# Venezuela Oil - Is It Worth It?

## Метаданные

- **Канал:** Learn to Invest - Investors Grow
- **YouTube:** https://www.youtube.com/watch?v=h3nHpPeNWmQ
- **Источник:** https://ekstraktznaniy.ru/video/34518

## Транскрипт

### Segment 1 (00:00 - 05:00) []

Hi, I'm Jimmy. In this video, we're looking at the development recently that the United States went into Venezuela and grabbed their president Maduro. And since then, there's been an awful lot of talk about what America is going to do with, let's say, the oil out of Venezuel. So, in this video, we're going to look at some of the nuances of Venezuelan oil because it's really not as cleancut as it's being presented in many scenarios. And we're also going to look at companies that could either that could likely benefit from this type of situation. Okay. So, the first real question is, is there in fact a lot of oil in Venezuela? You might have heard in the many news outlets out there that Venezuela has a lot of oil. And this is undeniably true. Venezuela, according to many US government sources, Venezuela has the most proven reserves in the world, but it's not that simple. Yes, they have a ton of oil, but I would point out they are actually a very small producer of oil. As far as how much oil was produced last year, well, Venezuela produced around 1% of the world's oil despite the fact that they have the most oil. We'll get into some of the nuances to why in a second. The specific region is this Oroco belt. In that belt is where they have tons and tons of oil reserves. So the proven reserves I believe are over a bit over 300 million barrels but some estimates have estimated that they could have up to a trillion barrels of oil in not just that area but the surrounding regions as well. Okay. Now just to make sure everybody's on the same page, let's look quickly at the call it the basic economics of oil and gas. So this is a 10-year chart from the Investors Grow website. a 10-year chart of the price of oil, right? Fairly simple. But here's let's consider this from a very from an absolute basic economics. How econ how economics works in general. Think of it in its simplest possible terms. Imagine as oil prices are rising up. We'll use 2021 when the whole Russia Ukraine thing started happening and that drove oil prices significantly higher. Well, imagine what the oil companies start doing when oil gets over, let's just say over $100 a barrel. Well, as you could imagine, oil companies that pull oil and gas out of the ground, oil producers, well, when they pull oil out of the ground, they then sell it. If oil's over $100 a barrel, they make a bit over $100 a barrel. Not in profit, but that's essentially the revenue they generate. So of course as the price goes up companies try to generate more and more oil right they will produce bring oil to the market. Well essentially eventually what will happen is you'll end up with this equilibrium. Too many oil producers start pulling oil out of the ground. We end up with too much of a supply and just like that the price starts to tumble. Now of course there's other variables in all that. I know I'm oversimplifying this, but just think about this from the simplest possible perspective. Basic oil uh basic supply versus demand. The higher the price, the more the producers of oil will supply and because they over supply, well, the prices will begin to fall. Well, as the price drops and eventually the price will get to a certain level on the low end that well it's not profitable to let's say open new wells and keep drilling for more oil if the price gets too low. That's why over a decade you end up with kind of this zigzag of a pattern where prices go up and then they start to pull back and then go back. You think you can think about a similar thing with a uh an organization like OPEC. OPEC doesn't set the price of oil. What they do is they essentially set how much those oil producing countries are going to produce. If they want the price to go up, they produce less. It's really that simple. If they want the price to go down, they produce more. Now of course if prices are higher they make a bigger profit so they're more incentivized to produce more then but as we know if that happens the price will come down. Okay so just keep that in the back of our mind basic simple economics for as you would think about it for any company. Well, with that being said, when we think about oil specifically to pull oil out of the ground, specifically in different regions, but in an area like the Middle East, the Middle East is one of the least expensive places in the

### Segment 2 (05:00 - 10:00) [5:00]

world, it is the least expensive place in the world to pull oil out of the ground. So, it's estimated that from the estimates that I could find for 2024, they say between$25 and $30 a barrel for to open up a new well and to start drilling for oil. The cost for a new well production to start pulling oil out of the ground on a per barrel basis is estimated to be about $27 a barrel. So oil is right now sitting at $60 a barrel. Essentially they're doubling their money. Well, what about in Texas? Texas is pretty good. Uh in West Texas, the Perian Basin, well there it cost in the60s for a new well. Right now, again, oil is sitting at about $60 a barrel. That might imply they're about break even. So, they're probably not producing new wells since, you know, the cost to run to maintain a current well, an existing well is cheaper on a per basis. The so those are likely in Texas to keep running, but they're likely to, let's say, have a slower release of new wells until the price of oil goes up and they can make more money. Logical. Well, this now brings us to Venezuela. one of the biggest problems with Venezuela, the reason that Venezuela has so much oil, but very little actual production because over in the Oronokco belt, it is estimated that it cost about $80 a barrel to get the oil out of the ground. So right now with oil, global oil sitting in the low $60 a barrel level, it doesn't actually make a lot of sense for a lot of companies to go in there and start producing oil. The key to this whole thing is the very idea of supply and demand. When we look at a chart, well down at the bottom here, the Middle East is there. Then you've got the Peran Basin. Then you've got Venezuelan oil way up here at 80 bucks a barrel. that's very expensive. It's a high cost. Let's say it's a highcost investment when the returns aren't really there. Now, the trick here is that actually gets a little bit worse than this. Now, if you think about oil from a how what do you do with oil? Well, oil eventually gets refined into things like gasoline or diesel or jet fuel, right? So you take oil, you can move it in a pipeline and then you send it to a refinery. So with Venezuelan oil, well the first of all, the process to ship the oil is different. It is more expensive because it is such a heavy oil. It is not easily transferred in things like pipelines. Not nearly as easy as it is for oil coming out of West Texas or uh the Middle East. it is far more expensive or it is far trickier to move. It can be done, but you have to do things to it to make it as movable as it is in those other areas. And then when you get to the refinery itself, well, the refinery has to do other things. It has to break down the heavier oil in more ways. Basically, there's more costs to it. Now, because there are more costs, it's actually important to recognize that the oil technically the oil that a company might buy from Venezuela, so let's say a refinery is going to buy oil off of a tanker from Venezuela. Well, they would actually pay less for the oil. So, oil coming out of the Venezuelan ports is actually trading at a discount to of about 20 bucks a barrel. So all the prices that we saw before where we were comparing oil prices uh you know in West Texas compared to the Middle East, well those prices are based off of Brent oil price. They kind of standardized. Technically Venezuelan oil is about $20 cheaper because it's a lower quality oil. So all of these prices that we saw before, well these are actually standardized prices. But it's important to know that technically speaking, the oil coming out of Venezuela is sold for less, about $20 a barrel less because it is a lower quality oil and there's so many additional costs that refineries have to do it. But again, what this will essentially what this essentially means is that Venezuela oil companies are forced to sell oil at a cheaper price than let's say the market the global average. it's forced to sell at a cheaper price because it's a lower quality oil. So that really brings up the question, well why would companies how many producers of oil outside of companies that perhaps are, you know, being incentivized by the US government or something like that? Outside of that

### Segment 3 (10:00 - 12:00) [10:00]

why would companies want to go into Venezuela where it's more expensive? They have to rebuild it. There's massive upfront costs. It's more expensive to pull out of the ground. more difficult to ship, more difficult to refine. Where's the profit? Where's the potential gains there? Well, this actually leads us to some potential opportunities to consider would be refineries. Specifically, there are some refineries over in the Gulf where they're set up to handle heavy crude oil like the oil coming out of Venezuela. Couple of those companies have already stated that they're ready to take oil from Venezuela. And many times these types of companies pay decent dividends. So if we're looking for potential investments, these might be a couple to consider. The first one we might look at is Philips 66. Here when we jump over and look at the shareholder section, well the shareholder yield looks decent. And scrolling down here to the dividend. Well, the company historically has paid a semi a fairly reliable dividend. So, this could be an interesting one to consider. Philip 66 has already come out and stated that they're ready to handle Venezuelan oil. Another company we could dig into is Valero. Valero already buys oil from their Chevron deal coming out of Venezuela and they've got some refineries that are also well positioned. We jump over and look at them on the Investors Grow website, but we can see that their shareholder yield looks even better. And again, scrolling down to their dividend, dividend looks fairly consistent as well. So, this could be an interesting one. Then, if we're looking for a bigger play, well, you get a company like Exxon Mobile. Exon Mobile used to buy oil coming out of Venezuela before there were sanctions and things like that. So, in theory, they could step back in and, you know, pick up some of the Venezuelan oil if they do start pumping a decent amount of it. So, there is some potential there. When we jump over and look at their shareholder section, well, again, they get a decent shareholder yield. scrolling down and looking at their dividend. They pay a decent dividend. They've paid a fairly reliable dividend for a while. So, these are some companies to consider, but I just want to bring out the reason I wanted to do this video was it's not as simple as we go over there and we have access to oil. This type of oil is a particularly expensive oil for us to go and get and refine and all that stuff. So, I would be surprised if it does a meaningful job in the especially in the near term of pulling down prices for things like gasoline or jet fuel, things like that. That seems unlikely in the near term. We'll see what happens over the long run if there's enough investments in there and things like that. But in the near term, I doubt it's going to have a meaningful impact. Now, if you want to sign up to get access to the Investors Grow website, I will leave a link right here, link in the description below. And thank you so much for sticking with me all the way to the end of the video. I really do appreciate it. Thank you and I'll see you in the next video.