Oil stocks will likely be materially impacted by the removal of Venezuelaâs president, given the countryâs vast but long-neglected oil reserves and the prospect of renewed US involvement.
US President Donald Trump was explicit about where he sees the opportunity, saying: âWeâre 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 ⦠and start making money for the country.â
Of course, that points squarely towards US oil companies rather than European majors.
Political risk, sanctions history and the heavy-crude nature of Venezuelaâs reserves have long deterred overseas investment. But with a potential reset under US influence, the balance could be shifting.
Exposure to Venezuela
Energy analysts are already outlining who stands to benefit most.
Francisco Monaldi, director of the Latin America Energy Program at Rice Universityâs Baker Institute, believes Chevron is immediately well positioned due to its long-standing presence in the country.
It’s the only company with a current presence in Venezuela and it’s been operating there for over 100 years. It currently exports around 150,000 bpd to the US.
However, Monaldi also notes that other US oil majors will tread carefully at first, watching political stability and the contractual framework before committing serious capital.
One company that stands out is ConocoPhillips (NYSE:COP). Conoco is owed more than $11bn following past expropriations plus interest. This is money it is unlikely to recover without re-entering Venezuela.
Exxon could also return, though it is owed less. BP and Norway’s Equinor (then Statoil) were among other Western companies operating in Venezuela.
Chevron, Conoco and Exxon are all comfortable operating in heavy oil, which remains strategically important for US refining.
European firms, by contrast, may be more hesitant, especially given their stronger focus on decarbonisation. They also may not be offered a seat at the table.
Chevronâs chief executive, Mike Wirth, has already confirmed discussions with both the Biden and Trump administrations, underlining the importance of maintaining an American presence in Venezuela.
Any meaningful production increase would also require oilfield service groups such as SLB, Baker Hughes and Halliburton.
One to watch
For investors, ConocoPhillips has potential to be the most materially impacted. This is purely assumptive, but given the size of the money owed to business by the Venezuelan state.
The stock trades with a price-to-earnings multiple of 14.8 times, representing a modest 8% premium to the energy sector average.
However, the broad trend across all the valuation metrics is it’s cheaper than giants Chevron and Exxon, but more expensive than European peers.
It also stands out for its best-in-class margins. This tells us it’s more efficient than its peers at turning revenue into earnings. A dividend yield of around 3.3% adds income appeal.
That said, Trumpâs comments also imply sizeable upfront investment, which could weigh on near-term earnings. It may be years before there is any meaningful contribution to earnings. Political instability remains a risk too.
Still, if Venezuela genuinely reopens to US oil, ConocoPhillips could be one of the most interesting names to watch. It could be worth considering as an investment, but the stock may move significantly in the pre-market on Monday.
The post ‘US is running Venezuela’: what does this mean for oil stocks? appeared first on The Motley Fool UK.
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James Fox has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
