Trump's push to access Venezuela's oil reserves faces major barriers

Geoff Bennett:

President Trump says the U.S. government could subsidize any effort by American companies to rebuild Venezuela's oil infrastructure, something he told NBC News could take as little as 18 months.

It comes as multiple outlets report the White House plans to meet with top U.S. oil executives soon. The president has made no secret that a major goal of this weekend's operation was to pry open Venezuela's vast oil reserves for foreign investment.

Donald Trump, President of the United States: We're going to have our very large United States oil companies, the biggest anywhere in the world, go in, spend billions of dollars, fix the badly broken infrastructure, the oil infrastructure, and start making money for the country.

Geoff Bennett:

Despite sitting on more crude than any country on earth, Venezuela produces just 1 percent of the world's supply. And its total output has dropped some 70 percent since the late 1990s, a result in part of crippling U.S. sanctions and internal dysfunction.

Right now, just one American oil company, Chevron, operates in the country under a special license that allows limited production despite U.S. sanctions. Venezuela first nationalized its oil industry in the 1970s and further consolidated control under then-President Hugo Chavez in the mid-2000s, when it forced international oil companies to transfer majority control of their operations to the state-owned oil company.

To help us understand the dynamics at play and what could come next, we're joined now by Francisco Monaldi, professor and director of the Latin American Energy program at Rice University.

Thanks for being with us.

Francisco Monaldi, Director, Latin America Energy Program, Rice University:

Thank you.

Geoff Bennett:

So President Trump is pushing this idea of the U.S. reimbursing American oil companies for expenses in Venezuela, and he says oil operations could be up and running in 18 months. Is that the case?

Francisco Monaldi:

Well, I don't think that it's clear exactly what he means, but Venezuela would require about $100 billion of investment to go back to the levels of peak production, as you mentioned, by the end of the 1990s.

But that will require a complete overhaul of the institutional system. It would require legitimate government. It will require long-term horizons for investors. Investors have been burned in Venezuela many, many times by contract reneging and changes in the tax system and this control by the national oil company.

So I think it will take some significant amount of time for those investments to come.

Geoff Bennett:

So, on that point, is there genuine appetite among U.S. firms for that kind of capital investment in Venezuela, given the political risk, given the sanctions history and the overall market dynamic?

Francisco Monaldi:

Well, I think we have to distinguish.

For example, Chevron is already in Venezuela. And they have a profitable operation. And if they can export to the United States with a license and use part of the cash flow that they generate to reinvest in Venezuela as they're doing now, they will continue to invest in Venezuela.

And that's sort of the easiest sort of source of increase in production. But other companies that are not in the country, like, say, Conoco or Exxon, that are owed money by the Venezuelan government, they will have to, first of all, look for opportunities, see the contracts, how they are offered, what is the fiscal regime, a variety of things.

And then they will have to analyze if the political risks make it worth it to sink billions of dollars before they see the first revenue. And, finally, there might be some smaller companies that are willing to go into fields that are currently operated by the national oil company and that already have all the infrastructure and just make a quick buck by investing in some -- in drilling some wells.

But that's not going to make the big difference that we're talking about, recovering the oil industry of Venezuela.

Geoff Bennett:

And Venezuelan oil, as I understand it, is predominantly heavy crude. How compatible is it with U.S. refinery capacity, especially along the Gulf Coast?

Francisco Monaldi:

Actually, it's very compatible because the refineries in the Gulf Coast were optimized to process that type of oil because Mexico and Venezuela were supposed to be increasing production in the 1990s.

And so the U.S. has mostly light oil. And the other source of heavy oil, which is Canada, it cannot get easily to the Gulf Coast. There is no infrastructure, because Keystone XL was never built. So the refineries in Texas and Louisiana are really eager to get some of the heavy oil that Venezuela produces.

Geoff Bennett:

A question about the president's rhetoric. He so often says that Venezuela stole America's oil, so it's only fair that the U.S. gets a piece of it now. Here he is in his own words.

Donald Trump:

We built Venezuela oil industry with American talent, drive and skill. And the socialist regime stole it from us during those previous administrations. And they stole it through force. This constituted one of the largest thefts of American property in the history of our country.

Geoff Bennett:

Is there any basis to the way he frames that, whether legally or historically?

Francisco Monaldi:

Yes, well, it's hard to understand exactly what he refers.

If we talk about the nationalization of 1975, those were concessions that were going to expire in 1983. And the government basically brought that change in the hands of the government by eight years. And they were fairly compensated.

In fact, all of the countries did something similar. Saudi Aramco is the result of a very similar process of nationalization of a much bigger oil industry. So I don't think that that could be considered a theft in any way.

Then he might be referring to when Hugo Chavez forcefully negotiated contracts and made the national company the majority shareholder. That's when two American companies, Exxon and Conoco, left the country, sued for arbitration. And they were awarded some significant amount of money that Venezuela has to pay them.

And a lot of that debt is outstanding. Venezuela hasn't paid it. So what Venezuela has with the U.S. companies is a debt of about $12 billion that has to be paid, as many other debts. Venezuela owes $150 billion to a variety of creditors.

Geoff Bennett:

Bottom line, if foreign companies, especially U.S. firms, return in force, what would the domestic implications be for ordinary Venezuelans?

Francisco Monaldi:

Well, it depends a lot if it's successful in terms of bringing the necessary investment to recover the oil industry. I don't think that will happen if there is no significant institutional change that brings credibility and legitimate legislation, et cetera.

And so, if that doesn't happen, there will be no sustained economic recovery. There will be a minor recovery that will benefit a few firms, but will have very little impact on the average citizen.

Geoff Bennett:

Francisco Monaldi of the Latin American Energy Program at Rice University, thanks again for being with us.

Francisco Monaldi:

Thank you.