Chevron (CVX) and Shell are closer to inking major deals as the Iranian crisis looms in the backdrop.
Both energy giants are inching toward some of the first major production agreements in Venezuela since the January political upheaval, Reuters reports. This led to a massive opening in the market.
The story is massive, but the timing makes it even more compelling.
Fresh Reuters reporting on March 11 and March 12 reveals how quickly the Middle East crisis is tightening the market. Iran is said to be putting land mines in the Strait of Hormuz, which is the waterway that usually carries about 20% of the world's oil and LNG.
Oil prices are up, and the International Energy Agency warns that the world faces the biggest oil-supply disruption ever because of the conflict.
While Venezuela will not immediately replace the Gulf supply, Venezuelan barrels, which have been stuck in limbo amid politics, sanctions, and a lack of investment, now look more appealing to global producers and buyers seeking supply outside the Hormuz chokepoint.
That is the clearest “why now” for Chevron and Shell. It will help management and stockholders understand why they need to take a greater interest in Venezuela, which has enormous reserves and newly loosened oil rules.
Shell said its agreements “formally articulate Shell’s intent to progress a variety of opportunities with Venezuela,” including offshore gas, onshore oil and gas, exploration, local content, and workforce development.
Chevron is starting this race with a much-needed advantage, giving it immediate production upside.
The company and Venezuela's energy authorities signed a deal on the first steps to expand Chevron's biggest Venezuelan project, Petropiar, in the Orinoco Belt, per Reuters.
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Under the terms of the contract, Chevron will drill for oil in the Ayacucho 8 area, a block south of Petropiar that is known for extensive oil resources but is mostly undeveloped.
That matters because Chevron will not enter a new area. About 20 years ago, PDVSA finished exploration and evaluation work in Ayacucho, according to Reuters.
Chevron and PDVSA could then extend their current well-clustering system to the new area. That might allow the partners to add output more quickly than they would with a full greenfield project. Petropiar produced about 90,000 barrels of upgraded Hamaca crude and 20,000 barrels of vacuum gas oil every day, a PDVSA document viewed by Reuters revealed last month.
