Chevron (CVX.US) invests $7 billions to bet on Venezuela! The number of oil rigs will double and daily production targets 600,000 barrels

According to Zhihu Finance APP, Chevron (CVX.US) Chief Financial Officer Eimear Bonner stated at a conference hosted by Barclays on Tuesday that as part of a $7 billion, five-year expansion plan, Chevron plans to more than double the number of oil rigs it operates in Venezuela to boost the company's oil production in Venezuela to about 600,000 barrels per day.

Currently, Chevron's total production from its three joint ventures in Venezuela is about 290,000 barrels per day, and all of this crude oil is exported to the United States. Eimear Bonner stated that once Chevron's joint ventures in Venezuela reach 600,000 barrels per day in output, the company expects production to reach a platform level of 600,000 to 700,000 barrels per day. The CFO said at the conference, "The vast resource base provides us with the opportunity to extend this plateau period for five to ten years, and this is only the initial recovery from the reservoirs. There is significant upside potential here."

Eimear Bonner also stated that the new contract terms Chevron signed last week grant the company the right to pursue international arbitration. The ability to resolve potential disputes through international courts of arbitration has long been a key requirement raised by other oil producers, including ExxonMobil (XOM.US) and ConocoPhillips (COP.US). These two companies withdrew from Venezuela in 2007 after their assets were nationalized.

Reportedly, earlier this month Chevron announced plans to invest $7 billion through joint ventures over the next five years to more than double its crude oil production in Venezuela. This would be one of the largest investment commitments by an international oil company in Venezuela in years and further consolidates Chevron's dominant position in the country's oil industry.

Venezuela has the largest oil reserves in the world, but decades of mismanagement, corruption, and related restrictions have led to a severe decline in the country’s fossil fuel industry. Chevron expects its oil production in Venezuela to reach about 600,000 barrels per day by 2031. The company also stated that Venezuela's abundant oil resources will have potential for “decades,” with total production costs expected to remain below $20 per barrel.

Chevron's involvement in Venezuela's local energy business dates back more than a century. Although other foreign oil companies such as Shell and Repsol still maintain a presence in the country, American counterparts ExxonMobil and ConocoPhillips have been forced to exit after their assets were expropriated. Since the country was sanctioned eight years ago, Chevron has continued to receive exemptions from the U.S. Treasury Department, allowing it to keep drilling for Venezuela's abundant oil resources.

Chevron has four major projects in Venezuela: two in the Orinoco Oil Belt and two in the Zulia region, the birthplace of Venezuela's oil industry. Collectively, these projects account for nearly 25% of the country's total oil production, which is close to 1 million barrels per day.

In April this year, Chevron reached an asset swap agreement with the Venezuelan government. According to this agreement, Chevron’s stake in a giant oil field in Venezuela’s Orinoco Oil Belt will increase to 49%, and the American company will be granted the right to develop a second area.

Conflicts in the Middle East and the risks around the Strait of Hormuz have increased global attention on supplies of heavy crude oil from outside the Middle East, and Venezuela's Orinoco Belt is one of the world’s most important heavy oil resource regions. This deal allows Chevron to further concentrate its resources on core heavy oil projects, while giving up smaller oilfields in the west and offshore natural gas blocks, making its strategy more focused. If international oil prices remain high and the U.S. continues to encourage increased production in Venezuela, Chevron’s assets in Latin America will not only enhance the company’s upstream growth resilience but also strengthen the security of heavy oil supply that is better matched to the needs of American domestic refineries.