On Friday evening, about twenty top people from the oil sector gathered at the White House. They came there to talk to Donald Trump for the first time since the kidnapping of Venezuelan President Nicolás Maduro about how to proceed with the oil sector in Venezuela.
Are they really, as Trump shouted all week, going to invest billions in the currently rickety oil infrastructure? To then, in Trump’s words, “take a very significant amount of money out of the ground”? Or will oil companies reject Trump’s offer to make major long-term investments in an unstable country? Analysts awaited the meeting with curiosity; the oil companies had mostly kept quiet for a week.
While a number of companies summoned to the White House – including Shell and Spain’s Repsol – were optimistic about the opportunities in Venezuela, many major US oil companies remained skeptical. Darren Woods, CEO of the largest US oil company ExxonMobil, called Venezuela “not attractive” for investments, according to the British business newspaper Financial Times.
It is not surprising that Woods wants more certainty than just Trump’s words. “The Venezuelans have taken our belongings twice before,” he said.
He is referring to two rounds of nationalizations for the oil sector in Venezuela, first in 1976 and then again in 2007. It is the second round in particular that led Trump to claim last week that Venezuela owes the US money.
The political context at the time partly explains why many oil companies are now reluctant.
Nationalization
For decades, Venezuela was a top oil producer. At its peak in 1970, the country produced more than 3.75 million barrels per day (a barrel is 159 liters) and was the sixth largest producer in the world. Mainly foreign companies were active in Venezuela. Their enormous oil revenues fueled , writes researcher Douglas Delgado-Landaeta a reconstruction in the political-economic scientific journal Processos de Mercado: “Politicians fed the myth that foreign companies were exploiting Venezuelan natural resources.”
“This was a time when many American cars were driving around in Venezuela,” says energy specialist at The Hague Center for Strategic Studies (HCSS) Jilles van den Beukel. Dutch Shell and other oil companies from Europe were also active in Venezuela. At the time, these companies mainly drilled in the west of the South American country. “The oil was less heavy there than in other parts of the country and was therefore relatively easy to process,” says Van den Beukel. That made a lot of money.
In Venezuela they were done with foreign companies having control. They thought: we can do this ourselves
These profits should benefit the people much more, was the trend in Venezuelan politics. Production was high, as was the oil price. “And in Venezuela they were done with all those foreign companies being in charge,” says Van den Beukel. “They thought: we can do this ourselves.” Nationalization became a very tempting option.
What already happened in the Middle East in the early 1970s happened in Venezuela in 1976. As of January 1 of that year, the activities of fourteen companies were nationalized – all oil companies active in Venezuela at that time. The companies were blamed for the losses and the equipment they had to leave behind. From an issue of Shell Magazine from 1975 it can be said that the company had accepted compensation of £116 million, which was paid out over a period of 5 years.
This is how state oil company Petróleos de Venezuela, SA (abbreviated as PDVSA) was born. At that moment e, says Van den Beukel. Staff previously employed by the international companies were encouraged to stay, Delgado-Landaeta wrote. Expectations for the new state oil company were high: the oil revenues would make Venezuela rich and the company would be a job machine.
Things turned out differently. PDVSA had no competition in Venezuela, but the workforce expanded and the corporate culture became inefficient. Incentives to be innovative, which oil companies were in abundance on the international stage, writes Delgado-Landaeta. The . In 1986, ten years after the major nationalization, only half of the oil of the peak years around 1970 was produced.
In the early 1990s, the Venezuelan government therefore decided to open its doors to the outside world again. The oil price was low, the disappointing production had to increase to get the country on top. Van den Beukel: “They realized in Venezuela that it was not so easy to do it all alone.”
Under the heading apertura petrolera (‘oil opening’) became forms of cooperation, researchers from Rice University in Houston, US, write in a scientific reconstruction of the collapse of the Venezuelan oil industry. The American oil companies Chevron, Total, Statoil and ConocoPhilips, among others, became active again in Venezuela and built new infrastructure
It worked: by the mid-1990s, production was back above 3 million barrels per day.
The revolutionary Venezuelan politician Hugo, meanwhile, saw the agreements with foreign investors as a loss of sovereignty. Venezuela had become too dependent and he believed that the state was entitled to a larger share of the profits. and in 1999 Chávez became president. Around 2007, he started unilaterally forcing contract changes from the foreign companies. They , write the researchers from Rice University.
They withdrew from that,” says Van Beukel. “They wanted So they had to leave. “De facto that also amounts to an expropriation, just as happened in the 1970s.”
Of the American oil companies, only Chevron has remained, despite the adverse circumstances. The oil company is still active in five oil projects in Venezuela, in which it owns between 25 and 60 percent of the shares, according to an inventory from Reuters. It exports about 150,000 barrels per day from Venezuela to the US. Van Beukel: “At Chevron they hoped that conditions would become favorable again as soon as someone else came to power after Chávez.”
That’s not what happened when Maduro In 2020, at its lowest point, production was only 400,000 thousand barrels per day.
Painful expropriation
Unlike in the 1970s, the companies that left around 2007 received a meager amount: they received compensation for the book value, not for the market value, the Rice University researchers write. “The expropriation was much more painful for international companies than during that first nationalization,”
Lawsuits followed in American and international courts, which continue to this day. The American ConocoPhilips is trying to get $12 billion from Venezuela, Reuters news agency noted. the Italian ENI wants to see $3 billion, the American ExxonMobil $1 billion and the Spanish Repsol wants $700 million back.
These losses therefore give oil companies reason to be cautious. Trump sees it differently. He sees the “stolen” infrastructure, which was later neglected, as a reason to get oil from Venezuela and make a lot of money with it. The US already has the right to do that, he believes. “A huge industry was taken from us as if we were babies and we did nothing about it.”
How Trump is now pinching off Venezuela and usurping control over the oil industry, those companies, says Van den Beukel. What Trump is doing is much more drastic and disturbing. The amounts that are still outstanding “seem like large amounts to us, but in the oil world that is not so bad. If PDVSA pays that, that should be the end of it.”
On Wednesday, Trump said that Venezuela would “transfer” thirty to fifty million barrels of crude oil to the United States. The oil will be sold at market value and the proceeds – estimated at more than 2 billion – will go to the Venezuelan people and to the US as compensation for the “stolen” infrastructure and lost income
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On Friday, at the White House, despite the reluctance of many oil companies, he was optimistic about investments in Venezuela. “Our giant oil companies will spend at least $100 billion of their own money – not the government’s money,” he said, according to FT.
Chevron and European companies, including Shell, Repsol and ENI, were enthusiastic. According to FT Shell CEO Wael Sawan said that the European oil company in principle has “opportunities worth several billion dollars to invest in.” Repsol, which currently plays a small role in Venezuela’s energy sector, said it could triple production to more than 150,000 barrels per day in the next three years.
The president said he remains in control of which company can get started. He does not want to make a distinction between the amounts that companies still have outstanding with PDVSA. “We are starting with a clean slate.”
To the oil companies he said: “If you don’t want to come in, let me know because I have 25 people who are not here today who are willing to take your place.”
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