It remains to be seen what will happen with Venezuela. During Chavez’s reign, oil production declined from 3.5 million barrels of oil equivalent to 2.5 million a day. At the same time, exports declined from 2.2 million barrels of oil a day to 1.6 million barrels of oil a day, bringing down the country’s revenue from oil, and taking the country from the fifth largest exporter of oil to the eighth largest exporter of oil. These declines stemmed from an underinvestment in the oil sector, as Chavez took money from it to support his socialist programs.
It’s remarkable and sad that, in a time of high commodity prices, Chavez’s reign ended with Venezuela worse off than when he first took over. If a pro-business regime comes into power, it will be a few years before the Venezuelan economy can turn itself around. Venezuela has massive oil assets that are currently underutilized and, with more investment in the oil industry, Venezuela could regain its status as a top five exporter, bringing in much needed money into the economy. This change in leadership could be great news for big oil, as well. With conventional oil reserves becoming more difficult to acquire, the international oil companies that were strong-armed by the Chavez regime could use their record capital expenditure budgets on securing proven reserves instead of risky exploration projects in hard-to-access locales.
On the other hand, if the country falls into turmoil, and exports drop off, the economy would be devastated, oil prices would rise, and it could take years for the country to recover from the damage, if ever.
Foolish Bottom Line
While we can’t know the future for sure, it’s good to follow the Boy Scout motto of “be prepared.”
The article Why Venezuela and Big Oil Are Better Off Without Chavez originally appeared on Fool.com.
Dan Dzombak can be found on Twitter @DanDzombak, or on his Facebook page, DanDzombak. He has no position in any stocks mentioned. The Motley Fool recommends Chevron, Statoil (ADR), and Total SA. (ADR).
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