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Takeaway: June Venezula Production was 734,000 b/d but may drop sharply with end of Chevron operation and secondary sanctions.

Editor's Note: Below is an institutional research note written by Energy Policy analyst Joe McMonigle and published on 7/23. To learn more about our Energy Policy research contact sales@hedgeye.com.

Venezuela: Chevron License Extension in Trouble With Secondary Sanctions Now More Likely - z maduro hedgeye

The Trump Administration is seriously considering not extending a general license that expires on July 27 allowing Chevron to continue operations in Venezuela despite US sanctions. By not renewing the license, the White House will terminate the last US lifeline to the Maduro regime and with it likely prompt another sharp drop in Venezuela oil production.

Chevron hopes to extend the license and its supporters make the case that if it is forced to pull out of Venezuela, the Maduro regime will transfer its operating assets to Russian or Chinese companies. 

There has also been some confusion in Washington about whether the Guaido government and opposition leaders support extending the license. But this is not the case.  According to our sources, the Guaido government wants the Chevron license ended and have conveyed this position privately to the Trump Administration.

Today, Guaido’s government tried to make it easier for the White House to do just that issuing a decree that attempts to prevent Maduro from transferring the assets to Russian or Chinese entities. The decree declares the decision not to renew “constitutes an event of force majeure” that the Guaido government views as allowing Chevron to legally reclaim the assets in the future.

We believe the Chevron license renewal is in trouble, and the Guaido decree today signals that the Trump administration is leaning against an extension when the Chevron license expires on July 27.

The Guaido government is asking the Trump Administration to step up pressure on Maduro and take remaining steps to try to cut off oil production and revenues to the regime.

Combined with this pressure and the likely end of the Chevron license, we think the tougher approach will soon trigger secondary sanctions on Maduro’s regime that will likely ensnare other companies operating and doing business in Venezuela, including Russian, Chinese and European companies.

First, we are told Guaido is flat out asking for secondary sanctions. But it also seems apparent that if Maduro were to transfer the Chevron assets to Russian or Chinese entities, the only recourse for the US government is secondary sanctions.  In our view, the termination of the Chevron license may be the catalyst for secondary sanctions as well.

According to recent SEC filings, Chevron’s net oil production in Venezuela is about 40,000 barrels per day (b/d). But taking into account joint ventures with state-owned PDVSA in which Chevron is the operator, the resulting production is more than 200,000 b/d.

OPEC’s Monthly Oil Market Report put Venezuela June production at 734,000 b/d and may drop sharply if the Chevron license is not renewed.  However, secondary sanctions would put at risk much more Venezuelan production, even if Chinese and Russian companies continued operations.