BREAKINGVIEWS-US oil majors can name their terms on Venezuela

By Yawen Chen

LONDON, Jan 5 (Reuters Breakingviews) - Oh, to be a fly on the wall of Chevron’s CVX.N boardroom when President Donald Trump revealed the capture of his Venezuelan counterpart Nicolas Maduro on Saturday. Judging by an initial 5% jump in the price of the U.S. oil major’s shares on Monday, investors seem to think U.S. intentions to “run” the Latin American state could see an oil production bonanza. Yet given a sober assessment would suggest as much risk as opportunity, sensible non-executives should demand some stringent conditions to play ball.

Aside from the enthusiasm of investors, Chevron CEO and Chair Mike Wirth has two key reasons to set a course for Caracas. One is Trump: the U.S. president has already said domestic oil groups will spend billions of dollars in repairing a Venezuelan oil infrastructure that has been decimated by neglect and corruption. The other is that Chevron, the only big U.S. driller in the country via its joint venture with state oil group PDVSA that produces roughly 200,000 barrels a day, could win big if national oil output were to quickly jump from 800,000 barrels a day to the 2 to 3 million level seen a decade ago.

Yet there are compelling reasons to hang back. Maduro’s departure aside, Venezuela has not automatically become a better place for Chevron to invest – it’s the same military-dominated petrostate with corruption issues as before, plus a potentially even worse security situation. It’s hard to see why deploying Chevron’s $20 billion annual capex budget here rather than more familiar patches at home or in Guyana and Kazakhstan helps Wirth’s recent pledge to return 45% of the group’s $329 billion market cap to shareholders via buybacks and dividends by 2030.

Meanwhile, it’s not clear how profitable Venezuelan barrels might be in an environment where Brent crude prices loiter around $60 a barrel. Kpler analysts reckon daily Venezuelan output beyond 1.2 million barrels would require heavy upstream spending sustained over several years, leaving 400,000 barrels a day of incremental output possible by the end of next year. But Chevron might only sell them at $44 a barrel – reflecting prevailing discounts in line with Venezuela’s lower quality, heavier crude.

That would still generate about $6.4 billion of annual revenue. But drillers would need to deduct operating expenses of $20 to $30 a barrel, along with perhaps another $10 a barrel of sustaining capital expenditure. Venezuelan production is thus only minimally profitable unless contractual terms are unusually generous, according to Stifel estimates.

Knowing all this, Wirth and fellow oil barons at Exxon Mobil XOM.N and ConocoPhillips COP.N are on firm ground to require Washington to tilt the economics decisively in their favour. The most obvious lever is fiscal: forcing Venezuela to offer licences with a sharply lower government take, through reduced royalties, lighter taxes and greater operational control. They can also lobby for some sort of U.S. guarantees against losses pertaining to political risks. If this isn’t forthcoming, they’re on firm grounds to sit it out.

Follow Yawen Chen on Bluesky and LinkedIn.

CONTEXT NEWS

U.S. President Donald Trump said on January 3 that American oil companies were prepared to enter Venezuela and invest to restore production in the South American country, an announcement that came just hours after Venezuelan leader Nicolas Maduro was captured and removed by U.S. forces.

“We’re going to have our very large U.S. oil companies, the biggest anywhere in the world, go in, spend billions of dollars, fix the badly broken infrastructure, oil infrastructure, and start making money for the country,” Trump said.

U.S. oil companies’ shares rose in premarket trading on January 5 as investors bet that Trump’s move against Venezuela’s leadership would allow American firms greater access to the world’s largest oil reserves.

Shares of Chevron, the only U.S. major currently operating in Venezuela’s oil fields, climbed over 5% in early trading. As of 1545 GMT its shares were at $162, up 4%. ConocoPhillips shares were up 2% and Exxon Mobil’s rose 1%.