President Trump's vision of American oil companies rebuilding Venezuela's broken petro-sector creates his biggest test yet of the U.S. industry's tolerance for risk.
Why it matters: Trump and other administration officials haven't been subtle about calling Venezuela's massive oil reserves a key reason for toppling President Nicolás Maduro.
- "You cannot continue to have the largest oil reserves in the world under the control of adversaries of the United States ... but not benefiting the people of that country," Secretary of State Marco Rubio told NBC on Sunday, citing China, Russia and others.
- Trump told reporters Sunday aboard Air Force One: "We're in the business of having countries around us that are viable and successful, and where the oil is allowed to freely come out ... It gets the prices down. That's good for our country."
The big picture: U.S. firms' appetite for investing in Venezuela's dilapidated infrastructure is far from certain, multiple analysts caution, despite U.S. officials' confidence.
- "The potential to boost Venezuelan production hinges on capital, which in turn depends on political stability and likely requires guarantees from the US government," Jefferies Global Research & Strategy analysts said in a note on Sunday.
- U.S. companies "will be wary to enter without a stable security environment, and very favorable terms to reduce the risk. Especially with markets over supplied and prices low in the near term," Eurasia Group analyst Gregory Brew said via email.
The intrigue: A lot of questions remain about how the U.S. could enable conditions ripe for billions of dollars in new investment, though Rubio broadly told CBS on Sunday that companies would need "certain guarantees and conditions."
- He said the U.S. "quarantine" on sanctioned oil tankers creates leverage for changes there.
My thought bubble: This isn't the only case of Trump asking oil companies to move out of their comfort zone in pursuit of big rewards — with big risks.
- The Interior Department envisions selling drilling rights in Arctic seas off Alaska's coast, and off the Pacific coast as well.
- Companies are psyched about stepped-up lease sales in the Gulf of America (renamed from the Gulf of Mexico).
- But interest in other coastal areas — and the costs, legal battles and PR headaches that come with it — is kind of a shrug emoji right now.
Catch up quick: Getting back to Venezuela, Chevron remains the only big U.S. player now operating there.
- Other companies — notably Exxon and ConocoPhillips — left the nationalized sector around two decades ago in a dispute with then-President Hugo Chávez's regime.
- They're owed billions of dollars under various arbitration cases claiming expropriated assets.
Luisa Palacios, a researcher with Columbia University's energy think tank, wrote Sunday that an optimistic but plausible scenario could see production rise by 500,000 to 1 million barrels per day within two years.
- This would stem from a mix of better governance and lifting of U.S. sanctions that remain in effect.
- She sees potential for international companies already there — like Chevron, Repsol, and ENI — to boost output under current licenses.
- And Palacios sees — with lots of caveats — a potential return to the country's peak output of 3.5 million barrels per day in seven to 10 years.
What we're watching: Preliminary signs of industry interest. So far, major U.S. companies have been tight-lipped.
- Rubio told ABC there will be "tremendous interest if it can be done the right way."
- Energy Secretary Chris Wright and Interior Secretary Doug Burgum will soon be "taking an assessment and speaking to some of these companies," he said.
