While the Trump administration promotes investment in a post-Maduro Venezuela, major oil companies like ExxonMobil are publicly skeptical. Their stance that the country is "uninvestable" due to the absence of rule of law shows that political guarantees are insufficient without fundamental institutional reforms.
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Before any significant capital flows into Venezuela's oil sector, the near future will be dedicated to political negotiation and establishing a stable legal framework. Major players like Exxon still consider the country "uninvestable," meaning the primary focus will be on creating the conditions for future investment, not the investment itself.
Chevron's decision to remain in Venezuela, unlike other oil majors, isn't just about future potential. It's heavily influenced by massive, decades-long sunk costs, including U.S. Gulf Coast refineries specifically optimized to process Venezuela's unique heavy sour crude.
Contrary to assumptions, oil majors are cautious about re-entering Venezuela. They worry about a lack of legal certainty and the risk that any deals could be undone and heavily scrutinized by a future U.S. administration, making the investment too risky.
A rapid rebound in Venezuelan oil production is improbable, even with massive investment. The effort is constrained by fundamental infrastructure failures, like a deeply unreliable national power grid, which is essential for running upgraders and refineries. This makes a quick recovery lasting years, not months.
Venezuela's bonds have rallied significantly as the market prices in a swift, positive political outcome enabling debt restructuring. Analysts, however, are more cautious, warning that the path to a stable, internationally-recognized government could be much longer and more complex than current market sentiment implies.
Despite significant upfront costs of $15-20 billion to bring 500,000 barrels per day online, developing Venezuela's oil sector is comparatively inexpensive. The cost is estimated to be 25% cheaper than current deepwater projects in neighboring countries, presenting a compelling relative value proposition for energy investors if political risks can be mitigated.
To spur investment in Venezuela's risky environment, the U.S. administration may need to employ a "carrot and stick" approach with oil majors. This could involve offering capital guarantees to de-risk investments (the carrot) or threatening to revoke leases on U.S. federal lands for non-compliance (the stick).
The hosts argue that even with vast oil reserves and government encouragement, the political instability, power vacuum, and lack of rule of law in Venezuela make it a poor investment for oil companies. The cost and uncertainty of securing profits are too high.
The widely cited 300 billion barrel figure for Venezuela's oil reserves is not a measure of what's currently extractable. True "proven reserves" are a function of oil price, investment, and security, making the economically viable amount far lower than the technical potential.
The Trump administration's intervention in Venezuela is overtly focused on securing oil to lower global prices, rather than promoting human rights. The plan involves seizing and selling Venezuelan oil with the president personally controlling the proceeds in what critics are calling "high tech piracy."
