Chevron (CVX.US) increases by US$7 billion and is expected to double Venezuelan crude oil production
The Zhitong Finance App learned that US energy giant Chevron (CVX.US) announced on Wednesday that it plans to invest 7 billion US dollars over the next five years through a joint venture to more than double its crude oil production in Venezuela to 600,000 b/d. This will be one of the largest investment promises by international oil companies in Venezuela in recent years, and also marks the further consolidation of Chevron's dominant position in the country's oil landscape.
Chevron said in a statement on Wednesday that the company has obtained the rights to develop two giant oil fields in the Carabobo region of the Orinoco oil belt. The two oil fields are Carabobo 1 and Carabobo-2-South-A, respectively, and are close to the Petroindependence joint venture project in which Chevron holds 49% of its shares.
Chevron CEO Mike Wirth said in an interview: “We are building a very impressive layout in one of the most geologically favorable regions in the country. It contains billions of barrels of oil.”
The deal is the largest capital commitment made by an international oil giant to the South American country since US special forces captured former Venezuelan leader Nicolas Maduro in January this year. Venezuela has the largest oil reserves in the world, but decades of mismanagement, corruption, and related restrictions have severely weakened the country's fossil fuel industry.
Wirth said Chevron put in place “important protections” in the agreement to protect its investment, but declined to disclose contract details. He also said that the company expects to re-add some of the Venezuelan reserves previously written off to the balance sheet.
$20 cost, $94 oil price: Chevron's Venezuela layout has considerable profit margins
Chevron expects its oil production in Venezuela to reach about 600,000 barrels per day by 2031, which is more than double the current production. The company said in a press release that Venezuela's rich oil potential will continue for “decades,” and the total production cost is expected to be less than $20 per barrel.
The price of Brent crude oil was about 94 US dollars/barrel on Wednesday, which means that Chevron's profit margin in Venezuela is extremely impressive. Chevron usually exports Venezuelan crude oil to refineries along the Gulf Coast of the United States for processing into refined oil products such as gasoline, diesel, and aviation fuel.
Chevron plans to increase production by about 300,000 barrels per day over the next five years, which will increase Venezuela's crude oil production by nearly 30% to about 1.1 million barrels per day. Even so, the country's production will still be far lower than the nearly 3.5 million b/d in the late 90s, when the Venezuelan government had not nationalized the oil industry.
The competitor held on when it left, and the historic bet paid off
Chevron has been deeply involved in Venezuela for over 100 years, and has completed a strategic position spanning the entire cycle in the midst of the oil boom, the wave of nationalization, and sanctions.
Rivals ExxonMobil and ConocoPhillips withdrew from Venezuela after their assets were nationalized in the early 21st century. However, Chevron chose to stay and became the only surviving major US oil company. Over the past ten years, Chevron's Venezuelan business has been greatly restricted due to repeated US restrictions.
Chevron said its presence in Venezuela helped stabilize the country's economy, providing dollar revenue during a period of hyperinflation and economic turmoil, while supplying crude oil to the global oil market. Furthermore, after the Venezuelan regime change earlier this year, Chevron was in an advantageous position as a result.
Wirth said the company's current business in Venezuela is in good shape, thanks to “excellent employees who have stuck to their posts and are responsible despite years of uncertainty and anxiety.”