Following the capture of the Venezuelan President, Nicolas Maduro, the Trump administration signalled that US companies would be involved in the restoration of Venezuelan crude production. Morningstar’s director of equity research, Allen Good, has explored what this could mean for the sector.
“Venezuela has substantial oil reserves, reportedly larger than those of Saudi Arabia, making it appealing to US oil companies. Currently, Chevron is the only major US operator remaining in Venezuela, since Exxon and ConocoPhillips left in 2007 after the government nationalised their assets. Given its significant presence – holding stakes in four key joint ventures and an offshore gas field which may now be fully developed – Chevron is best positioned to benefit from US involvement in Venezuelan crude restoration projects. Although the company paused reporting on production or reserves, current reports suggest that Chevron exports around 150,000 barrels of oil per day under current US licenses.
Exxon and ConocoPhillips have sought billions in remuneration through arbitration since leaving the country but have had little success collecting this. Opening the country could potentially allow for re-entry and collection of awards or restoration of assets.
Although the US interest makes sense initially, following years of neglect and sanctions, Venezuela’s oil industry will require tens of billions in investment to lift production meaningfully. Furthermore, the bulk of its reserves are extra-heavy oil, which is costly and capital-intensive to extract. Oil companies will need to be cautious about deploying capital until there is greater regulatory and contractual certainty. While Chevron may be able to add incremental production in the near term with US approval, meaningful volume increases are likely years away. With this in mind, the possibility of US companies developing Venezuela’s oil reserves remains far from certain.”
