Venezuela's Oil Gamble: Is Big Oil Ready to Invest?

Venezuela has officially ended the state-run monopoly of its oil industry, creating a new legal framework to privatize the sector and attract foreign investment. The move by the regime, led by interim President Delcy Rodriguez, dismantles the long-standing dominance of state oil company PDVSA and directly addresses demands from U.S. President Donald Trump as Washington begins to ease trade restrictions.

This policy shift follows the recent capture of President Nicolas Maduro and his wife Cilia Flores by U.S. forces in Caracas. The White House has made it clear to the remaining leadership that compliance, particularly in reopening the oil industry, is non-negotiable. While this represents a major step toward addressing a key concern for energy majors, significant questions remain about whether the country's heavily corroded infrastructure and political risks make it a viable bet.

A Legacy of Mistrust and "Uninvestable" Conditions

Despite the new framework, the international energy community remains cautious. In a recent meeting with President Trump, ExxonMobil CEO Darren Woods labeled Venezuela "uninvestable," citing the need for fundamental changes to the country's commercial and legal systems. Woods stressed the importance of durable investment protections and new hydrocarbon laws, reflecting a sentiment shared by many in the industry, even if other CEOs have expressed more optimism.

This hesitation is rooted in history. When former leader Hugo Chavez nationalized foreign-controlled oil assets in 2007, international firms lost billions. ExxonMobil alone claimed losses of $16.6 billion. That event triggered a massive decline in Venezuela's oil sector as investment dried up and skilled workers fled. The new privatization laws aim to reverse this damage, but eliminating the deep-seated risk of state interference is critical to attracting new capital.

The Challenging Economics of Orinoco Heavy Crude

Even with a more stable political climate, the financial logic for investing in Venezuela's oil fields is complex. The country's primary oil-producing region, the Orinoco Belt, holds roughly 80% of Venezuela's 303 billion barrels of reserves but comes with high costs.

While Venezuela's average breakeven price for oil production is estimated between $42 and $56 per barrel, the figures for the Orinoco Belt are higher. Existing operational facilities break even at $49.26 per barrel, but new projects or those needing significant refurbishment require prices as high as $80 per barrel to be profitable.

With the global benchmark Brent crude trading around $67 a barrel, investing billions to develop the region's extra-heavy, high-sulfur oil makes little economic sense. This problem is compounded by the fact that Venezuela's main export grade, Merey, trades at a significant discount to Brent. In 2025, Merey averaged $56.68 per barrel, a discount of $12.28 compared to Brent's average of $69.14. Even with U.S. sanctions removed, Merey is expected to maintain a discount of around $10 per barrel.

Technical Hurdles and the Crucial Role of Diluents

The oil in the Orinoco Belt is not only costly to produce but also technically challenging. The extra-heavy, viscous substance resembles tar and is filled with contaminants like vanadium and nickel, making it difficult to extract and transport.

To make this crude marketable, it must be mixed with a diluent—a lighter petroleum product like light sweet crude, condensate, or naphtha. This process reduces its viscosity and dilutes hazardous contaminants. Venezuela historically used its own Santa Barbara light sweet crude, which has an API gravity of 39 degrees, for this purpose. The diversion of Santa Barbara crude, which accounts for about 15% of the country's total output, away from refineries contributed significantly to the nationwide gasoline shortages that began in 2017.

A sharp decline in light oil production due to underinvestment, worsened by U.S. sanctions, caused Venezuela’s overall output to plummet to a historic low of 500,000 barrels per day in 2020. Production only stabilized after Iran began shipping condensate to PDVSA. More recently, Chevron started importing U.S. naphtha for its operations after its license was reinstated, as Treasury Department rules prevent the use of Iranian products.

Chevron's Cautious Bet on Expansion

Despite the obstacles, U.S. supermajor Chevron, one of the few foreign companies still active in Venezuela, is planning to expand its output. With a history in the country dating back to 1923, Chevron is uniquely positioned to capitalize on the reopening of the industry.

Following a fourth-quarter 2025 earnings beat, Chairman and CEO Mike Wirth confirmed the company's intent to increase production. CFO Eimear Bonner added that Chevron could boost its Venezuelan output by up to 50% over the next 18 to 24 months. This would take production from the current 250,000 barrels per day to as much as 375,000 barrels per day by 2028. Wirth also noted that Chevron's U.S. refineries have the capacity to process an additional 100,000 barrels per day of Venezuelan heavy crude.

However, Chevron's approach underscores the prevailing caution. The company plans to fund this expansion by reinvesting the proceeds from its oil sales rather than committing significant new capital. This strategy highlights the reluctance of even the most established players to pour the hundreds of billions of dollars needed to fully rejuvenate Venezuela's shattered petroleum industry.