Commentary: Chevron just exposed the gap between Venezuela rhetoric and reality

The US oil giant may become the proof of concept to attract the capital needed for any eventual Venezuelan oil boom, says Liam Denning for Bloomberg Opinion.

NEW YORK: In a momentous week for Venezuela , Chevron delivered the sequel to the White House’s blockbuster oil deal. Except that it’s more of a prequel.

While the US oil major’s new multibillion-dollar investment in Venezuela would appear to confirm that President Donald Trump’s own venture there will soon bring barrels flooding back into the global market, it actually serves to highlight the challenge of turning rhetoric into reality.

Chevron announced on Wednesday (Sep 2) that its Petroindependencia joint venture with Venezuela’s state-owned oil company would invest more than US$7 billion in two new fields in the country’s Orinoco Belt. This should raise output by about 320,000 barrels of crude per day by 2031, roughly doubling expected production for this year.

This follows straight after Trump’s announcement of “the biggest oil deal in world history”, whereby the US government would essentially form a joint venture of its own with local operator North American Blue Energy Partners, or NABEP, to develop 17 Venezuelan fields sitting atop 65 billion barrels.

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While the two new areas are billed as greenfield sites, they are adjacent to Chevron’s existing position, making them more like a “step-out” expansion, leveraging infrastructure already in place, doubly important in Venezuela, where so much of the oil industry fell into disrepair while Chevron maintained its facilities, equipment and labour force.

This is reflected in the relatively low implied capital expenditure budget of about US$22,000 per daily flowing barrel for Chevron’s expansion.

Similarly, Italian oil major Eni’s expansion in Venezuela, also announced on Wednesday, involves raising output at an existing position with minimal production. Figures reported by Bloomberg News imply a capital intensity of less than US$20,000 per flowing barrel.

Compare these to another big, ongoing step-out project in a similarly challenging region, ConocoPhillips’ Willow project in Alaska, where the budget implies closer to US$50,000 per flowing barrel.

Reforms to fiscal and legal terms passed in Venezuela earlier this year helped grease these new investments. But it is important to recognise that these are global oil majors building off existing positions and in a measured way, raising output by perhaps 700,000 barrels a day in aggregate over the course of four to five years.

This offers a vote of confidence for Trump’s designs on reinvigorating Venezuela as a large oil producer in America’s backyard. At the same time, it highlights how expensive and difficult it will be to go beyond the initial step-out and brownfield projects to raise Venezuelan production toward three million barrels a day and beyond, involving greenfield development of complex heavy-grade oil deposits.

The US venture with NABEP involves partnering not with a well-known international oil major but instead the controversial figure of Alejandro Betancourt, whose companies has faced investigations in several jurisdictions over allegations of corruption, money laundering and tax fraud, though he has denied wrongdoing and has faced no formal charges.

The deal’s opacity and overtly neocolonial framing, along with it being signed with an acting government in Caracas heavily tied to the ousted former regime, raise huge questions over whether it can last the decades needed to justify the colossal investment required to develop the touted billions of barrels of reserves.

While the White House envisages Betancourt being able to “raise private American capital” to do this, the more methodical approach of the likes of Chevron offers an alternative model. Indeed, evidence of the latter’s progress over several years may be the necessary proof of concept needed to attract the capital needed for any eventual Venezuelan oil boom.

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