President Donald Trump's call on US producers to invest billions of dollars to help revive Venezuela's battered oil sector will likely face an uphill struggle.
After announcing the capture of former Venezuelan president Nicolas Maduro over the weekend, Trump said US oil firms will be given the job of rebuilding the Latin American nation's long-neglected oil industry, a task that analysts said will prove a tough slog following decades of neglect, underinvestment and sanctions.
A meaningful turnaround will demand costly repairs to basic energy infrastructure covering everything from pipelines to power supplies, as well as access to the latest equipment and a skilled labor force that is ready to go. US producers will also need clarity around legal frameworks regarding contracts, as well as sharply higher oil prices to justify the massive investments needed.
"This is a multi-year repair and investment cycle, not a quick restart," said Ole Hansen, head of commodity strategy at Saxo Bank. "Even US oil majors would need sustained price signals, stable governance and durable sanctions relief before committing meaningful capital."
Shares of US oil producers advanced on Monday following the weekend US strikes on Venezuela and ouster of Maduro, in anticipation of a potential windfall, even though that may be years away. Chevron climbed as much as 5pc while ExxonMobil and ConocoPhillips also posted gains. Oil services stocks including SLB and Halliburton jumped more than 10pc each. In contrast, shares of Canadian heavy crude producers such as Cenovus Energy tumbled on speculation that an eventual revival of Venezuelan output could pose a direct threat to demand from US Gulf coast refineries.
Chevron said it remains focused on the safety and wellbeing of its employees in Venezuela, as well as the integrity of its assets. "We continue to operate uninterrupted and in full compliance with all relevant laws and regulations," a company spokesman said. Meanwhile, ConocoPhillips said it is monitoring developments in Venezuela, as well as potential implications for global energy supplies and stability. "It would be premature to speculate on any future business activities or investments," the company said. ExxonMobil did not immediately respond to a request for comment.
Chevron would have a headstart over rivals in responding to Trump's call to help rebuild Venezuela's energy infrastructure, given its role as the only major US producer left in the nation. The second-biggest US producer operates in Venezuela with state-owned PdV under a special waiver from US sanctions and imported about 120,000 b/d of crude from Venezuela to the US in December, according to data from Kpler ship tracking.
During a press conference on 3 January, Trump dubbed Venezuela's seizure of assets from US oil companies under former president Hugo Chavez as one of the "largest thefts of property" in US history. Both ExxonMobil and ConocoPhillips, which lost assets in Venezuela in 2007, have since won awards in international tribunals and US courts for the expropriation of their assets.
While Venezuela holds the world's biggest proven reserves, its extra-heavy crude is costly and complex to produce, posing an additional hurdle to reviving the nation's oil industry.
"It remains unclear which companies would be willing to invest in Venezuela at current oil prices, especially amid ongoing political, security and legal uncertainties," added Giovanni Staunovo, a strategist at UBS. "Additionally, Venezuelan oil is primarily extra-heavy crude — highly viscous and with elevated sulfur and metals content — making it less valuable than sweet light crude."
