This week's death of Hugo Chavez, the socialist firebrand who ruled Venezuela for 14 years, could open the door for foreign oil companies to return to a nation whose petroleum business now operates far beneath its potential.

The possibility and pace of any such return will depend on one thing: how badly the government needs cash, something that is in increasingly short supply.

The reason for the shortage of money in this nation of some 30 million people is not difficult to understand. To fund social welfare programs, Chavez and his chavismo  military government nationalized nearly 1,000 private companies and tapped the cash flow of the state-owned oil company, Petroleos de Venezuela SA (Pdvsa) rather than reinvest in the business. As a result of using its cash flow to build housing, subsidize goods and launch other vote-getting projects, equipment fell into disrepair and workers became disgruntled with stagnant wages and worsening safety standards, especially at refineries. No other industry has come close to replacing Venezuela's energy business so today Pdvsa provides the overwhelming majority of the country’s declining revenue.

The upshot of years of neglect and mismanagement has been a 20 percent drop in production: In 2000 oil production in Venezuela – which has the world’s largest crude oil reserves at nearly 300 billion barrels of oil -- was about 3.16 million barrels per day; 11 years later that number had fallen to 2.47 million barrels per day. By contrast, the U.S., with vastly smaller reserves, now produces more crude oil than Venezuela.

Analyst estimates of what Venezuela could produce, if its assets were properly managed, range from six to nine million barrels per day.

Getting to that kind of output, even under the most favorable post-Chavez scenario, will require foreign energy and energy-related companies. And that means change will be slow and incremental, analysts say.

“I don’t think much will change in the short to medium term, by which I mean basically this year,” said Alejandro Velasco, assistant professor at New York University’s Gallatin School of Individualized Study. “Some of it will be dictated by economic pressure domestically and also the extent to which (Vice President Nicolas) Maduro, if he wins election, needs to shore up his base.”

Velasco said that the most likely initial step the government would take to repair its balance sheet would be to reduce the volume of subsidized petroleum products it sells to regional allies. These include members of Petrocaribe SA, which includes many Caribbean Sea nations, and members of the Bolivarian Alternative for the Americas or ALBA, which includes Bolivia, Ecuador, Nicaragua and Cuba.

However, Cuba may continue to receive subsidized petroleum from Venezuela because it provides both a cadre of medical personnel to the country and state security agents assigned to chavismo leaders like Maduro.

If those steps do not increase cash, the government will have to consider turning to foreign energy companies.

“On one hand (Maduro) will need to continue the anti-imperialist rhetoric of Chavez,” if only to allay fears of some that Chavez’ policies may not survive him, Velasco said. “On the other hand, if they are strapped for cash they might have to make some deals with foreign companies.”

These would be deals for access to onshore shale oil properties and Orinoco Belt, the world’s single-largest crude oil reserve. "Foreign oil companies desperately want to get in on Venezuelan oil and because of that they’re very likely to accept deals that are not favorable on the assumption that this is a long-term gamble and over time terms may improve,” Velasco said. “Right now they just want to get in on the game. So in short term they are willing to accept unfavorable deals.”

He said the first type of foreign oil company Caracas might turn to with sweetened contract terms will be state-owned companies like Brazil’s Petroleo Brasileiro SA or Petrobras and Russia’s Gazprom OAO.

After that would be private oil companies like Exxon Mobil Corporation (NYSE:XOM) and BP PLC (LON:BP).

“What the government may do is ease the conditions of production-sharing agreements to give companies a slightly bigger share, Velasco said. “You might have a deal that calls for a 50-50 split changed to 70-30 but only for the short term. It would be renegotiated after a brief period. It all depends on how cash strapped the government feels.”

One of the complicating factors is pending arbitration between Venezuela and energy companies whose assets Chavez seized. One of those litigants is ConocoPhillips (NYSE:COP), once the biggest non-Venezuelan energy company in the nation.

ConocoPhillips could benefit greatly from regaining its former assets, Fadel Gheit, senior oil analyst at Oppenheimer & Co., told the Christian Science Monitor. "The book value of assets that were confiscated was $4.5 billion (at the time.) The market value is now $20 to $30 billion ... ConocoPhillips could eventually see a net gain of $10 billion."

ConocoPhillips isn’t holding its breath for a post-Chavez breakthrough.

“We don’t expect (his death) to have any influence on our arbitration hearing currently under consideration by the International Centre for the Settlement of Investment Disputes,” said ConocoPhillips spokesman Daren Beaudo, who also declined to “speculate regarding future opportunities in Venezuela.”

Once Caracas has exhausted trimmed its overseas oil subsidies, invited in state-owned oil companies and then private companies, it could turn to private drilling companies like Parker Drilling Company (NYSE:PDK), Velasco said.

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