Chevron Corporation (NYSE:CVX) announced on September 2 that it will invest more than $7 billion in Venezuela over the next five years to double its oil production in the country to about 600,000 barrels per day. The agreement will add two adjacent areas in the Carabobo region located in Venezuela’s vast Orinoco Belt to Chevron’s Petroindependencia joint venture with state-owned PDVSA.
The move builds on Chevron’s longstanding presence in Venezuela, as the company has continued operating in the country under a special US license, allowing it to produce and export oil despite the sanctions. Since the ouster of Nicolas Maduro earlier this year, the company has taken several concrete steps to further expand its Venezuelan footprint.
Venezuela is sitting on the largest proven crude oil reserves in the world, accounting for roughly 17% of the global total. However, the country is currently producing only around 1.25 million bpd, down from the more than 3 million bpd it achieved two decades ago due to heavy political interference and mismanagement. The Trump administration is now trying to revive Venezuela’s dilapidated oil infrastructure, with a target to boost its output to 2 million bpd by the end of this decade.
Mike Wirth, Chairman and CEO of Chevron, commented:
“Chevron’s history in Venezuela spans more than a century, and our expanded position reflects our confidence in the country’s deep resource potential and its ability to compete for investment within our portfolio for decades. With improved terms and additional acreage, we are strengthening a portfolio that we believe can deliver attractive low-cost oil growth, support energy supply and create differentiated long-term value. This progress reflects the dedication of our Venezuelan employees and our long-standing focus on the responsible development of the country’s resources.”
Chevron Could Be the Biggest Winner From Venezuela’s Oil Revival:
Chevron’s decades-long foothold in Venezuela puts it at a significant advantage. The company has a longstanding relationship with PDVSA and valuable experience operating in the country’s complicated regulatory environment. This is especially important because its rivals are still reluctant to invest in the country without stronger security guarantees and an overhaul of the country’s legal and commercial framework.
An output of over 600,000 bpd would make Venezuela a much more important contributor to Chevron’s upstream portfolio and contribute significantly to its earnings and cash flows. The American oil major stated that it expects to keep total production costs below $20 per barrel, meaning that the additional barrels could generate attractive margins even if global crude prices normalize.
