The United States and Venezuela have reached a preliminary agreement that establishes U.S. majority control over 17 Venezuelan oil fields holding an estimated 65 billion barrels of crude oil reserves. The deal extends for 25 years.
With this transaction, President Donald Trump has dramatically increased energy security for the U.S. and its allies. The U.S. now controls about 7% of global oil reserves. Importantly, the transaction is also a blow against China’s efforts to dominate global natural resources. Over time, America’s control of an additional 65 billion barrels of oil, combined with the still vast reserves remaining in the Permian Basin of the southwestern U.S., will further reduce the geopolitical power Iran can project because of its strategic location adjacent to the Strait of Hormuz.
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But contrary to the claims of the president, the deal will have no impact on today’s gasoline prices and very little effect on national prices over the next several years. In a best-case scenario, Venezuela’s oil exports will increase by 100,000 barrels a day by the end of 2027. That would amount to just 0.1% of daily global consumption, essentially a rounding error.
In addition to the strategic advantages that the U.S. gains, the real winners from the transaction could be the leading global oil services companies. Increasing Venezuelan oil production and exports will require more than $100 billion in capital investment. Oil analysts project that restoring Venezuela’s heavily degraded upstream and midstream infrastructure will require many years of sustained capital expenditure before yielding any significant increase in production and exports to U.S. refiners along the Gulf Coast.
Among the many companies that should experience stronger revenue and earnings growth, a few stand out.
SLB, formerly known as Schlumberger, appears to be the best positioned because it never completely exited Venezuela. It has maintained at least a minimal presence in the country for almost 100 years. In addition, SLB has a head start on its competitors. It has already signed a long-term agreement with PDVSA, Venezuela’s state-owned oil and natural gas company. The agreement covers exploration, field development, technology systems, and workforce training.
Importantly, under the terms of the contract, SLB obtains access to proprietary data on the geology of Venezuela’s enormous reserves. As a result, the company could have significant influence over how capital is deployed to increase Venezuelan oil production meaningfully.
Halliburton, HAL, is also well-positioned because it is already negotiating agreements to provide equipment and services to Venezuelan oil producers. In many respects, Venezuela is an ideal market opportunity for Halliburton because the company specializes in drilling, well construction, completion, stimulation, and production optimization. If hundreds, and eventually thousands, of Venezuelan wells must be rehabilitated or drilled, Halliburton should gain a significant new source of revenue growth.
The third major oil services company that could experience increased revenues from the agreement is Baker Hughes, BKR. The company’s CEO has publicly stated that Venezuela presents a significant revenue opportunity. Baker Hughes has a large installed base of artificial lift and rotating equipment in Venezuela. This is important because merely drilling wells will not solve Venezuela’s problems. The country needs pumps, compressors, power systems, and other production equipment to get existing fields functioning efficiently again. Baker Hughes can provide much of the equipment that Venezuela desperately requires.
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One smaller energy services company could also achieve stronger revenue growth because of U.S. investment in Venezuela’s oil resources. Weatherford, WFRD, is a roughly $2 billion company that provides a broad range of services, from well installation and completion to techniques for enhancing production. Particularly relevant to Venezuela’s dilapidated fields, Weatherford provides services that remove debris and other obstructions from wells and restore production. The company has described Venezuela as a major opportunity.
Weatherford would represent the higher-risk, potentially higher-reward leveraged play on the rebuilding of Venezuela’s oil industry.
James Rogan is a former U.S. diplomat who later worked in law and finance for over 30 years. He writes a subscription-based daily note on markets, economics, politics, and social issues. His email is [email protected].