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CERAWeek: PDVSA sanctions intended to prevent further decline of Venezuela oil sector: US official

Houston — US sanctions on PDVSA, which Trump administration officials estimate could cut oil Venezuelan output by roughly 600,000 by the end of 2019, were designed to prevent further damage to the Venezuela's oil industry, Francis R. Fannon, assistant secretary for the US State Department's Bureau of Energy Resources, said Wednesday.

"Our sanctions are targeted in a way and they're structured in a way to preserve the assets of Venezuela," Fannon said in an interview with S&P Global Platts on the sidelines of CERAWeek by IHS Markit. "We certainly don't want to see them deteriorate."

If sanctions are lifted, which the US says is only possible if Venezuelan President Nicolas Maduro leaves office, analysts say it will take several years and billions of dollars in foreign investment to return oil output to levels seen even in early 2018.

"This is not reviving a field, you're almost rebuilding an industry," Ashok Belani, executive vice president of technology with Schlumberger, said Tuesday at CERAWeek. "That's a lot of work before you get that first uptick."

This week, the US Energy Information Administration forecast that Venezuelan crude output fell below 1.1 million b/d in February, down from 1.6 million b/d in February 2017 and 2.3 million b/d in February 2016.

S&P Global Platts Analytics forecasts that US sanctions will cause Venezuelan crude output, which averaged 1.2 million b/d in January, to fall to 825,000 b/d in the fourth quarter of 2019 and then fall further to average 750,000 b/d in 2020.

On Wednesday, Fannon put the blame for the decline squarely on Maduro.

"He's done it through socialist policies, utter mismanagement and theft," Fannon said. "The Maduro regime has looted PDVSA. Only until he leaves can we can start to really resuscitate that engine of productivity for the country."

Fannon said the US is working with foreign allies who have recognized Juan Guaido, self-declared interim president of Venezuela, as the nation's legitimate president, to also halt purchases from PDVSA. Fannon declined to comment on the countries involved in those talks or on the potential timeline for future sanctions efforts.

"I don't know if anyone assumed it would be quick, but I think the level of commitment from the international community illustrates a sense of resolve, that we are linking arms and want to see this [transition] happen," he said.

-- Brian Scheid, brian.scheid@spglobal.com

-- Edited by Jennifer Pedrick, newsdesk@spglobal.com