Trump administration launches new bid to lure US oil companies to Venezuela – but finds few takers
When U.S. Interior Secretary Doug Burgum traveled to Venezuela with oil and mining executives last month, he was trying to get them to take advantage of the country’s neglected oil and gas fields.
Then last week at a conference in Houston, he again tried to sell a room full of energy executives on the huge profits in oil, natural gas and precious metals in the South American country.
Burgum — who plays a key role in the Trump administration — used the word “opportunity” three times when talking about Venezuela at S&P Global’s recent CERAWeek energy conference.
“The resources that are out there are absolutely amazing,” Burgum said.
US Energy Secretary Chris Wright also appeared to make a sales pitch for Venezuela, speaking at a conference about how the interim government and the US administration are doing when it comes to Venezuela’s production growth.
But it’s unclear whether oil and gas executives are buying.
There are a number of challenges in Venezuela, from ongoing security concerns to an unstable government, and huge investments needed to develop infrastructure in its dormant oil fields.
The President of the United States, Donald Trump, has been pressuring American oil and gas officials to invest in the oil industry in Venezuela, almost three months after the overthrow of former president Nicolás Maduro, as the country is said to have the largest crude oil reserves in the world.
In January, Trump held a White House meeting with executives of major US oil companies to request at least $100 billion in investment to increase Venezuela’s oil production to help lower US oil prices.
Once a major producer, Venezuela produced only about 900,000 barrels a day last year, following years of declining investment due to sanctions and failed government policies.
At its peak in 1970, Venezuela produced 3.7 million barrels per day.
According to Rystad Energy, Venezuela needs approximately 183 billion US dollars in capital investment between 2026 and 2040 to restore oil production to three million barrels per day.
Venezuela sits on one of the world’s largest oil deposits – but not all oil is created equal. CBC’s Johanna Wagstaffe explains that millions of years of sea burial and oil-eating microbes have turned that reservoir into one of the world’s heaviest, hardest-to-remove crudes.
US involvement will still lead to changes in the country’s energy sector, said Luis A. Pacheco, a visiting fellow at the Baker Institute in Texas and a former energy official in Venezuela.
The Trump administration’s actions “raised a lot of unfulfilled optimism as of today,” Pacheo said. “We’re not as close as we’d like.”
Limited investment interest
Some companies with existing operations in the country are considering whether to expand.
Shell, the UK-based global energy company may decide whether to invest in one or two Venezuelan natural gas projects by the end of the year.
“I don’t think anyone can dispute the size of the resource base in Venezuela,” said Shell CEO Wael Sawan, pointing to the need for further legal and financial reforms by the Venezuelan government to create a more stable investment environment.
“I am encouraged by what we see. But we still have a long way to go,” he said.
ExxonMobil had a team in Venezuela last week to assess the state of the energy infrastructure.
Meanwhile, Chevron has increased its oil production in the country in recent months, but CEO Mike Wirth’s messages remain cautious. “There are still things that need to happen in order to encourage investment at the level people want to see,” he said, pointing to legal reform as an example.
For some, Venezuela is still a work in progress where it is too early to consider investing.
The ruling government recently updated its hydrocarbon legislation, but it remains “woefully inadequate,” ConocoPhillips CEO Ryan Lance said.
The hydrocarbon law now allows private companies, including foreign firms, more autonomy in the country’s lucrative oil sector, as compared to the previous law that gave more power to the state oil company PDVSA in relation to active oil projects.
“You need a policy firmness not only on the Venezuelan side, but on the US side. What happens when other administrations come in?” Lance said.
The concern continues
Venezuela produces heavy crude, similar to the type of oil produced most in Western Canada. In January, Canadian heavy oil prices began to fall following unrest in Venezuela on hopes that some US refineries may have less demand for Canadian oil in the future.
But Venezuela will have to offer a higher level of guarantees and policy certainty to foreign investors compared to other countries to compensate for several decades of not respecting property rights and contracts, said Luisa Palacios, a senior research fellow at the Columbia University Center on Global Energy Policy.
Over the past decades, foreign companies have had their assets confiscated. In the case of ExxonMobil, it happened twice.
At some point, there will be elections in the country, as Delcy Rodríguez is still acting as interim president.
Nobel Peace Prize winner, María Corina Machado, has pledged to run again to become the country’s leader and is promising the opening of a “new era” in Venezuela in hopes of convincing major foreign oil companies to invest in her country.
Machado delivered a keynote speech in Houston last week at CERAWeek, an energy conference with 10,000 attendees. He presented a five-point plan to revive oil production with the goal of reaching five million barrels per day, including a promise of 25-year leases to foreign investors and full management of the oil and natural gas industry.
“[If elected,] the country of Venezuela will get out of the way and pave the way to give conditions so that the oil and gas sector in Venezuela is completely independent,” said Machado.
“The role of the state will be a strong regulator, creating long-term investment incentives,” he said, noting the need for clear rules and enforceable contracts.
In the near future, Canada’s oilpatch shouldn’t be a concern, said Colin Gruending, senior vice president at Enbridge.
“It is not certain how much Venezuela can produce. That is the first question. And the second question is where will the oil go?” he said.
