ExxonMobil Nears Potential Deal to Resume Oil Production in Venezuela

ExxonMobil is reportedly close to finalizing a deal with Venezuela's government to acquire rights to produce oil in the country for the first time in nearly two decades. According to the New York Times, the agreement could be completed as soon as this month and would involve the US supermajor signing contracts to produce oil in up to six fields. ExxonMobil officials have declined to comment on the report, and Upstream has sought comment from Venezuela's hydrocarbon ministry.

Background and Shift in Stance

In March, ExxonMobil acknowledged sending a team to Venezuela to evaluate its infrastructure and resources, which the Energy Information Administration estimates at over 300 billion barrels. This marks a significant reversal for the company, as CEO Darren Woods called Venezuela "uninvestable" in January due to security, political challenges, and aging oil infrastructure. Woods also noted that ExxonMobil had its assets seized twice by the Venezuelan government, most recently in 2007 during a nationalization wave under former president Hugo Chavez. However, Woods later walked back these comments, stating on ExxonMobil's earnings call on May 1 that the company would have an advantage in Venezuela due to its experience with the "very heavy" crude grades the country produces. He added that ExxonMobil is "uniquely positioned" to play an important role in bringing those barrels to market and sees potential for resolving a border dispute between Venezuela and neighboring Guyana.

Geopolitical and Regulatory Changes

The direction of Venezuela's oil industry has shifted dramatically after US military forces captured former president Nicolas Maduro in early January. Since then, the White House has sought to control oil flows from Venezuela to benefit US coffers and has encouraged oil majors to invest billions in upgrading the country's oil system. The US Treasury Department has rolled back sanctions on Venezuela, allowing oil majors to sign production deals. Several companies, including Chevron, Shell, Repsol, and Eni, have already inked agreements.

Potential Impact and Legal Reforms

Analysts suggest that Venezuela could increase its oil production by 500,000 barrels per day within two years if conditions such as reforming state oil company PDVSA and attracting private investment are met. In late January, Venezuela's National Assembly revamped hydrocarbon laws to allow private companies greater control over their oil operations, facilitating such investments.