HAL Halliburton Co

By Kejal Vyas and Timothy Puko 

Venezuela registered its biggest monthly oil-production decline in a decade in May, according to data released Monday by the Organization of the Petroleum Exporting Countries, signaling further trouble for a country already enduring severe economic hardship.

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."

Venezuela, which relies on oil for nearly all of its income, is facing severe dollar shortages due to low oil prices as well as more than a decade of profligate spending under the ruling socialist government, which used oil-sector money to fund social programs. The country's oil output is far from the 6 million barrels a day that its officials have long targeted.

Monthly oil production has fallen this much only once since 2003, when the country's oil industry came to a standstill during a devastating strike led by PdVSA workers seeking the ouster of then-President Hugo Chávez.

The last time was in 2006, said Gary Ross, head of global oil at the consulting firm PIRA Energy Group, who added that the drop-off may give leverage to oil-field services companies that are now in payment negotiations with Venezuela. "There's an urgency there now that wasn't there before this happened, because of the lost production," Mr. Ross said.

Venezuela, which boasts the world's largest crude reserves, needs significant investment in its Orinoco basin, a massive oil patch in the country's east, as part of its long-term plans to double oil output. The region's tar-like, heavy crude is costly to process and requires PdVSA to import light crude oil as a blending agent to extract the Orinoco crude and make it transportable.

While the break-even price for Venezuelan oil is around $21 a barrel, Orinoco crude requires a price above $28 a barrel for PdVSA and its partners to make a profit on it, according to Eurasia Group analyst Risa Grais-Targow.

Venezuelan oil fetched around $25 a barrel during the first three months of 2016. While the price has risen to nearly $40 a barrel over the last month, the production decline has eaten into PdVSA's revenues.

--Juan Forero contributed to this article.

(END) Dow Jones Newswires

June 13, 2016 21:54 ET (01:54 GMT)

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