Chevron Corp CVX unveiled an ambitious plan to add 65,000 barrels per day (bpd) to Venezuela's oil output by the end of 2024. This move comes as a part of Chevron's first major drilling campaign in the nation since Washington allowed it to restore production that had been clipped by U.S. sanctions.
This is a significant development for both Venezuela and Chevron. Venezuela is OPEC's third-largest oil producer, but its output has plummeted in recent years due to mismanagement and U.S. sanctions. Chevron, on the other hand, is one of the largest oil companies in the world and has a long history of operating in Venezuela.
Numbers Speak Volumes
Chevron has set an ambitious production target of reaching 200,000 bbl/day by the end of the next year. This bold endeavor could play a pivotal role in helping Venezuela reach its goal of surpassing 1 million bbl/day, up from an average year-to-date production of 785,000 bbl/day. Additionally, it will expedite Venezuela's objective of recovering $3 billion in unpaid dividends and debt from its projects in the country.
Existing Ventures With PDVSA
Currently, Chevron has joint ventures with the Venezuelan state oil company, PDVSA, producing approximately 135,000 bbl/day, close to the pre-sanction level of 2019. Importantly, this drilling plan falls within Chevron's existing license, received in November, and does not necessitate new U.S. approvals.
The drilling campaign is also a sign of improving relations between the United States and Venezuela. The Biden administration granted Chevron a limited license to operate in Venezuela, and the two countries have been engaged in talks to expand trade and investment.
Impact on Venezuela
Chevron's drilling campaign is expected to have a positive impact on Venezuela's economy. The oil sector is the country’s main source of revenues, and increased production will boost government coffers. This could lead to increased investment in social programs and infrastructure.
The drilling campaign is also expected to create jobs and boost the local economy. Since Venezuela has been struggling with high unemployment and inflation in recent years, any new job opportunity and economic activity will be welcome.
Impact on Chevron
The drilling campaign is also expected to have a positive impact on Chevron. The company has been investing in Venezuela for decades, and it has a large portfolio of oil and gas assets in the country. Increased production will allow Chevron to generate more revenues and cash flow.
It will also help Chevron to improve its relationship with the government of Venezuela. The company has been criticized by some for its close ties with the United States. However, the drilling campaign shows that Chevron is committed to investing in Venezuela and helping the country develop its oil and gas sector.
There are a few potential challenges to Chevron's plan to increase oil production in Venezuela. First is the country's aging oil infrastructure. Second is the lack of skilled workers in the oil industry. Third, Venezuela's economic and political instability could pose a risk to Chevron's operations.
Chevron's new drilling campaign in Venezuela is a significant development. It could have several positive implications for both Venezuela and the global oil market. It is important to monitor the situation closely to see how the drilling campaign progresses.
Zacks Rank and Key Picks
Currently, CVX carries a Zacks Rank #3 (Hold).
Some better-ranked stocks for investors interested in the energy sector are CVR Energy CVI and USA Compression Partners USAC, both sporting a Zacks Rank #1 (Strong Buy), and Archrock AROC, carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
CVR Energy is valued at $3.40 billion. In the past year, its shares have risen 32%.
CVI currently pays a dividend of $2 per share or 5.92% on an annual basis. Its payout ratio currently sits at 30% of earnings.
USA Compression Partners is worth approximately $2.19 billion. USAC currently pays a dividend of $2.10 per unit or 9.42% on an annual basis.
The company offers natural gas compression services to oil companies and independent producers, processors, gatherers, and natural gas and crude oil transporters. It also operates stations.
Archrock is valued at around $1.92 billion. It delivered an average earnings surprise of 15.08% for the last four quarters and its current dividend yield is 5.06%.
Archrock is a provider of natural gas contract compression services and aftermarket services of compression equipment.
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