Could an Oil Deal in Venezuela Boost Chevron's Stock?

Chevron (CVX +0.57%) has operated in Venezuela for over 100 years. The U.S. oil giant has several joint ventures with PDVSA, Venezuela’s national oil company. It currently produces about 200,000 barrels of oil per day in the country. While that’s a drop in the bucket compared to its overall production, the country could become a meaningful growth driver for the oil company in the future.

The U.S. oil giant is reportedly close to striking a deal that could enable it to significantly increase its oil production in the country. Here’s a look at whether a Venezuelan oil deal could boost Chevron stock.

Image source: The Motley Fool.

A huge prize

Venezuela has massive oil resources. It holds an estimated 300 billion barrels of proven reserves, the largest in the world according to OPEC. However, the country only produces about 800,000 barrels of crude oil per day (BPD). That’s well below its peak of 3.5 million BPD in the late 1990s due to mismanagement and underinvestment. For comparison, the U.S. is currently the world’s largest oil producer at 13.7 million BPD, near its record high. Venezuela’s heavy oil is more costly and more technically challenging to produce and export than the light oil produced in the U.S., which has impacted its output.

According to estimates, it could take over $100 billion of investment to rebuild Venezuela’s oil industry. That’s a hefty sum, especially for oil that’s costlier to produce than in other regions. However, with oil prices soaring this year due to the war with Iran, oil companies are growing more eager to invest capital into boosting Venezuela’s oil output.

Chevron’s Venezuelan oil play

While most of its peers have left Venezuela over the years, Chevron has maintained its presence. Further, instead of declining, Chevron has grown its production by 200,000 BPD since 2022. The oil company believes it can boost its oil production in the country by up to 50% more over the next two years.

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NYSE: CVX

Chevron

Today’s Change

(0.57%) $1.13

Current Price

$197.97

Key Data Points

Market Cap

$395B

Day’s Range

$196.46 - $200.58

52wk Range

$132.04 - $200.58

Volume

9.3K

Avg Vol

12M

Gross Margin

14.66%

Dividend Yield

3.49%

That outlook is closer to becoming a reality. Chevron is closing in on a deal with Venezuela to expand its largest oil project, Petropiar, in the country’s oil-rich Orinoco Belt. It would give Chevron the rights to produce from the Ayacucho 8 area, a large block with proven oil resources south of the Petropiar project area. This agreement would enable Chevron to meaningfully increase its oil production and exports. Given its proximity to Petropiar, Chevron believes it could quickly increase its production.

Securing a deal could certainly boost Chevron’s stock. It would give the oil company another visible growth catalyst. Chevron already expects to grow its production at a 2% to 3% annual rate through 2030, which could fuel more than 10% annual free cash flow growth at $70 oil. While oil produced in Venezuela wouldn’t be as high-margin, a deal to expand its output there would further enhance Chevron’s already robust long-term growth profile.

A top-tier oil stock

Chevron already expects to deliver high-octane cash flow growth through the end of the decade at oil prices well below current levels. Securing a deal to boost its Venezuelan output would further enhance its ability to grow shareholder value, making it an even better oil stock to buy.