Oil Companies Aren't Sold on Venezuela

0:05Ever since the U.S. captured Venezuelan President Nicolas Maduro, President Trump has made one of his top priorities clear, getting control of Venezuela's vast oil reserves. But to do that, Trump is going to need the help of U.S. oil companies. On Friday last week, he called a group of oil executives to the White House for a televised meeting. Our colleague Andrew Restuscia was watching. Ladies and gentlemen, the president of the United States. You have Trump and his top advisors, including Secretary of State Marco Rubio and Energy Secretary Chris Wright, sitting at a series of tables in the East Room.

0:41And then around them, a table sort of formed almost like a horseshoe. are the most powerful and influential U.S. oil executives. Today I'm delighted to welcome almost two dozen of the biggest and most respected oil and gas executives in the world. All sort of there, waiting to have a discussion about the future of Venezuela. And what does Trump say to them? He sends a message that he wants them to spend big and move quickly to invest in Venezuela. Our giant oil companies will be spending at least$100 billion of their money, not the government's money. They don't need government money. But there's a bit of a hurdle to Trump's big Venezuelan oil ambitions.

1:21Those U.S. oil companies aren't exactly thrilled about the idea of making that investment. There's this pretty overriding sense in the U.S. oil industry that Venezuela is more trouble than it's worth. It will be a years-long, if not decades-long process. It'll face enormous hurdles. and there's huge question marks hanging over the entire thing.

1:44Welcome to The Journal, our show about money, business, and power. I'm Ryan Knudsen. It's Wednesday, January 14th.

1:56Coming up on the show, Trump's plan for Venezuela's oil.

2:17President Trump has had several objectives in Venezuela. He wanted to take out Maduro, a dictator who allegedly fueled drug trafficking and cozied up to Russia and China. Maduro has denied allegations of drug trafficking. He also wants to exert more control over countries in the Western Hemisphere. And then there's all that oil. — We're going to have a presence in Venezuela as it pertains to oil, because we have to have it. — He has said that the U.S. would be in control of the country indefinitely, and he's made clear that he intends to control the production and flow of oil out of Venezuela.

2:51— But no, we're going to be taking out a tremendous amount of wealth out of the ground. — A big reason Trump wants Venezuela's oil is to increase the supply of oil in the market, and therefore lower the price. He's told people, according to people on my team have spoken to, that he wants oil prices to go down to as low as$50 a barrel. That's kind of his sweet spot. And he thinks that that would in turn lower gasoline prices and help him with what's really a big political problem, which is affordability. And he wants to sort of use oil prices as one answer to that political problem. Venezuela is sitting on a lot of oil.

3:29By some estimates, it has the biggest oil reserves in the world, — bigger than even Saudi Arabia. But for years, that oil has been pretty much off-limits to the U.S. and its allies. Maduro's government has been under harsh sanctions, and Venezuela was essentially barred from selling its oil on the global market. But those sanctions didn't actually stop Venezuela. Instead, to get around those sanctions, Venezuela turned to countries like Russia, China, and Cuba to sell their oil illicitly through a so-called shadow market.

4:02The sanctions regime that the U.S. has put in place along with other Western nations is meant to sort of stop in its tracks the Venezuelan government from selling its oil around the world. And the shadow market has allowed the Venezuelan government up until now to get around that. So rather than these sanctions getting the Venezuelan government to change, it just pushed it further into the arms of U.S. adversaries like China and Russia. Exactly. And, you know, one of the big strategic reasons why the U.S. wants to play a bigger role in the Venezuelan oil world is because they don't want China and Russia and other adversaries to take advantage of it.

4:37And so if the U.S. wants sanctions to have effect, they need to sort of shut down that market. The shadow market relies on a fleet of more than 1 ,000 old oil tankers, which move illicit oil around the world. They stay under the radar by using false flags, broadcasting fake locations, and frequently changing their names. Late last year, the U.S. started taking steps to disrupt that shadow fleet. First, by setting up a blockade around the shores of Venezuela. In December, the U.S. sent the Coast Guard to chase down tankers leaving Venezuela, board them, and take the oil. The U.S. seized a Venezuelan oil tanker that's called the Skipper.

5:16Some breaking developments concerning Venezuela this morning. The U.S. seized another oil tanker called Olina. The U.S. Coast Guard has also intercepted another Venezuela-linked tanker. The U.S. seizing two more oil tankers today as tension builds in the Western Hemisphere. Today, the U.S. has seized five oil tankers. So the fact that the U.S. has taken control of these tankers and effectively made it impossible for Venezuela to export oil into the shadow market, what kind of leverage does that give the U.S. over Venezuela and its oil industry? It gives them a huge amount of leverage. And, you know, if there wasn't leverage that was already put on them by capturing the leader of the country, this is this added dimension of leverage that basically says, you know, you're going to be working with us and us alone.

6:05And so the Trump administration has put this enormous amount of pressure on what's left of the Venezuelan regime. Delce Rodriguez, the leader there. And, you know, she has signaled, she initially signaled that she was quite frustrated with the raid and that Maduro should be released. But in recent days, she's taken a little bit more of a measured approach and telegraphed to the public that she's willing to work with the U.S. With that leverage, the U.S. wants more influence over Venezuela's state-run oil company, Pedevesa. Our reporters have spoken to a number of senior administration officials who say that, you know, Trump and his top aides are eyeing Pedevesa and they want to take some control over it.

6:41Now, exactly what that looks like is a little bit unclear. You know, it's not our indication so far that they're going to be like that the U.S. government is going to be running it full time. They would likely work with with others, private companies. But their end goal is to essentially take control of the product, the oil that the state run oil company is producing, acquire it and then sell it onto the open market. What would it mean for the global oil market if Venezuela's oil gets controlled by the U.S. in the way that Trump is envisioning? I mean, it could be a big game changer, and it could be a huge challenge to OPEC and Saudi Arabia and the other big oil producers.

7:20This would potentially rework the entire oil market as we know it. But to carry out his vision, Trump is counting on American oil companies like Chevron, the only one that already has a presence in Venezuela. And he also wants other players to go in, like ExxonMobil, ConocoPhillips, and Shell. Trump has said he expects those companies to invest$100 billion into the oil industry there. How badly does Trump need U.S. oil companies in order to carry out his vision? I mean, he can't do it without them. Chevron is there, and they've signaled that they're willing to ramp up production. But if he wants a full-scale tapping of the potential of Venezuelan oil, he really needs more companies to get involved.

8:01So why aren't the oil companies rushing in? That's next.

8:24All right, so let's go back to that meeting we were talking about earlier with Trump at the White House, with the CEOs of the oil companies. How did the CEOs who were there respond to Trump's plan? It was interesting. I mean, we're used to sort of fawning behavior from executives at these events. And, you know, on the one hand, they were quite deferential to the president. They praised him. They talked about the potential of untapped oil reserves in Venezuela. On behalf of the men and women of Marathon Petroleum and of our industry, thank you and the administration for what you're doing for U.S.

8:59energy independence. But if you kind of read between the lines, what you saw was that none of these companies were giving a full-throated commitment to put a huge amount of resources into the country. There's a huge investment that needs to be done. We've all agreed on that. And certainly we need time to see that through. And obviously infrastructure is going to be critical to see it repaired. The reason those oil executives are concerned is because from their perspective, Venezuela is an extremely difficult market. The biggest challenge there is the government. U.S. oil companies used to have a major presence in Venezuela, but in the 70s, and again in the early 2000s, the Venezuelan government took over their operations and basically kicked them out.

9:46You have a country with a history of nationalizing oil assets, so companies get all set up, and then the government basically takes their assets and takes their profits. Although the West's oil sanctions didn't seem to slow Venezuela's oil business much, decades of internal mismanagement and corruption has. Infrastructure is crumbling, and there's been a drain of technical expertise. It's going to cost potentially billions of dollars to rebuild the Venezuelan oil infrastructure, which is in decay. They would have to have guarantees that they can go there and the workers would be safe. They've already had decades of problems with the Venezuelan government, and there's just a lot of uncertainty in Venezuela right now.

10:27With all this in mind, one CEO was especially vocal about his hesitation at that meeting last week. ExxonMobil CEO Darren Woods was there. And, you know, he, to be fair, was being diplomatic in his remarks. Exxon, please. Sure. Thank you, Mr. President. I appreciate the invitation and the opportunity, frankly, for the entire industry to show up and provide a perspective. But one remark in particular caught the attention of us here at The Journal and the president. If we look at the legal and commercial constructs and frameworks in place today in Venezuela, today it's uninvestable. Woods said that Venezuela is currently, quote, uninvestable.

11:10And he talked about how the company had had their assets seized twice in the past. And so you can imagine to reenter a third time would require some pretty significant changes from what we've historically seen here and what is currently the state. It was notable because it was a clear sort of pushback on this idea that these companies can just waltz into Venezuela and very easily pull the soil out of the ground and make a ton of money. He's sort of saying like, fool me once, shame on you. Fool me twice, shame on me. Like, I'm not going to go in a third time. Yeah, exactly. You know, and the company tried to get$12 billion back from the Venezuelan government in 2007 when they seized their assets.

11:51And they only got a fraction of that. And so they're already out money here. And so they're essentially signaling like, this is a big risk. At that Friday meeting, Trump had a message for oil executives who seemed reluctant. And if you don't want to go in, just let me know, because I got 25 people that aren't here today that are willing to take your place. And so he sends this message to them that it's either you or it's going to be someone else, and they're going to reap the benefits of this if you don't. And on Sunday, the president responded specifically to the comments made by Exxon's CEO.

12:23Reporters asked him about the plans in Venezuela, and he kind of shot back at Darren Woods, the Exxon CEO. He said he really didn't like what he was saying. He said he thought he was playing a little too cute. And he then went further and said that he might actually proactively block Exxon from any sort of involvement in Venezuela. Exxon didn't respond to requests for comment.

12:50Aside from investing in Venezuela specifically, Trump also said he has this goal of bringing the price of oil down to$50 a barrel. So how do oil companies feel about that? Yeah, I mean, they're frankly really worried about it. Oil is, you know, hovering below$60 a barrel right now. They already think that's way too low. And because, you know, obviously they want higher oil prices to increase profits and then also make the huge amount of investment they need to put in to find new oil and produce this oil to be worth it. And so, you know, going down to$50 a barrel would have devastating consequences in all likelihood for the U.S.

13:26oil industry, shale operations in Texas and other places, and then, you know, more broadly for Saudi Arabia and others. And if you're an oil company, you're thinking, okay, do I want to invest a ton of money, take a ton of risk and go into Venezuela, a country that's burned me many times before, just so that the reward for me at the end can be$50 a barrel, which is less than I ever want to sell oil for in the first place? Yeah, exactly. The incentive structure here is a little bit confusing. You know, if Trump's vision is to pump way more oil and put more out into the markets and then lower prices, I mean, that doesn't give the companies a huge amount of incentive to take these big risks.

14:07If things work out the way Trump wants, the U.S. and its oil companies would secure a major source of oil and gain unprecedented dominance in crude oil reserves. But if it doesn't? It could backfire in a number of ways. You know, if the Venezuelan government sort of splits into factions and there's infighting there and the U.S. government isn't able to control it, that's one way. If U.S. oil companies, you know, essentially reject the president's entreaties and choose not to invest in a big way in Venezuela, that's another way. If they're not able to produce the amount of oil to actually lower oil prices and gas prices in a significant way, that's another.

14:46So there's just an enormous potential for backfiring here.

15:03That's all for today. Wednesday, January 14th. The Journal is a co-production of Spotify and The Wall Street Journal. Additional reporting in this episode by Shelby Holiday, Brian Schwartz, Josh Dossi, and Benoit Moran. Thanks for listening. See you tomorrow.