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Chevron's Venezuela Operations Get Another 90-Day Waiver

Zacks Equity Research

The U.S. Treasury Department permitted Chevron Corporation CVX to continue with its operations in Venezuela for three more months until April 22 despite U.S. sanctions on the country in crisis.

This last major U.S. oil explorer with businesses in Venezuela is granted extensions along with leading oilfield service providers like Baker Hughes BKR, Halliburton HAL, Schlumberger SLB and Weatherford International Ltd. This is the fourth waiver from the Trump administration since sanctions were announced in Nov 2018.

Even though Chevron has a long-standing presence in Venezuela, it incurred a loss of $104 million from its Venezuela operations during the first three quarters of 2019 and is feared to lose $2.7 billion worth of assets if required to leave the country. If the sanctions were not extended, Chevron’s exit would follow close on the heels of various other U.S. entities that bade adieu to Venezuela.

Venezuelan Oil Industry in Troubled Waters

As we know that in early 2019, President Donald Trump had imposed sanctions on the state-run oil firm PDSVA in Venezuela in a bid to expel President Nicolas Maduro. As part of those U.S. sanctions, American companies are prohibited from conducting business with Venezuela's PDVSA. However, the United States granted six-month waivers to Chevron and major oilfield players including Halliburton, Schlumberger, Weatherford and Baker Hughes to conduct transactions with PDSVA.

Years of mismanagement, underinvestment and alleged government corruption deteriorated Venezuela’s energy industry. With the country on the verge of a political and economic collapse, oil output dwindled by more than 50% since 2016. In fact, Venezuela’s oil production plunged to a 30-year low prior to the enforcement of U.S. sanctions.

Restrictive financial sanctions imposed by the United States on the Maduro regime and periodic power blackouts throughout the country further strangulated this Latin American nation’s struggling energy sector. 

Chevron’s Century-Old Liaison With Venezuela in Limbo

Chevron’s Venezuelan operations date back to 1920. The company currently owns 39% stake in a JV with PDVSA, which had produced 16,000 barrels of oil per day in the country’s Boscan Field in 2018. This U.S. energy giant also holds interests in three other onshore production JVs, two of which operate in Venezuela's Orinoco Belt. The company had previously warned of the challenging operating environment in Venezuela, which could increasingly disrupt businesses and induce volatility in financial results.

While the Venezuelan business represents a very small portion of Chevron’s extensive global portfolio, its departure from the country would have surely dented earnings. On Chevron's exit from the country, the Venezuelan government certainly had to nationalize its oil assets and the company would have to suffer write-downs. If the waivers lapsed and Chevron is forced to bow out, it may find it difficult to resume its relationship with the South American nation even if U.S.-Venezuela ties are on the mend despite the country’s crumbling energy infrastructure.

Chevron Corporation Price

Chevron Corporation Price

Chevron Corporation price | Chevron Corporation Quote

Wrapping Up

If the waivers lapsed, it would have certainly triggered huge losses for Chevron, which spent billions on the Venezuelan business. The company’s exit from the country would also make matters worse for Venezuela's energy sector, which is already on the brink of collapse under Maduro.

Notably, Venezuela with the largest proved oil reserves in the world to its credit could offer substantial rewards to oil companies if Maduro steps down. Chevron’s interest in the waiver extension signals the company’s plans to play the long game in crisis-hit Venezuela.

Even if Maduro retains his powers, the waiver expansion would allow the company to bet on a future payoff in a country boasting 303 billion barrels of proven crude reserves. On the contrary, if Maduro’s regime falls, the Zacks Rank #2 (Buy) entity will gain handsomely from the country’s widespread geologic resources, provided the waivers are lengthened. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Baker Hughes Company (BKR) : Free Stock Analysis Report
 
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