Chavez successors likely to continue to use Venezuela’s oil as political tool

Five years ago, a full-page ad blasting Exxon Mobil appeared in the Venezuelan newspaper Ultimas Noticias. Drawings of drops of oil went from black at the top of the page to red at the bottom. “Exxon turns oil into blood,” the bold-face text declared. Addressing “Exxtranjero” — the Spanish word for foreigner, with an extra “x” — it used a slogan from the Spanish Civil War that roughly translates as “you will not pass.”

The ad summed up the combative relationship the late Venezuelan leader Hugo Chavez had with some international oil companies and how he used his country’s vast oil riches as a political tool and weapon. Abroad, he pushed for crude prices of $100 a barrel. At home, subsidies have kept fuel prices down around 8 cents a gallon.

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Hugo Chavez dies at 58: The charismatic and omnipresent Venezuelan president died on March 5, 2013, at age 58.

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Venezuela's oil situation.

“He’s a charmer. He’s a liar,” said one oil industry executive who knew Chavez, speaking on condition of anonymity to protect business relationships. “He’s done a lot to improve the lot of his people. He ruined the oil industry.”

Few analysts expect much change from his vice president and potential successor, Nicolas Maduro, who would need to bolster his domestic base.

The state oil company Petroleos de Venezuela SA (PDVSA), once regarded as one of the world’s best, has become the government’s ­social-spending arm while investment in oil fields has lagged. The year before Chavez became president, Venezuela’s oil production reached 3.5 million barrels a day. Then it slumped so badly that even after a modest recovery, it averaged only 2.5 million barrels a day last year.

Meanwhile PDVSA, even after purging thousands of experienced engineers and managers during a labor dispute, has grown to about 99,000 employees, according to a report from the Eurasia Group consulting firm. And half of its staggering $36 billion in debt is held by China.

“PDVSA is a shadow of its former self,” said David Goldwyn, a consultant and formerly the State Department’s special envoy and coordinator for international energy affairs under Hillary Rodham Clinton. “The refineries are [in] shambles. Fields are in decline. New investment is stagnant.”

Chavez also raised the state oil company’s share in production projects to 60 percent, and while most companies cut new deals, a couple, including Exxon Mobil, went to court.

Only historically high crude oil prices of about $100 a barrel have saved the country’s economy from ruin. Revenue stayed high even though the heavily subsidized domestic consumption has jumped 39 percent since 2001 and exports dropped by nearly half to 1.7 million barrels a day.

While condemning the United States and wooing countries such as Russia and Iran, Chavez still relied heavily on U.S. Gulf Coast refineries that were among the few capable of handling Venezuela’s thick, low-quality crude oil. About half of Venezuela’s crude ends up in the United States. But if the Keystone XL pipeline is built, similar-quality crude from Canada’s oil sands could push out Venezuelan petroleum.

“I think Chavez will be remembered for politicizing a once professional national oil company and managing to increase control but decrease production, miss the [liquefied natural gas] boom, and open the U.S. refining sector for Canadian oil,” Goldwyn said. Referring to Canada’s rival oil industry center, Goldwyn said, “He should be a hero in Calgary.”