Big bets, bigger risks: Why US oil majors are holding back in Venezuela

Negotiations between major US oil companies and the Venezuelan government have reached an impasse over access to some of the country's most productive oil assets, slowing Washington's efforts to boost crude output from the sanctions-hit South American nation, according to a report by The Wall Street Journal.

Talks involving companies such as ExxonMobil and Chevron have stalled over fiscal guarantees and access to the most attractive oil fields, with disagreements persisting between the companies and Venezuela's state-run oil company, Petróleos de Venezuela SA (PdVSA), the report said.

The deadlock comes around seven months after Venezuela's political transition, during which the United States sought to encourage fresh investment to revive the country's struggling oil sector and increase global crude supplies.


The negotiations are focused on a limited pool of high-value assets, particularly heavy crude reserves in the Orinoco Belt and fields in Monagas state. These assets are seen as strategically important because US Gulf Coast refineries are configured to process Venezuela's heavy crude, while lighter oil from eastern Venezuela is used to blend with heavier grades for production and exports.

"Few of them are really jumping into the water," José Ignacio Hernández, a law professor and consultant at Aurora Macro Strategies, told WSJ. "It's like when you're trying to sell your house. You have a very successful open house with 100 people attending, but then nobody calls."

Legal uncertainty clouds investment decisions

According to the report, the Trump administration has encouraged Venezuela's interim government to accelerate oil production, viewing higher Venezuelan output as a way to offset potential supply disruptions linked to tensions involving Iran in the Middle East.

White House spokeswoman Taylor Rogers told the WSJ that the Energy Department is "facilitating unprecedented investment in Venezuela to restore its energy infrastructure."

However, US officials have largely left companies to negotiate directly with PdVSA rather than assigning specific projects or operators.

Industry executives remain wary of committing fresh capital because of Venezuela's long history of contract disputes and nationalisations. Several international companies continue to pursue compensation claims related to assets seized during the presidency of Hugo Chávez, adding to concerns over legal protections and investment security.

"They have been burned twice," Francisco Monaldi, director of the Latin America energy programme at Rice University's Baker Institute, told WSJ.

"I imagine this getting to the board and people saying, 'Didn't we learn our lesson here?' The only way management can sell this is if, you know, you're getting the asset that nobody thought they could get."

The report added that infrastructure challenges are also weighing on investment decisions, including damage at Exxon's former Cerro Negro facilities and disruptions caused by a recent earthquake.

Washington turns to smaller producers

With negotiations involving large integrated oil companies progressing slowly, Washington is increasingly looking at smaller independent producers that could bring assets back into production more quickly, the WSJ reported.

Companies including HKN Energy, Hunt Oil and Pacific Coast Energy are evaluating production-sharing opportunities across mature oil fields that require comparatively lower upfront investments.

Chevron has increased production from its Venezuelan operations to around 300,000 barrels a day through operational improvements, according to the report. Even so, Venezuela's total crude production stood at about 1.07 million barrels per day in June, a fraction of the roughly 3.4 million barrels per day the country produced in 1998.

Industry analysts told WSJ that while smaller operators could help revive output in the near term, they are unlikely to replace the multi-billion-dollar investments needed to develop Venezuela's vast heavy crude reserves over the longer term.