The US military operation to arrest Venezuelan President Nicolás Maduro on 3 January from his residence in Caracas has introduced new uncertainty around the outlook for Venezuela’s oil sector and its role in global markets.
With the US legal case against Maduro expected to unfold over the coming months, industry analysts are beginning to assess what the shift could mean for production, exports, and investment.
US President Donald Trump said following the military action against Maduro that large US oil and gas companies will be tasked with revitalizing Venezuela’s oil infrastructure that has suffered from years of neglect and sanctions. Venezuela holds the world’s largest oil reserves at about 300 billion bbl, but most of the resource is heavy and sour, significantly raising the cost and difficulty of extraction and upgrading.
Trump added that companies whose assets were expropriated nearly 2 decades ago would be compensated after investing billions of dollars in Venezuela’s upstream sector. However, the US administration has provided few details on how such a plan would be structured, and no US oil companies have publicly committed to participating.
ExxonMobil has spent years through international arbitration trying to recoup more than $1.65 billion in lost Venezuelan assets while ConocoPhillips has sought to recover around $12 billion.
Chevron, the only US oil company currently operating in Venezuela, said in a recent statement that it “remains focused on the safety and well-being of our employees, as well as the integrity of our assets,” and added, “We continue to operate in full compliance with all relevant laws and regulations.”
Chevron is allowed to export between 120,000 and 150,000 B/D of Venezuelan oil under an exemption granted by the US Treasury. The Houston-based oil company produces between 200,000 and 250,000 B/D with its Venezuelan joint ventures.
‘Enormous’ Investments Needed
Rystad Energy estimates that Venezuela produced about 1.1 million B/D in crude last year and will require nearly $53 billion in upstream investment over the next 15 years just to maintain current production levels.
The consultancy said that adding roughly 300,000 B/D over the next 2 to 3 years is possible with limited incremental capital. Beyond that, however, Venezuela would need up to $9 billion in additional annual spending to raise output to 2 million B/D by 2032 and 3 million B/D by 2040.
Adding up all the numbers, Rystad said Venezuela’s oil fields would require about $183 billion, or $12 billion in new annual spending, to return production to 3 million B/D, a level last reached in the early 2000s. Rystad concluded that reaching 3 million B/D would involve “enormous” capital spending.
S&P Global Energy reported that Venezuela produced about 826,000 B/D last year, a figure that excludes imported naphtha used to dilute the country’s heavy crude prior to export. Total exports, including blended volumes, averaged about 750,000 B/D, with nearly two-thirds shipped to China.
S&P Global added that it had already projected further production declines in Venezuela prior to the US military operation and the embargo on sanctioned crude tankers and said it continues to maintain that outlook. “While S&P Global Energy sees risk to the upside and downside in terms of production and exports, it is not enough either way to significantly alter the global oil balance in the first quarter,” the consultancy said in a release.
The firm also noted that the removal of sanctions, which do not yet appear to be under consideration by the US administration, would support higher production, but only with billions of dollars in new investment. In addition to capital, S&P Global said that investment terms, their long-term durability, and oil price conditions would all need to improve to attract the outside funding required to reverse Venezuela’s production decline.
“Whether Venezuela crude oil production grows after years of neglect is a question that will be answered over months and years, and only with significant levels of investment. For now, prevailing oil market fundamentals remain largely unchanged,” Jim Burkhard, the vice president and global head of crude oil research for S&P Global, said in a statement.
In its assessment following the capture of Maduro, Argus Media said Venezuela’s upstream infrastructure challenges are extensive. The firm which tracks commodity prices said improvements are needed across power supply, pipelines, equipment, and labor, and added that legal certainty and stronger oil prices would be key to unlocking billions of dollars in new spending.
In December, Wood Mackenzie said Venezuela could improve output relatively quickly with workovers of existing wells. Other investments could raise production to 2 million B/D within 1 to 2 years under favorable conditions. Wood Mackenzie estimated that joint ventures along with state-owned PDVSA would need to spend between $15 billion and $20 billion over the next 10 years to add an additional 500,000 B/D of supply.
As the situation continues to develop, Reuters reported on 5 January that PDVSA and its joint venture partners have begun shutting in production at several locations following the US oil blockade announced by the Trump administration in December. In the days leading up to the US military operation, oil traders said Venezuelan crude exports, including shipments from Chevron, came to a complete halt.
