It has been a few years since Venezuela scared a number of the world’s major oil companies out of the country with the nationalisation of the energy sector. In 2007, ExxonMobil and ConocoPhillips – the US’ first and third biggest oil companies – were among those companies who decided the new terms being offered were unfair and left.
Exxon walked away from projects worth up to $2.3bn in Venezuela’s Orinoco Belt, which is believed to contain the world’s largest deposits of extra-heavy crude oil. ConocoPhillips’ departure resulted in a $4.5bn writedown.
Chevron, the other US major, decided to stay the course, along with the UK’s BP, French group Total and Norway’s StatoilHydro, accepting the revised terms.
Chevron has just been rewarded for that decision.
On Wednesday, Venezuela awarded a project to a consortium including Chevron, Venezuela’s Suelopetrol and Japanese companies Mitsubishi, Jogmec, and Inpex.
Does that mean Chevron made the right decision? Probably not: by agreeing to revised terms, it encouraged governments in other oil-rich states to change the terms of their contracts with international oil companies at whim. But it is a gamble Chevron is willing to take. With the easy oil gone and oil-rich countries increasingly blocking access to the majors to new reserves, big opportunities are few and far between. All of the majors need access to those reserves. Chevron, for one, is willing to do what it takes to get at them.
That does not make it right. But, judging from this latest contract awarded, it does make short-term sense for the company’s bottom line. The only problem is that the oil industry is fond of saying this is a long-term business. And, for the long-term, Chevron might lose more than it gains from playing ball with moving targets.