Shares of the world’s largest energy operators rose on Monday as traders priced in potential new markets for the companies following the U.S. capture of Venezuelan leader Nicolas Maduro.
Shares of U.S. oil majors Exxon Mobil (XOM) and ConocoPhillips (COP) rose 2% and 3% respectively, while Chevron (CVX), the only U.S. oil company operating in Venezuela, rose about 6%. Oilfield services giants Baker Hughes (BKR), Schlumberger (SCL.SG) and Halliburton (HAL) performed much the same, with gains of more than 5%.
But for oil majors and their fellow oilfield services operators, Venezuela is less likely to be a story of immediate access to oil than of a slow rebuilding of an infrastructure that has been largely in crumbling condition for more than two decades.
“Any meaningful increase in supply [of Venezuelan oil] Mark Wilson, an equity analyst focusing on energy markets at Jefferies, wrote in a note to clients:
Before the turn of the century and the rise of leftist leader Hugo Chavez, Venezuela was an oil powerhouse on the global stage. The South American country has the world’s largest proven crude oil reserves, estimated to be worth more than 300 billion barrels. In the 1990s and early 2000s, Venezuela exported more than 3 million barrels of crude oil per day (bpd).
Two decades later, exports have fallen below 1 million barrels per day and have fallen further as U.S. Treasury sanctions on tankers have made Venezuelan crude less attractive to global buyers. Meanwhile, U.S. exports exceeded 4 million barrels per day in October.
In the two decades since Venezuela’s exports fell from their highs to their current levels, the country’s oil industry has been battered by chronic underinvestment, corruption and a pattern of state control that has left infrastructure rotting.
In Venezuela’s oil fields, drilling rigs are falling apart and being robbed by thieves, while spills go unmanaged. The country’s port infrastructure is in such disrepair that it can take up to five days to load a supertanker, compared with just one day, Bloomberg reported.
Venezuela has also suffered a massive “brain drain” as a once-vibrant professional oil workforce left the country over the past decade for other more stable, better-paying markets such as Houston and the Middle East.
In short, the reconstruction of Venezuela’s oil industry will not be simple in any way. President Trump said he expects the U.S. oil industry to spend billions of dollars, looking only at potential capital expenditures.
“If things stabilize and a new government comes in and things do improve and there’s no risk of a coup or anything like that, then the country could gradually open up with a lot of investment, but I don’t think it’s a matter of months,” Jorge León, head of geopolitical analysis at Rystad Energy, told Yahoo Finance. “I think we’re talking about years.”
Oil majors have been in a period of significant de-risking over the past few years, shrinking their portfolios and shying away from new investments – especially in volatile areas – as oil prices have fallen and profits have shrunk.
Carlos Bellorin, executive vice president for energy trends and analysis at intelligence firm Welligence, said the companies may be reluctant to enter Venezuela unless they can secure a more stable operating environment.
“They will be reluctant [to enter Venezuela] Especially in the early months, early years of this transitional government,” Bellorin told Yahoo Finance. “They were not in a good financial position and they were trying to abandon non-core areas and focus too much on their portfolios – they were risk-averse. “
Bellorin said the uncertainty is whether U.S. oil majors will come under pressure from the Trump administration to enter Venezuela as part of Trump’s stated goal of rebuilding the oil economy and starting shipping that oil.to the American coast.
Venezuela’s oil industry has been battered by chronic underinvestment, corruption and a pattern of state control that has left infrastructure rotting. (AP Photo/Matthias Delacroix, File) ·Associated Press
Upstream in Venezuela, oilfield services companies are likely to do well. After the U.S. invaded Iraq in 2003, services giant Halliburton, through its subsidiary Kellogg Brown & Root, secured massive government contracts to perform dangerous work entering the war-torn environment to stabilize and rebuild Iraq’s oil infrastructure.
Bellorin said that in Venezuela, oilfield services companies will likely be able to assess, rebuild and upgrade equipment to return oilfield and export infrastructure to usable levels, especially if the United States intends to significantly strengthen Venezuela’s industry.
“To increase and maintain production, you need Schlumberger, Halliburton, Baker Hughes more than ever,” Bellorin said.
The U.S. refining industry could also benefit. Heavy sour crude accounts for about 50% to 60% of U.S. crude oil imports because most of the oil found across the U.S. is the lighter, sweeter version of shale oil.
Much of the U.S. refining capacity – especially on the Gulf Coast where the refining industry is booming – is designed to handle and process heavy, sour crude, ideal for oil that may start flowing from what Mizuho analyst Nitin Kumar called “the fallen angel of the global crude market” in a note to clients.
Trump’s move to take control of Venezuelan oil could provide a cheaper alternative to Canada, which accounts for the majority of U.S. oil imports, including most of the heavy crude imported by U.S. refineries.
Shares of major U.S. refiners rose on Monday. Shares of Marathon Petroleum Corp. (MPC), the largest U.S. refiner by capacity, rose more than 5%, while fellow refining giants Phillips 66 (PSX) and Valero Energy (VLO) rose more than 6% and more than 9%, respectively.
Bellorin said perhaps the biggest potential winner would be Chevron, the only U.S. oil company to remain active in Venezuela during the unrest caused by the Chavez regime. Chevron also has the advantage of vertical integration, with operations spanning upstream production, midstream transportation and downstream refining segments.
“They fought a long battle and in the end they won,” Bellorin told Yahoo Finance.
“They are with [interim president Delcy Rodríguez] The rest of the government, they know the land, they know the people, they know the geology, they’re going to expand their operations, at least initially, and they’re going to set up production in their own projects. “
Regardless, any construction and serious reconstruction of VenezuelaSeveral analysts told Yahoo Finance that it will take time and require support from the U.S. oil industry, which is already facing serious headwinds.
And all this is happening at a time when global energy markets are facing a severe oil supply glut (the International Energy Agency predicts more than 3 million barrels per day), which is widely predicted to drive down prices and tighten profits until at least the end of 2026.
If political risks are to stabilizeBellorin said that as major oil companies start operating in Venezuela again, the country’s exports are likely to stabilize and return to around 1 million to 1.5 million barrels per day in the next one to two years.
Leon told Yahoo Finance that if the situation takes longer to stabilize, Venezuela may be looking at three to five years to reach export levels of 2 million barrels per day.
“I doubt international oil companies will flood back into the country, especially at this time when the market is oversupplied and prices are about to fall,” Leon said.
“[Rebuilding Venezuela’s oil infrastructure] It won’t be easy, it won’t be quick, and it won’t be cheap. “
Jake Conley is Yahoo Finance’s breaking news reporter covering the U.S. stock market. Follow him on X @byjakeconley or email jack companynley@technology shoutinc.com.
