Chevron (CVX.US) invests $7 billions more in Venezuela, crude oil output expected to double

According to the news from Zhihui Finance APP, US energy giant Chevron (CVX.US) announced on Wednesday that it plans to invest $7 billion through a joint venture over the next five years to more than double its crude oil production in Venezuela, reaching 600,000 barrels per day. This will be one of the largest-scale investment commitments made by international oil companies in Venezuela in recent years and marks Chevron's further consolidation of its dominant position in the country's oil sector.

Chevron stated in a Wednesday announcement that it has obtained the rights to develop two giant oil fields in the Carabobo area of the Orinoco oil belt. These oil fields are Carabobo 1 and Carabobo-2-South-A, both adjacent to the Petroindependencia joint venture, in which Chevron holds a 49% stake.

Chevron CEO Mike Wirth said in an interview: "We are building a very substantial footprint in one of the geologically most favorable regions of the country. There are billions of barrels of oil resources here."

This deal represents the largest capital commitment by international oil giants to this South American country since US special forces apprehended former Venezuelan leader Nicolás Maduro in January this year. Venezuela possesses the world's largest oil reserves, but decades of mismanagement, corruption problems, and related restrictions have severely weakened the country’s fossil fuel industry.

Wirth stated that Chevron has included "significant safeguards" within the agreement to protect its investment but declined to disclose contract details. He also noted that the company expects to re-book portions of previously written-off Venezuelan reserves to its balance sheet.

$20 Cost, $94 Oil Price: Chevron's Venezuela Strategy Offers Considerable Profit Margin

Chevron is expected to reach daily crude output of about 600,000 barrels in Venezuela by 2031, more than doubling its current capacity. The company stated in a press release that Venezuela's abundant oil resource potential will last for "decades," and the total production cost is expected to be less than $20 per barrel.

The price of Brent crude oil on Wednesday was about $94 per barrel, meaning Chevron’s Venezuela strategy offers a very considerable profit margin. Chevron typically exports Venezuelan crude to refineries on the US Gulf Coast, producing gasoline, diesel, aviation fuel, and other refined products.

Chevron plans to add about 300,000 barrels per day in the coming five years, which will boost Venezuela’s daily crude output by nearly 30% to around 1.1 million barrels. Even so, the country’s output will still be much lower than the nearly 3.5 million barrels per day seen in the late 1990s, before the Venezuelan government nationalized the oil industry.

Staying While Competitors Withdraw: Historic Bet Finally Pays Off

Chevron has operated in Venezuela for over a century, navigating through oil booms, waves of nationalization, and sanctions to secure strategic positions across the full industry cycle.

Competitors ExxonMobil and ConocoPhillips withdrew from Venezuela after their assets were nationalized in the early 21st century. But Chevron chose to stay, becoming the only remaining major US oil company. Over the past decade, Chevron’s business operations in Venezuela were significantly restricted due to repeated US measures.

Chevron stated its presence in Venezuela has helped stabilize the country’s economy by providing US dollar revenues during times of hyperinflation and economic turmoil, while also supplying crude oil to global markets. Furthermore, following the change in Venezuelan leadership earlier this year, Chevron has further secured its advantageous position.

Wirth said the company’s current operations in Venezuela are in good shape, thanks to “those outstanding employees who have remained dedicated and diligent through many years of uncertainty and anxiety.”