US oil companies gain after Trump signals access to Venezuela’s reserves

Jan 5 (Reuters) – U.S. oil companies‘ shares jumped on Monday, fueled by the prospect of access to Venezuela’s vast oil reserves after President Donald Trump said the U.S. would take control of the South American nation following the arrest of its president.

Venezuela holds the world’s largest oil reserves, but production plummeted in recent decades due to mismanagement, limited foreign investment following the nationalization of its oil industry and sanctions.

Trump told reporters aboard Air Force One on Sunday that he spoke to “all” of the U.S. oil companies “before and after” American forces seized Venezuelan President Nicolas Maduro from Caracas about his plans for investing in the country.

“They want to go in so badly,” Trump said. “We’re going to have the big oil companies going and they’re going to fix the infrastructure. They’re going to invest money. We’re not going to invest anything.”

The Trump administration has told U.S. oil executives in recent weeks that they would need to return to Venezuela quickly and invest significant capital in the country to revive the damaged oil industry if they wanted compensation for assets expropriated by Venezuela two decades ago, Reuters previously reported.

Shares of Chevron, the only U.S. major currently operating in Venezuela’s oil fields, climbed more than 4% in morning trade.

Meanwhile, U.S. refiners Marathon Petroleum, Phillips 66, PBF Energy and Valero Energy were up between 5.7% and 9%.

Oil prices gained more than 1%, with analysts noting that in a global market with plentiful supply, any further disruption to Venezuela’s exports would have little immediate impact on prices. [O/R]

Trump has said that the embargo on all Venezuelan oil exports would stay fully in effect for now.

Venezuelan crude is a heavy sour with high sulfur content, making it suitable for producing diesel and heavier fuels, albeit at lower margins compared with other grades, particularly those from the Middle East.

“This type of crude aligns well with the configuration of U.S. Gulf Coast refineries which were historically designed to process such grades,” said Ahmad Assiri, research strategist at Pepperstone.

Chevron’s existing presence in Venezuela under a U.S. waiver has positioned it as a potential early beneficiary of any policy shift, while refiners stand to gain from increased availability of heavy crude closer to home.

RETURN OF ASSETS

The U.S. action could also pave the way for the return of assets seized by Venezuela in 2007 under late leader Hugo Chavez, analysts at J.P. Morgan said.

They said ConocoPhillips and Exxon Mobil have significant arbitration awards pending, which have a higher chance of recovery.

“In total, ConocoPhillips has outstanding claims approaching $10 billion, while Exxon’s outstanding damages appear to be in the $2 billion range against their original claims that exceeded $15 billion,” the analysts said.

Shares reflected the optimism, with Exxon Mobil rising 5% and ConocoPhillips gaining 3.4%.

Shares of oilfield services firms, whose technology would be crucial to boosting Venezuela’s crude production, also climbed. Baker Hughes, Halliburton and SLB were up between 4.5% and 7.7%.

Still, analysts cautioned that any meaningful recovery would likely take time, given political uncertainty, infrastructure decay and years of underinvestment.

Venezuela was producing as much as 3.5 million barrels per day (bpd) in the 1970s, accounting for more than 7% of global output.

Production slid below 2 million bpd in the 2010s and averaged about 1.1 million bpd last year, or roughly 1% of global supply.

(Reporting by Arunima Kumar and Vallari Srivastava in Bengaluru and Jarrrett Renshaw in Philadelphia; Editing by Maju Samuel, Sriraj Kalluvila and Chizu Nomiyama)