Maduro Removal Opens Possibilities for Oil Majors, but Anything Imminent Unlikely

In the wake of the capture of Venezuelan President Nicolás Maduro, Trump administration officials signaled that US companies would be involved in the restoration of Venezuelan crude production.

Why it matters: Venezuela’s large oil reserves—estimated to exceed Saudi Arabia’s—could prove attractive to US companies. Chevron is currently the only company operating in the country after ExxonMobil and ConocoPhillips exited in 2007, following the nationalization of their assets.

• Chevron’s continued presence in Venezuela leaves it best positioned to benefit, as it holds interests in four major joint ventures and one offshore gas field, which may now be fully developed. The firm has stopped reporting production and reserves, but it reportedly exports about 150,000 barrels per day on current US licenses.
• Exxon and ConocoPhillips have sought billions in remuneration through arbitration since leaving, but they have had little success in collecting. Opening the country may allow for reentry and the collection of awards or restoration of assets.

The bottom line: Maduro’s ouster opens the possibility of US companies developing Venezuela’s oil reserves. However, this remains far from certain, as numerous hurdles and uncertainties remain. Our fair value estimates and moat ratings are unchanged.

• After years of neglect and sanctions, Venezuela’s oil industry is in disarray and disrepair, likely requiring tens of billions in investment to lift production meaningfully. Furthermore, the bulk of its reserves are extra-heavy oil, which is costly and capital-intensive to extract.
• Oil companies are likely to be cautious about deploying capital until there is greater regulatory and contractual certainty. While Chevron may be able to add incremental production to its currently producing assets in the near term with US approval, meaningful volume increases are likely years away.