Oil: Après Chavez no Déluge

At least not right away, they've made a right mess of things.

From BusinessWeek:
After Chávez, What Happens to Venezuela's Oil?

Investors have been cart-before-horse stoked about Venezuela, and with good reason. There’s lots of upside in an economy that arguably has the world’s largest proven oil reserves and yet has stagnated in the past 14 years. What’s now top-of-mind is how the successor to late president Hugo Chávez stewards state oil company Petróleos de Venezuela SA, whose strategy seems to be to rust while hoping energy prices remain high. Throw in a restive nation of 30 million and a welter of costly social bennies, and this caballero faces tough decisions.

Venezuela is one of the more peculiar players in the Mideast-heavy Organization of Petroleum Exporting Countries. Though it’s OPEC’s fourth-biggest producer, Venezuela has let its output fall by more than a fifth since Chávez came to power, leaving hundreds of billions in revenue on the table during a lengthy period of high crude prices. As promised, the charismatic leader plowed PDVSA’s profits into social welfare projects while starving the enterprise of investment in exploration and production.

The tab left by such profligacy is steep. Morgan Stanley (MS) estimates that 43 percent of 2011 production at debt-laden PDVSA wasn’t even paid for in cash. Per Chávez’s wishes, a good deal of fuel was shipped off on below-market terms to such places as Cuba and Nicaragua (and Boston, even). Making matters worse, Venezuelan engineers and rig roughnecks have bolted the country in favor of bigger salaries and tamer inflation abroad....MORE

And from The Schork Report via the CME (Mar. 7):

Venezuela Post-Chavez: Big Problems, Potential
Key U.S. Oil Supplier Pumping at Just Fraction of Potential

The death of Venezuelan President Hugo Chavez earlier this week, while having little immediate impact on crude prices, underscores both the country's deep problems and its potential as a leading player in the global oil industry.

Chavez, during his 14 years in office, squandered Venezuela's oil bounty on "ideological white elephants," according to energy consultant Stephen Schork, a CME Group featured contributor. While still one of the largest sources of foreign oil for the U.S., Venezuela is producing oil at just "a fraction" of its capability....MORE

Full report (7 page PDF)