Like many of you, I’ve followed the news about Venezuela and the U.S. closely. And what isn’t mentioned caught my attention most, which I’ll explain soon.
There are several major misconceptions about Venezuela’s complex history with U.S. industry.
In today’s issue of the Wide Moat Daily, I’m setting the record straight.
Venezuela and Big Oil Get Remarried
For new readers, my name is Stephen Hester. I’m the lead analyst with two of our premier research services – High Yield Advisor and Intelligent Income Advisor – here at Wide Moat Research.
I grew up in Houston, Texas and studied petroleum engineering in graduate school at the University of Texas at Austin. There are several active wells on my family’s ranch in Central Texas. I’ve been investing in oil and gas stocks since I was legally allowed to open a brokerage account. It’s fair to say a little crude oil runs in my veins.
And today, I’m finally using my graduate school thesis on enhanced oil recovery (“EOR”) to recover the heavy crude oil that Venezuela has 300 billion barrels of.
Understanding the rollercoaster of U.S. and Venezuelan geopolitics is difficult. Without a strong grasp on the nation’s close historical ties with U.S. oil companies, it’s impossible.
Big Oil and Venezuela started “dating” way back in the 1920s when Standard Oil (predecessor to ExxonMobil), Gulf Oil, and Mobile pioneered large-scale development. By the 1960s, the two were “married.” U.S. companies were the largest foreign investors in Venezuela’s oil sector.
But then, the roughly $5 billion in investments (and that’s in 1970s dollars) were nationalized in 1976, which created the state-owned PDVSA oil company.
The billions in stolen assets didn’t sit well with the U.S. Remember, prior to the boom in domestic oil and gas production thanks to horizontal drilling and hydraulic fracturing in the 2000s, the U.S. was vulnerable to oil shocks.
Venezuela’s “Apertura,” or reopening to foreign capital, in the 1990s seemed like the perfect opportunity for the country and the oil industry to make up.
Unlike many major oil-producing nations, Venezuela’s oil is hard to recover and even more difficult to refine. The way my petroleum engineering professor liked to describe it was that Venezuela’s extra heavy oil has similar viscosity to honey, while superior West Texas Intermediate (“WTI”) is like olive oil.
If you drilled a hole in a bathtub (the oil reservoir) full of olive oil (light, sweet crude), gravity would empty the tub quickly. Now imagine swapping olive oil with honey. Without heating it to lower the viscosity (making it thinner) or drilling lots of holes and using pumps, not much honey is leaving the bathtub.
And that’s challenging, complicated, and expensive.
Venezuela needed the combination of engineering expertise and financial power that only U.S. majors like Chevron (CVX) and ExxonMobil (XOM) could supply. Without it, the nation’s world-leading oil reserves would stay right in the ground with no value.
Always in search of new reserves, Chevron and Exxon struck deals with Venezuela’s national oil company through the 1990s and early 2000s. This was the same national oil company that was literally formed by stealing its old assets. Altogether, U.S. oil companies invested roughly $20 billion to $30 billion into the nation.
And that was far from the only money involved. Many Gulf Coast oil refineries added billions in special equipment specifically to process Venezuelan heavy crude oil. PDVSA bought a 50% stake in Citgo in 1986 before acquiring the company completely in 1990. That gave Venezuela dedicated refining capacity in its largest market. The Lake Charles refinery in Louisiana was the flagship with capacity of 463,000 barrels per day. PEMEX, Mexico’s national oil company, also owns refineries along the U.S. Gulf Coast.
A Messy (and Expensive) Divorce
Despite the successful marriage of Venezuelan oil and U.S. expertise and capital, Venezuela filed for divorce (again). In 2007, President Hugo Chavez forced a restructuring to give the state much more control and greater ownership.
Even after investing 100% of the capital, the best foreign companies could hope for was 40% of the project and 0% operational control. Having no other choice, most agreed. ExxonMobil and ConocoPhillips (COP) were the exceptions. International courts awarded them over $10 billion in damages, with little to none collected to date.
While foreign companies hoped things would improve, it never transpired. PDVSA slowly ran most of the projects into the ground, and the nation’s oil production steadily declined.
Chevron’s joint ventures were the exception. It kept negotiating and was even able to navigate U.S. sanctions via special licenses. As of early 2026, it’s the only major U.S. oil company still operating in Venezuela and is responsible for nearly a quarter of the country’s production.
That brings us to today… and you know the rest of the story.
Winners and Losers
On January 3, the U.S. military captured Nicolás Maduro, who had been in power since the death of Hugo Chávez in 2013. Why the U.S. would do that is an interesting question, but I’ll leave the geopolitics for others to sort out. This is an investment letter, after all.
So, let’s sort through the likely winners and losers. Let’s start with the winners.
The administration seems intent on increasing production in Venezuela, and U.S. oil companies are tasked with the job.
Chevron is a clear victor. It’s the last oil company still operating in Venezuela. It knows the country’s politics as well as its geology, and it can scale up the fastest. The market also understands this, and it’s why the stock popped about 6% (a big move for such a large company) on the news.
ExxonMobil is technically savvy enough to do the job, and the outstanding approximate $1.5 billion in claims against Venezuela means it has a strong incentive to collect. Oil service firms like Halliburton (HAL) and Schlumberger (SLB) are likely to benefit, but it’s hard to tell who will win the contracts.
What’s easier to determine is the refining side. Valero Energy (VLO) is optimized for heavy sour crude with over 670,000 barrels per day in processing capacity at its Port Arthur, Texas and Corpus Christi, Texas facilities alone.
Due to the relative difficulty of extracting and refining the heavy Venezuela crude (the honey), it typically trades at a discount to light, sweet (the olive oil). Any company with the technical know-how to refine this cheaper product would see improvement in its margins.
Cheaper oil from Venezuela versus the current supply from Canada would boost Valero’s tight margins significantly. And analysts estimate that Valero could absorb 300,000 to 400,000 barrels per day of Venezuelan oil right away.
Equally important is knowing which companies this negatively impacts. Those would be the losers in this new arrangement.
Companies focused on producing and moving heavy crude in Canada, like Suncor Energy (SU) and Cenovus Energy (CVE), may face steep competition in the coming years. In fact, Canadian oil sands production was redirected to refineries that used to process Venezuelan heavy oil. If that reverses, the Canadian heavy oil industry is in trouble. That includes midstream companies with exposure like Enbridge (ENB).
[I understand ENB is a holding in The Wide Moat Letter. The team will track the stock closely and alert readers if any action needs to be taken.]
Final Thoughts
The chaos and uncertainty around Venezuela are mind-boggling. It’s also an advantage you have that won’t last long.
For the time being, Venezuela’s oil industry’s recovery (as it has done twice before) isn’t priced in. Aside from a knee-jerk rally from some obvious beneficiaries like CVX, most investors appear to be in “wait and see” mode. That applies to potential winners and losers.
That means you still have time to capitalize on growth opportunities with the likes of Chevron and Valero and reduce exposure to companies in the Canadian oil sands whose outlook just got a lot dimmer.
Regards,
Stephen Hester
Chief Analyst, Wide Moat Research
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