the production of oil as well as settle all outstanding issues between the joint venture partners.

Under this agreement, which is similar to the agreements made with Chevron and Maurel & Prom, Repsol is set to have more governance and operational control over production of the three fields, which under sanctions has been 20,000 barrels per day (bpd) of crude. Following the lifting of U.S. sanctions on the South American country, which permits exports, imports and investments, Petroquirique is expected to produce 45,000 bpd in two years. With PDVSA retaining 60% interest and Repsol 40% the agreement is expected to boost the Venezuelan industry, ultimately helping the country accelerate its debt repayment. Repsol operates four oil Ventures in Venezuela.

The Andean nation is clearly making strides to re-assert itself as a global oil producer after the US eased sanctions, the well-covered hostage exchange is the latest proof of Venezuela’s willingness to engage productively in the name of the country’s key source of wealth. Still, it bares remembering that despite the country’s reserves, just the growth of U.S. oil producers this year (at about 900,000 barrels) is greater than Venezuela's entire annual output, leaving much room before the country can reach its full economic potential.  

Chevron was granted a special licence to resume production in Venezuela, the country with the largest oil reserves in the world, late last year, and Maurel & Prom of France because the first European company to sign a contract with PDVSA following the suspended sanctions. PDVSA’s latest deal with Repsol is a bellweather for the increasingly bright future of the Venezuela oil industry as more agreements are expected to come through in the run-up to the new year.