Despite Shift, Markets Face Long Wait for Venezuelan Oil

The Biden administration made a significant change in its Venezuela policy when it authorized Chevron Corp.

CVX -0.29%

to once again produce oil in the South American country, but this decision will reduce the production of oil in the world in a short time.

The U.S. company will have to deal with a number of technical problems at Venezuela’s aging oil fields and a complex network of remaining U.S. sanctions that must be changed to get more of the country’s oil to the global market.

On Saturday, the Treasury Department granted Chevron a new license to operate in Venezuela after a meeting in Mexico City between the Venezuelan government of Nicolás Maduro and opposition groups in which participants agreed that Venezuela would spend billions in frozen funds for humanitarian and infrastructure aid. . program managed by the United Nations. US officials have cited Chevron’s return to Venezuela as a reason for the parties to begin negotiations on the timing and scope of free elections.

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The policy change comes two years after the Trump administration shut down the activities of Chevron and other oil companies in Venezuela as part of a “maximum pressure” campaign aimed at ousting Mr Maduro’s government. These policies included delaying recognition of Mr. Maduro and supporting congressional leader Juan Guaidó as Venezuela’s legitimate president.

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The move away could open the door to other oil companies that previously operated in Venezuela, though the Treasury Department did not specify how they might reconnect with the country.

Among Chevron’s first tasks are repairing broken equipment, stopping power outages and solving problems with pipelines, re-employing hundreds of workers despite an exodus of talent from Venezuela’s oil industry, and dealing with physical security threats in gasoline theft, analysts said.

José Chalhoub, a political risk and oil analyst in Venezuela who previously worked in the country’s oil industry, said: “The amount of money needed to invest in Venezuela to restore lost production is huge.”

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Mr. Chalhoub estimated the investments needed to restore Venezuela’s lost oil production at about $50 billion. In the next six months, he said, Chevron may increase production by 20,000 to 30,000 barrels per day, too little to make any difference on the global market.

Venezuela has also pumped enough oil since the US imposed sanctions – the liquids that ease the flow of Venezuela’s viscous oil, which used to come mainly from the US.

Before Chevron is ready to make new investments in Venezuela, such as in new fields, it wants to raise more than $4 billion in debt from Venezuela’s national oil company, Petróleos de Venezuela SA.

A statue showing an oil rig in one hand outside the Petroleos de Venezuela headquarters in Caracas, Venezuela.

The picture:

Carolina Cabral/Bloomberg News

Collecting that debt could take two to three years, as PdVSA owes Chevron and other joint venture partners more than two years of oil revenue after 2020 US sanctions prevented the Venezuelan company from paying its partners. yourself The license will allow Chevron to collect its share of the proceeds from its joint ventures such as Petropiar, in which Chevron owns a 30% stake.

In the first 25 days of September, PdVSA, which operates Chevron’s joint ventures, produced 45,000 barrels per day, according to consulting firm IPD Latin America. The country’s production fell to 686,000 barrels a day in the same period, down from more than 900,000 barrels in December, the firm said.

Although Venezuela has the world’s largest oil reserves, it may take at least a year for Chevron to restore oil production to 200,000 barrels per day at its four joint ventures with PdVSA, analysts said.

This is a drop in oil prices that could affect Western sanctions on Russian oil. Some analysts estimate that 1.5 million barrels per day could be affected by those penalties next year. Venezuela’s oil production is down 700,000 barrels a day this year, down from more than three million barrels a day in 1990.

Chevron’s initial return to Venezuela is unlikely to help ease oil prices anytime soon, analysts said.

“This is not something that will happen overnight. It will add barrels to global supply over time, but it will take months if not more than a year,” said Robert Yawger, Mizuho analyst..

Mr. Yawger said, the development of Venezuela was evaluated only by the cheapness of 1 dollar per barrel of oil in a short period of time.

Much will also depend on the upcoming negotiations between Venezuela’s government Nicolás Maduro and opposition parties, which have the potential to put a wrench in Chevron’s shoes if the two sides cannot come to an agreement.

Analysts say Chevron’s initial return to Venezuela is unlikely to help ease oil prices anytime soon.

The picture:

Mario Tama/Getty Images

Seven million Venezuelans have fled the once oil-rich country, which has been plunged into economic collapse by the Maduro government’s economic mismanagement and corruption, as well as the impact of international sanctions.

But with the failure of the maximum pressure strategy pursued by the Trump administration, Mr. Maduro is politically stronger now than ever.

“A government that feels secure may make more concessions than one that feels in a corner,” says Javier Corrales, a Venezuela expert at Amherst College.

Biden administration officials said the license prohibits PdVSA from profiting from Chevron’s oil sales. The officials said that if Venezuela does not negotiate in good faith, the United States is prepared to revoke or modify the license, which will be valid for six months.

Write to Collin Eaton at [email protected] and José de Córdoba at [email protected]

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