Big Oil looks abroad

If you thought the TV show Landman was dramatic, just wait until you hear about the US’s antics in Venezuela.

Today, Chevron announced a major expansion of its Venezuela operations. The company will invest $7 billion over the next five years, more than doubling its oil production in the country, from its current 280,000 barrels per day to about 600,000 barrels per day by 2031. It’s also physically expanding, gaining more acreage in the Orinoco Belt, a major oil hub. Chevron said that its operations in Venezuela have already upped production by 15% this year.

But what may seem like a straightforward arrangement is far more complicated below the surface. Last week, President Trump said that the US struck its own deal with Venezuela: The US will get majority control of one-fifth of the country’s oil reserves, and as part of the deal, the US will have a stake in North American Blue Energy Partners, a private company led by Venezuelan oil baron Alejandro Betancourt.

This agreement immediately drew cries of corruption from politicians, while analysts expressed skepticism about how this venture will practically work. And there’s another, more pressing problem: The plan requires $100 billion in funding, and nobody has raised their hand to pay for it so far.

Given the US’s ongoing conflict with Iran and how it has hindered oil flow through the Strait of Hormuz, the government is desperate to get oil wherever it can. The Trump administration seems set on reviving the oil industry in Venezuela, so investors should expect more deal announcements to come soon.

A long time coming

Venezuela has the globe’s largest proven crude oil reserves at an estimated 300 billion barrels, but its energy industry has been hobbled by political chaos and sanctions. Right now, Venezuela only produces about 800,000 to 1.2 million barrels per day, a small fraction of what it could produce if fully scaled up. But because much of Venezuela’s oil is extra-heavy crude, it needs more technology to refine, making major investments like Chevron’s even more crucial.

Chevron, the US, and the Venezuelan government have created a complicated web of fragile alliances over the years. When a slew of other oil producers like ExxonMobil and ConocoPhillips left Venezuela in the early 2000s, Chevron decided to stick around, obtaining backdoor exemptions from the US government to continue operating in the nation. Now, instead of starting from scratch, Chevron has the people, infrastructure, and operating knowledge to scale up in Venezuela.

It looks like Chevron’s crude call is paying off.—LB