President Donald Trump’s request for American oil firms to reconstruct Venezuela’s energy sector following the removal of President Nicolás Maduro proves to be a complex challenge.
Chevron is in a favorable position as the sole significant U.S. oil enterprise currently active in Venezuela, as noted by Wall Street experts. ExxonMobil and ConocoPhillips exited the nation after former President Hugo Chavez took control of the industry and confiscated their properties in 2007.
Venezuela possesses the largest confirmed crude oil reserves globally, totaling 303 billion barrels, as reported by the U.S. Energy Information Administration. However, a lengthy and costly journey awaits U.S. oil companies to bring Venezuela back to its pinnacle production level of 3.5 million barrels per day, which was achieved in the 1990s.
“Investing in this area carries significant risk for oil firms,” stated Arne Lohmann Rasmussen, chief analyst and head of research at Global Risk Management.
Estimated investments of about $53 billion over the next 15 years would be required to simply sustain crude oil production at 1.1 million barrels per day, or bpd, according to Rystad Energy. The required capital expenditures to achieve 3 million bpd by 2040 would exceed $183 billion, according to Rystad.
Certainty and stability
U.S. oil majors will seek assurance about the leadership in Caracas and the stability of the government, remarked Bob McNally, founder of Rapidan Energy.
They need to ascertain whether the legal and fiscal framework will endure long-term since energy ventures are typically 30-year initiatives, noted David Goldwyn, who was the State Department’s special envoy for international energy affairs from 2009 to 2011.
The current climate in Caracas is far from predictable. Trump declared on Saturday that the U.S. would manage Venezuela following Maduro’s ousting. Secretary of State Marco Rubio seemed to revise his comments in a Sunday interview with NBC News, saying that the U.S. would leverage its influence to compel Caracas to fulfill U.S. demands.
Vice President Delcy Rodriguez has taken control in Venezuela, committing over the weekend that the government would protect the nation’s resources, but later indicated that Caracas aimed to collaborate with the U.S.
A significant concern is whether Venezuela could revert to a regime resembling Maduro’s and nationalize oil properties once more, as pointed out by Global Risk Management’s Rasmussen.
Surplus reserves
U.S. oil majors will face the dilemma of whether it is economically sound to allocate billions of dollars into Venezuela given the existing global oil surplus, commented McNally, a former White House energy advisor under President George W. Bush.
“There are numerous reasons to suspect that this journey will be more prolonged and complex, rather than a swift resolution,” McNally stated.
Chevron maintains partnerships with state-owned Petróleos de Venezuela under a special license granted by the U.S. government. These joint ventures account for approximately 23% of Venezuela’s crude production, according to JPMorgan.
“The company is well-positioned to potentially increase future output as they have substantial oil resources through their joint ventures and have been a principal contributor to the country’s energy infrastructure,” JPMorgan analyst Arun Jayaram informed clients in a note on Monday.
Chevron’s stock surged more than 5% on Monday.
— CNBC’s Hayley Cuccinello contributed to this report.
