Chevron announced on Sept. 2 that its joint ventures plan to invest more than $7 billion over five years in Venezuela, part of an expansion expected to more than double the company’s oil production there under new agreements that provide improved investment terms and access to additional fields in the Orinoco Belt.
The Orinoco Belt is a vast region in central Venezuela containing some of the world’s largest deposits of extra-heavy crude oil. The new agreements provide Chevron access to additional fields in that region and improve the economics of developing them. The company said the projects could be developed at a cost of less than $20 per barrel, a figure that would make them competitive relative to many global oil developments.
Chairman and chief executive Mike Wirth said the company’s presence in Venezuela spans more than a century and described the expanded position as a reflection of confidence in the country’s deep resource potential.
The company operates there through three partnerships with affiliates of PDVSA, the state-owned oil company.
The context of the announcement
The expansion represents a significant deepening of the company’s presence at a moment when relations between the two countries are complicated. Chevron is the largest U.S. oil company operating there and has maintained operations under special licenses from the U.S. Treasury Department while sanctions remain in effect. The company has navigated the legal and diplomatic complexity of operating in a sanctioned country by securing authorizations that allow it to invest and repatriate profits.
The commitment is one of the largest single-company pledges in the Venezuelan oil sector in years. State oil production has declined sharply over the past decade due to underinvestment, mismanagement and the effects of U.S. sanctions, and partnerships with international oil companies are the primary mechanism through which PDVSA has sought to rebuild capacity.
The Orinoco Belt’s extra-heavy crude requires significant processing to convert it into conventional oil products, which adds to development cost and complexity. The sub-$20-per-barrel development cost Chevron cited suggests the company believes it can produce profitably at current and projected oil prices.
The geopolitical dimension
The announcement came against the backdrop of U.S.-Venezuela diplomatic tensions. The Trump administration has maintained sanctions pressure while allowing Chevron to continue operating under its special authorization. That authorization is periodically reviewed, and its continuation has been one of the ongoing policy questions in the bilateral relationship.
The commitment strengthens the argument for continued authorization, since the economic consequences of revoking it would be more significant with a larger investment position. It also creates additional leverage in any future policy negotiations around the license.
For the country, the investment represents both capital it needs to maintain and expand production and a signal to other potential investors about openness to international oil partnerships.
