Venezuela’s oil challenge

Returning to Venezuela’s oil sector would pose a difficult challenge for the American oil industry. Companies would have to work with the country’s heavy, thick and toxic crude while trying to help it emerge from a financial crisis.

Venezuela’s more than 65 billion barrels in underground reserves could still attract oil companies, but only under strict and carefully defined conditions. Some firms might consider returning if they received guarantees, potentially involving the US government, but uncertainty over future political change and possible court cases is keeping many away.

Only one major US oil company is currently taking on the task of helping raise production, while others appear unwilling to risk their money, reputations and future liability. Venezuela has more than $250 billion in unpaid bills and debt. Potential investors will therefore want assurances that the country can restore and maintain production, attract the capital needed for expansion and generate enough oil revenue to service its obligations.

The investment challenge is enormous. More than $150 billion could be needed to double crude production. Companies would also need reliable output and a system ensuring payment for their investments, potentially through oil delivered in return for capital. A stable government would be essential to protect foreign investments.

Venezuelans, meanwhile, want any oil agreement to be fair and to protect the country’s interests. They expect adequate financial returns for allowing companies to develop the nation’s resources. For Venezuela, an OPEC founding member, the return of investors could help restore production and serve both its population and global oil demand. But raising output from its current level of about 1.5 million barrels per day remains a huge task.