- Exxon is taking a cautious first step back. The U.S. oil giant signed a memorandum of understanding on Monday with the Venezuelan government and state oil company Petróleos de Venezuela to evaluate drilling opportunities, negotiating a potential return nearly two decades after it exited the country, The Wall Street Journal reported.
- The prize is enormous. The Journal reported in September that Exxon was evaluating a deal that could encompass fields with more than 50 billion barrels of oil, and Venezuela says it has some 300 billion barrels of proven reserves, which would be the largest in the world.
- Rivals moved first. Chevron signed a deal in September to invest $7 billion in Venezuela over five years through its joint ventures, aiming to double output of 600,000 barrels a day, while billionaire Harold Hamm and wildcatter Hunt Oil have signed preliminary deals of their own.
- Politics cut both ways. Exxon sent teams to Caracas after President Trump pushed American oil companies to put $100 billion into Venezuela’s energy sector, but after Democrats won control of Congress, some oil analysts said it could become harder for U.S. companies that have not yet invested there to do so.
What Happened?
In a 38-word statement that was sparse on details, Exxon did not specify which fields the agreement covers and said it wants to see further progress on regulatory reform and other conditions for a profitable investment. “This memorandum is a meaningful first step,” an Exxon spokesman said. “But any future investment would require stable policies, clear regulations, strong investment protections and competitive returns.” Exxon left Venezuela in 2007 after Hugo Chávez seized its oil assets, and at a White House meeting in January, shortly after the U.S. ouster of Nicolás Maduro, CEO Darren Woods called the country “uninvestable” without major changes to its commercial frameworks, legal system and hydrocarbon laws.
Why It Matters?
The agreement gives Exxon a seat at the table in the world’s largest reserve base without committing capital, preserving optionality while it waits for legal and fiscal reforms. Woods has said Exxon is among the few companies able to extract Venezuela’s viscous heavy oil, which could give it bargaining power over terms. For shareholders, the near-term financial impact is limited, but a large, long-life resource could support production growth well into the next decade if the conditions are met. The contrast with Chevron, which is already committing billions, shows how differently the two largest U.S. oil companies are weighing Venezuela’s political and legal risk.
What’s Next?
Woods said late last month that “we absolutely see a need for that resource at some point in the future,” but that it will have to be “produced and developed at a very competitive cost,” and that an actual investment will require “substantial changes to the way things have historically been done in Venezuela.” “I expect that to take time,” he said. Investors should watch for details on which fields are covered, progress on Venezuela’s investor protections and hydrocarbon laws, and whether the new Democratic Congress moves to complicate U.S. investment in the country.
Affected Tickers and Coins: XOM, CVX
Source: The Wall Street Journal
