It's been almost two weeks since the U.S. captured former Venezuelan President Nicolas Maduro, which understandably prompted investors to closely examine the energy sector and oil markets, as the South American nation is a member of the Organization of Petroleum Exporting Countries (OPEC).
Venezuela has 303 billion barrels of proven oil reserves, making it one of the world's most coveted oil producers. One of the interesting factoids thrown around in the wake of Maduro's capture is that Venezuela's oil is worth more than the combined value of all the world's economies except the U.S. and China. That's a lot of oil and a lot of dollars.
Investors need to be selective with oil stocks when it comes to playing Venezuela. Image source: Getty Images.
Even with that, the Energy Select Sector SPDR Fund (XLE +0.93%), one of the bellwether energy sector exchange-traded funds (ETFs), is up just 1.54% since the U.S. took Maduro into custody. That's an anecdote, but it confirms that investors need to be inquisitive before expecting Venezuelan bets to pay off. Here are three questions to answer before placing those wagers.
Are you considering energy stock Chevron?
Shares of Chevron (CVX +2.90%) are outpacing the SPDR ETF since the U.S. incursion in Venezuela, and the logic behind the oil major's 2% move since then is understandable. It boils down to the company maintaining a footprint in the Latin American country after rivals departed nearly two decades ago, when then-President Hugo Chavez nationalized Venezuela's oil industry.
As the company itself said, it plays a long game, and it could be rewarded for that patience if output there ramps up in the years ahead. Chevron already has boots on the ground and existing infrastructure in the country, giving it a head start over rivals.
NYSE: CVX
Key Data Points
Speaking of competitors, ExxonMobil (XOM +1.29%) appears willing to investigate Venezuelan opportunities. Still, CEO Darren Woods told President Donald Trump earlier this month that as things stand today, the country is "uninvestable." That could be one sign Chevron rivals won't be quick to enter Venezuela.
Are you considering an oil services stock?
Working on the premise that Chevron will maintain a quasi-monopoly in Venezuela, at least among Western oil majors, investors might do well to divert their attention away from exploration and production companies and focus on other industries, including oil services providers.
SLB (SLB 7.63%), formerly Schlumberger, is said to be the leading contender to secure the first services contracts because it maintained a Venezuelan footprint after Chavez's nationalization. Still, there may be more competition in Venezuela among oil services names than integrated companies.
For example, Halliburton (HAL 2.91%) CEO Jeff Miller says oil services providers face less risk in Venezuela than producers, adding that his company can move quickly to return to work in the country.
The technological know-how of companies like Halliburton and SLB is pivotal if Venezuela hopes to recapture lost output glory. In the late 1990s, the country was pumping 3.5 million barrels per day, but mismanagement and underinvestment sent that figure to roughly 1 million today.
Are you remembering refiners?
Investors willing to exercise Chevron-esque patience with Venezuela may also want to consider refiners. The petroleum found there is classified as extra-heavy and heavy, meaning it needs to be heavily refined before it's suitable for export to any country with strict environmental standards. That process is also costly.
Refining equities to consider include Marathon Petroleum (MPC +1.60%), Phillips 66 (PSX +2.71%), and Valero Energy (VLO +2.06%).
Asking these 3 questions before trying to capitalize on this recent oil opportunity will help steer investors in the right direction.
