Quick Thoughts: Venezuela—oil and gas optionality is large, but the rebuild is capital-intensive

Originally published in Stephen Dover’s LinkedIn Newsletter, Global Market Perspectives. Follow Stephen Dover on LinkedIn where he posts his thoughts and comments as well as his Global Market Perspectives newsletter.

• Huge oil and gas reserves: Venezuela has the world’s largest proved oil reserves, yet current output is down more than 80% from peak to only about one million barrels per day, reflecting years of underinvestment and degraded infrastructure. Perhaps underappreciated is that Venezuela also has some of the world’s largest natural gas reserves.
• A potentially attractive investment opportunity. The potential re-opening of Venezuelan natural resources to private Western capital could represent an exciting investment opportunity. Venezuela has the globally highest reserves/production ratio—how long proved reserves would last at the current production rate—a basic indicator of expansion potential and the ability to export.
• Markets may underappreciate the natural gas angle: Venezuela’s gas resources are significant and relatively underdeveloped. Practical monetization paths include offshore development and regional tiebacks (notably to Trinidad), but these require sanctions clarity and credible counterparty arrangements.
• Critical first steps. We expect eventual capital investments sufficient to return oil production to Venezuela’s peaks, but those production levels are unlikely to occur within the next five years. We believe the most critical next steps to attract investment will be assuring a secure work environment for Western firms and providing a sufficiently attractive and stable fiscal framework to encourage 20+ year capital investments.  This includes securing operations, clear contracts, stable fiscal terms, and a workable sanctions/licensing regime.  Addressing legacy debts (including those to China) will also be important. This will create new opportunities for both large and small energy businesses.
• What it might cost. Rehabilitating Venezuelan oil is not a “flip the switch” story. Estimates suggest roughly US$50 billion over 15 years just to maintain the current one million barrels per day production, while a sustained increase toward prior peaks could require an additional US$10 billion per year or more (2026–2040).¹ Developing gas production will also require additional significant capital.
• Stability and predictability required. Given the significant costs and logistical challenges of modernizing and expanding Venezuela’s hydrocarbons sector, as well as the long-term commitments they imply, it is crucial that foreign direct investors and creditors be reassured about the stability of governance and the rule of law in Venezuela. That is particularly crucial given that outstanding claims arising from property expropriation and significant foreign indebtedness of the country may require significant adjudication and negotiation.

Bottom line: Venezuela is a high-optionality oil-and-gas story, but the pathway from reserves to reliable exports runs through governance, contracts and sustained capital investment. Investors should treat near-term headlines as noise unless they translate into (1) durable legal permissions, (2) credible fiscal terms, and (3) multi-year investment commitments large enough to rebuild the system.