Some of the US' top oil companies are still sitting on the fence when it comes to returning to Venezuela, but mounting supply disruptions from the Middle East conflict are bolstering the case for investing in the Latin American country, almost six months after the US ouster of former president Nicolas Maduro.
ExxonMobil and ConocoPhillips have taken a wait-and-see approach as they seek greater clarity around contracts and reassurances that investments will be protected, given asset seizures in the past. But Venezuela is now looking more attractive as an investment option than it did at the start of the year, with oil prices trading near to $100/bl and global supplies tightening due to the Iran war.
"The longer this drags on, the more Venezuela becomes more attractive, and then that investment case for US producers to step in gets more interesting," according to Abhi Rajendran at Rice University's Center for Energy Studies.
US president Donald Trump declared in January that Venezuela is open for business. He called on US oil companies to commit $100bn to rebuild the country's long-neglected oil sector — a plea that was met with industry scepticism. That partly reflected the scale of the challenge, given the billions of dollars needed to repair ageing and rundown infrastructure and address Venezuela's unreliable electricity grid. A Chevron representative last month warned that even a single power outage could disrupt 40 production wells.
But the interim government under acting president Delcy Rodriguez is keen to welcome US producers back into the fold, after relations soured during past nationalisation drives that led to lengthy arbitration battles. And momentum is now building, with US operators having dispatched teams to get a firsthand look. Early winners of Venezuela's opening up include smaller US independents such as Hunt Oil and Crossover Energy, which recently signed deals in Caracas.
A more upbeat tone can also be heard from ExxonMobil, whose chief executive Darren Woods previously called Venezuela "uninvestable" — a remark that saw Trump threaten to cut off the major's access to the country's oil riches — but recently highlighted his firm's ability to apply its Canadian heavy-oil expertise there. For now, US firms are asking Caracas to improve its financial terms before they consider committing the large sums needed to get projects up and running.
Can Caracas compete for capital?
"The government has changed their hydrocarbon law and moved to a more competitive regime, but there are ranges for taxes and royalties and other terms that are then negotiated deal by deal," Chevron chief executive Mike Wirth says. His firm was the sole US producer that remained in Venezuela during the US sanctions era. "We're in discussions there to try to land those at a place that will allow it to compete for capital within our portfolio," he says.
Chevron extended its heavy oil position in Venezuela's Orinoco oil belt last month in return for giving up some gas interests. Production from the company's Venezuelan joint ventures has grown to more than 250,000 b/d in recent years from just 50,000 b/d previously, and this could rise by a further 50pc by the end of 2028.
While Mideast-related supply disruptions may support the case for going back to Venezuela, they will not drive investment decisions. The country cannot offer a quick fix to disruptions elsewhere, and there are political risks to be considered, such as doubts over the post-Maduro regime. And oil prices could fall back quickly once the Middle East tensions ease.
ConocoPhillips says that any decision on its part to return to Venezuela will depend on economic and policy stability, safety, the rule of law and market competitiveness, as well as mechanisms to recover the debt it is owed by Caracas.
