January 07, 2026

In light of recent events surrounding Venezuela and its oil industry, it is important to assess the cost of Venezuelan oil. Understanding the full-cycle or breakeven cost of oil is critical for assessing the relative competitiveness of different jurisdictions. Capital usually flows to countries and regions with lower costs. The question remains: will producers invest in the exploration, development, and production of Venezuelan oil?

Physical Properties of Venezuelan Oil

Venezuela produces heavy oil, which requires special processes for production, transportation, and refining. Not all refineries can process heavy oil. Such refineries are mostly located on the U.S. Gulf Coast, but also in China.

Orinoco crude has an American Petroleum Institute (API) gravity—which measures petroleum density—of 9.5–12, making it comparable to Canada’s oil sands bitumen. The sulfur content of Venezuelan oil is 4%–5%.

Producers extract Venezuelan oil both with and without steam injection. They use steam injection to reduce oil viscosity. To transport the oil, operators add a diluent—typically condensate—which refineries later remove and reuse. All of these technological processes increase the full-cycle cost of oil.

How Full-Cycle Cost Is Calculated

The full-cycle cost has six major components:

  • Producer Return or Cost of Capital
  • Basis Differential – The difference between the oil price at the point of sale (in the producing basin) and West Texas Intermediate (WTI). BloombergNEF estimates that Venezuela’s heavy crude (unblended) should trade at roughly a $7–$10 per barrel discount to WTI.
  • Operating Cost – Lifting and field-processing costs
  • Royalties and Production Taxes
  • Overhead – Includes all general and administrative (G&A) expenditures
  • Finding and Development (F&D) – Capital costs, including drilling, completion, land and seismic, tie-ins, facilities, and other incremental infrastructure costs

What Is the Full-Cycle Cost of Venezuelan Oil?

Public information on Venezuelan oil costs is very limited. Costs vary across fields depending on geological conditions, extraction methods, oil properties, and proximity to export terminals.

Between 1995 and 1998, when Venezuelan oil production reached its peak, the breakeven price was estimated at USD $11–15 per barrel, excluding the basis differential. This is equivalent to approximately USD $15–30 per barrel in WTI-equivalent terms. If these costs were still valid today, Venezuelan oil would be highly competitive. Venezuelan crude (Merey) currently trades at approximately USD $45–50 per barrel. However, since that period, full-cycle costs and breakeven prices have increased significantly due to three factors:

  • Maturity of the fields
  • Aging production and transportation infrastructure and a lack of qualified workforce
  • International sanctions

According to Rystad Energy, Venezuela’s estimated breakeven price ranged between USD $42 and $56 per barrel in 2020, with the Orinoco region averaging $49.26 per barrel.

Incorrys estimated the full-cycle cost of oil in Venezuela based on comparable heavy-oil production in Eastern Alberta. Oil sands mining projects were excluded from this comparison. The assumptions include:

  • Venezuela’s Organic Hydrocarbons Law sets royalties and extraction taxes at 33.33% of the value of each barrel sold
  • The basis differential to WTI is assumed to be USD $7 per barrel

Based on these assumptions, the full-cycle cost of Venezuelan oil relative to WTI is shown in Figure 1. The full-cycle cost depends on 30-day new well initial productivity (IP) and ranges from USD $39 per barrel for IP above 900 bbl/d to USD $46 per barrel for IP between 300 and 600 bbl/d.

For comparison, the full-cycle cost of Canadian oil sands in-situ production relative to WTI is approximately USD $42 per barrel.

Print  CSV  Excel  Copy  

Conclusion

  • Canadian oil sands currently remain competitive with Venezuelan oil overall. However, it is still uncertain how much oil is available in Venezuela across different initial productivity (IP) ranges.
  • It is possible that the future full-cycle cost of Venezuelan oil could be reduced through higher IPs, a narrower basis differential, and lower royalties. However, increasing production would require significant capital spending, which would raise the cost of capital and increase finding and development (F&D) costs. Moreover, labor costs would most likely increase, leading to higher costs across other full-cycle cost components.
  • This full-cycle cost assessment does not include a risk premium, which for Venezuela is significantly higher than for Canada.

See Also:
Venezuela Tanker Blockade

References:
“Chavez drives Exxon and Conocophillips from Venezuela.”, Reuters, August 2007, https://www.reuters.com/article/business/chavez-drives-exxon-and-conocophillips-from-venezuela-idUSN26378950/

Liu, Tai. “Venezuela’s Oil Renaissance Faces Several High Hurdles.”, BloombergNEF,  January 2026, https://about.bnef.com/insights/commodities/venezuelas-oil-renaissance-faces-several-high-hurdles/