Chevron (CVX) Supercharges its Venezuela Bet with More Oil Rigs

Chevron Corporation (NYSE: CVX ) is about to significantly expand its operations in Venezuela. The company's CFO, Eimear Bonner, revealed at a Barclays conference on September 8 that the American oil giant plans to more than double the number of oil rigs it ​operates in the country as part of its five-year plan ‌to increase output.

The statement follows the company's recent announcement that its joint venture partnerships in Venezuela ​would invest more than $7 billion to more than double oil ⁠output to 600,000 barrels per day by 2031. The current production from Chevron's three Venezuelan JVs totals around 290,000, which is all exported to the United States.

The move builds on Chevron's longstanding presence in Venezuela, as it was the only American oil major that continued operating in the country under a special US license, allowing it to produce and export oil despite the sanctions.

The expansion comes alongside a much larger agreement between Washington and Caracas announced this month, which gave the US majority control over around 20% of Venezuela's proven crude reserves. The White House has now invited American oil companies to revive and modernize the South American country's oil infrastructure and more than double its crude production in the next few years.

Chevron has maintained operations in Venezuela since 1923 and even stayed through the nationalizations that forced ExxonMobil and ConocoPhillips to exit in 2007. This gives it a significant competitive advantage, since it already has a longstanding relationship with the state-owned PDVSA and extensive experience operating in the country's complex regulatory environment.

Notably, Chevron also received enhanced fiscal, commercial, and legal terms to protect its long-term investment as part of the new agreement, including the right to international arbitration. The ability ⁠to resolve potential disputes under international arbitration courts has been a key demand of Chevron's competitors, as they are still owed billions of dollars by Venezuela after being pushed out during then-President Chávez's nationalization of the oil industry.

The expanded operations in Venezuela could provide Chevron with a substantial source of long-term production growth. The 600,000 bpd of output will contribute significantly to its earnings and cash flows. The economics of the project also appear attractive, as the oil major expects to keep total production costs to below $20 per barrel. The low-cost structure should allow Chevron to maintain healthy margins even if global crude prices normalize.