Trump Is “Probably Inclined to Keep Exxon Out” of Venezuela

Trump has a hissy fit because Exxon called Venezuela uninvestable.

Trump says he didn’t like comments from company’s CEO during a meeting Friday at the White House. So … Trump ‘Inclined’ to Keep Exxon Out of Venezuela

President Trump said he might block Exxon Mobil from drilling in Venezuela after the company’s top executive publicly acknowledged the barriers involved in doing business in the country.

“I’ll probably be inclined to keep Exxon out,” Trump said Sunday evening, speaking to reporters traveling with him aboard Air Force One.

During a meeting with oil-company executives at the White House on Friday, Exxon Chief Executive Darren Woods said that Venezuela is currently “uninvestable” without significant changes to the country’s commercial frameworks, legal system and hydrocarbon laws. He expressed confidence those changes could be put in place with the Trump administration and Venezuelan government working together.

“I didn’t like their response. They’re playing too cute,” Trump said Sunday of Woods’s comments, adding that other companies want to invest in Venezuela.

At the White House on Friday, Trump told the oil-industry executives that the U.S. would provide unspecified security guarantees to companies that go into Venezuela and invest in the country’s ailing energy infrastructure.

Exxon has a troubled history in Venezuela. Its assets there were nationalized for the second time in 2007. The company sued for $12 billion but recovered only a fraction of that sum. Woods said Exxon would need to see some pretty significant changes from what it has seen there historically to consider entering the country a third time.

He said he could have a technical team visit to assess the current state of Venezuelan assets within the next couple of weeks. The company has a major oil project in neighboring Guyana.

ConocoPhillips CEO Ryan Lance expressed similar reservations about re-entering the country during Friday’s meeting. He told Trump his company is currently the largest nonsovereign credit holder in Venezuela and is owed $12 billion. ConocoPhillips also left the country in 2007.

Trump dismissed the possibility of covering any of those debts. “We’re not gonna look at what people lost in the past,” he said Friday. “You’re gonna make a lot of money, but we’re not going to go back.”

Unspecified Security Guarantees

Trump offers “unspecified security guarantees”.

Does anyone know what they are? Do they even exist? Why should anyone believe a certified liar in the first place?

I can only think of two reasons guarantees are unspecified.

• There aren’t any yet
• There are some guarantees but they are embarrassing handouts to the oil industry that Trump does not want disclosed

Exxon Statement on Uninvestible

Please consider snips from Our perspective regarding the situation in Venezuela as shared with President Trump by ExxonMobil.

Thank you, Mr. President, I appreciate the invitation and the opportunity for the entire industry to show up and provide perspective.

And as a depletion business, the biggest challenge we have is finding resources. There’s an opportunity in Venezuela with all the resources there. We don’t have that challenge of finding; we have the challenge of developing those resources. So I think it’s in the best interest of these companies and, frankly, society as a whole for the industry to be interested in understanding what the opportunity here represents.

I’ll just share a philosophy that ExxonMobil has when we enter countries—because we do business all around the world, in a number of different regimes—we take a very long‑term perspective. The investments that we make span decades and decades. So, we do not go into any opportunity with a short-term mindset.

There’s a value proposition that we have to meet. It has to be a win‑win‑win proposition. Obviously, it has to be a win for the company and our shareholders, generating a return for the investments that we make. It has to be a win for the government. The resources are an important source of revenue that help support the people of the places that we do business. And it has to be a win for the people. We have to be wanted there— and to be a good neighbor. And those three things ensure a stable, long‑term platform for the large investments that we make for the long term.

With respect to Venezuela in particular, we have a very long history in Venezuela. In fact, we first got into Venezuela back in the 1940s. We’ve had our assets seized there twice. And so, you can imagine to re‑enter a third time would require some pretty significant changes from what we’ve historically seen here and what is currently the state.

If we look at the legal and commercial constructs—frameworks—in place today in Venezuela, today it’s uninvestable. And so significant changes have to be made to those commercial frameworks, the legal system, there has to be durable investment protections, and there has to be a change to the hydrocarbon laws in the country.

We’re confident that with this Administration and President Trump working hand‑in‑hand with the Venezuelan government that those changes can be put in place. And with respect to the Venezuelan government—that perspective—we don’t have a view on. We haven’t talked to the Venezuelan government, and obviously we have yet to assess the people’s perspective with respect to ExxonMobil entering the country.

In the short term, there are things that can be done while these longer‑term issues are being worked. For us, we haven’t been in the country for almost 20 years. We think it’s absolutely critical in the short term that we get a technical team in place to assess the current state of the industry and the assets to understand what would be involved to help the people of Venezuela get production back on the market.

With the invitation of the Venezuelan government and with appropriate security guarantees, we are ready to put a team on the ground there. We also have an integrated set of capabilities—from production to refining to trading—and I think we can be of assistance to getting Venezuelan crude to market and realizing market price to help again with the financial situation in Venezuela.

So that’s the short‑term perspective that I have. Thank you, Mr. President, for the work that you’ve done to secure not only the national security, but the energy security of the region. And thank you Secretary Rubio, Secretary Wright, Secretary Burgum, for your leadership in this matter. Thank you.

Win-Win Deals

Since Exxon did not 100 percent suck up to Trump, he is “inclined to keep Exxon out”.

I rather doubt Exxon cares. And I doubt ConocoPhillips cares either.

Both are smart enough to understand Trump does not offer “win-win” deals.

Trump offers deals on which he is prone to dramatically change, even cancel, at a moment’s notice.

Acting President of Venezuela

Increasing Venezuela’s Oil Output

The Council on Foreign relations says Increasing Venezuela’s Oil Output Will Take Several Years—and Billions of Dollars by Brad W. Setser.As always,

Venezuela’s oil production has long been hampered by both Venezuela’s mismanagement of its oil fields and U.S. sanctions. With Maduro in U.S. custody and his vice president, Delcy Rodríguez, acting as interim president, Trump’s team has said that they aim to revitalize the country’s oil sector. Following the Saturday raid on Caracas, Energy Secretary Chris Wright announced that the United States intends to oversee Venezuelan oil sales “indefinitely,” and Trump said U.S. oil firms are “ready” to reenter the country. In the meantime, Venezuela’s government has said it will transfer between 30 and 50 million barrels of sanctioned oil to the United States.

There are challenging roadblocks ahead, however. The full restoration of Venezuela’s oil production—and revenues—will take years and many billions of dollars. It will require new agreements between the U.S. and Venezuelan governments, and buy-in from the world’s top oil firms.

What are the prospects for ramping up Venezuela’s oil production?

Let’s be clear: Venezuela’s vast oil reserves do not currently support significant production. Right now, Venezuela produces around 800,000 barrels a day, and its production in recent years has been around a million barrels per day, or about 1 percent of current global production. Venezuela does have large deposits of heavy, tar-like crude, but not all of that oil is economical to produce. For now, the Gulf countries have much more production capacity and lower-cost-to-produce reserves.

At the same time, there is no doubt that with sufficient investment Venezuela could produce substantially more oil than it does now. The country produced 3 million barrels a day twenty years ago, and it was close to 2.5 million barrels a day as recently as 2016. It probably won’t ever produce or export as much as Saudi Arabia or Russia, but its production over time could rival that of, say, Canada or Iraq.

Getting there will not be easy, however. There are some existing oil fields and pipelines that can be rehabilitated with a relatively modest amount of investment (estimates range from $10 billion to $20 billion) and generate additional output within a couple of years. That would add around 500,000 barrels a day to Venezuela’s output, bringing production to something like 1.5 million barrels a day (perhaps more, perhaps less; there isn’t a definitive estimate). Raising production beyond that level will require the development of new fields and take substantially more investment, $100 billion over ten years by some accounts.

There are two final points to consider. First, much of Venezuelan crude is very heavy. It often needs to be mixed with a diluent, such as a lighter grade of crude, to move easily through pipelines. It is also sour, meaning it has a high sulfur content. It will never be the cheapest oil to produce; it always will be technically difficult to refine and trade at a discount compared to other grades of crude. However, this currently works in the United States’ favor, as the U.S. Gulf Coast refiners were originally built to handle heavy and sour crude from Venezuela and Mexico.

The second point is that Venezuelan oil is a “conventional” play, meaning once a well is producing, it will produce for a long time. The economics of this investment are very different from those of the tight or shale oil plays now dominant inside the United States, which generate higher upfront returns. The big oil firms will need clarity on Venezuela’s long-term political future before they are willing to commit serious amounts of their own capital without a U.S. guarantee. The bulk of the return on any current investment will come long after Trump and Rodríguez Venezuela’s interim leader, are slated to leave office.

How long will it take for Venezuela to benefit from higher oil production?

Venezuela should be able to rapidly return to producing around one million barrels a day as soon as the United States lifts the current export blockade. Industry experts tend to think it would be relatively easy and quick to then add another 500,000 barrels a day to Venezuela’s production. But getting output back to 3 million barrels a day or more will take substantial time and investment. It is doable over a ten-year horizon, but not four years.

At current oil prices, this will generate a real influx of cash, but it won’t be an immense income. One million barrels of production doesn’t necessarily mean a million barrels of net exports; the thirty million Venezuelans living in the country also use some oil. But one million barrels should generate roughly 750,000 barrels of exports, and at current prices, that implies an export revenue stream of just under $15 billion a year (the exact number will depend on the discount on Venezuelan crude).

Each additional 500,000 barrels in exports at current prices generates just under $10 billion a year in gross proceeds. The net proceeds are much smaller; moving Venezuelan oil to market takes imports of lighter grades of crude, and ramping up production takes high levels of imported kit. Venezuela isn’t going to be generating a ton of free cash flow from its oil for some time.

Put simply, Venezuela is going to be cash-strapped for some time. It is sitting on a decrepit oil well that needs a lot of maintenance, not a recently drilled gusher.

Halliburton

Halliburton was forced out of Venezuela due to Trump sanctions in his first term.

As always, Trump is looking for a quick fix. He failed to consult with energy executives and now demands more than they can offer.

Both Exxon and ConocoPhillips have reservations. Halliburton is more amusing.

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