After the U.S. removed the Venezuelan leader, Maduro, the Trump administration said that it would control the country’s oil industry. This will be for years to come, which might help Trump achieve oil prices at $50 per barrel.
The plan would require the U.S. to gain some control over the country’s PDVSA oil company. By taking its oil output, the U.S. would have the stewardship of much of the Western Hemisphere’s oil reserves.
Issues
The plan would need U.S. energy firms to invest in Venezuela. Historically, this strategy did not pay off. Oil executives are wary about their involvement in this plan. Exxon Mobil (XOM) CEO described Venezuela as uninvestable, at least for now. It would require substantial changes to the country’s commercial framework, legal system, and hydrocarbon laws.
Chevron (CVX) might benefit as the only U.S. firm with operations in the country. An increase in production would add between $400 million and $700 million to its annual cash flow.
ConocoPhillips (COP) CEO Ryan Lance wanted to see the U.S. Export-Import Bank’s involvement. The firm left $12 billion in the country when it exited the country.
Bottom Line
The Energy Select Sector (XLE) is not likely to rebound anytime soon. WTI crude prices are still low, hurting the profitability of U.S. energy firms.
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