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Centers | Energy Management and Innovation Center

Will Venezuela Become the Largest Producer of Oil in the World?

March 24, 2010

McCombs Finance Professor Sheridan Titman and IESA Business School Associate Professor Carlos Molina, a McCombs Ph.D. alumnus, discuss Venezuela's potential (and challenges) to becoming the largest oil producer in the world on Titman's Energy Insights blog.

Venezuela already has one of the largest oil reserves (by country) in the world and new discoveries, like the Orinoco oil belt fields, offer reserves large enough to propel them to the top spot. However, as is the case with most countries with large oil reserves, the oil assets are managed by a state-owned company, Petróleos de Venezuela S.A. (PDVSA), which has a unique and interesting history, as well as its own opportunities and challenges.

The discussion centers around the recent Energy Brief Molina wrote on for the Energy Management and Innovation Center on the subject and touches on production number reliability, political circumstances, technical issues, risk mitigation and suggestions for PDVSA and the Chavez administration to facilitate the development of the Venezuelan oil industry.

There is certainly a high political risk of doing business in Venezuela. Poor investment protection, continuously changing laws, arbitrary expropriation of lands and companies, and a lack of international arbitration create a difficult business environment. Under these circumstances it is almost impossible to structure contracts in ways that mitigate Venezuela’s political risk.

There is, however, a substantial opportunity for those ready to assume the risk. Foreign oil companies that decide to face current adverse conditions could profit in the future by being awarded oil projects with favorable geological conditions, vast proved reserves, comparably low production costs, and weak competition.

Read the center’s new Energy Management Brief on Venezuela's Oil Production and PDVSA.

Read the full interview with Molina about Venezuelan oil production on Sheridan Titman’s Energy Insights blog, a part of Texas Enterprise.