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Chevron's (CVX) Venezuela Business Gets Waiver Extension From US

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Chevron Corporation (CVX - Free Report) and four other oil service companies were recently granted permission by the US government to continue sustaining a toehold in Venezuela until Dec 1, 2021, suggesting no changes in the country's broader policy toward the South American capital city Caracas.

Chevron’s presence in the Latin American nation has been positive so far as it supported the host country’s social investment and humanitarian initiatives. Evidently, it applauded the renewal of their bilateral relations, which is the first during President Joe Biden's tenure and the eighth since 2019. The company will therefore continue to adhere to all applicable rules and regulations.

Along with Chevron, the current US regime licensed Schlumberger (SLB - Free Report) , Halliburton (HAL - Free Report) , Baker Hughes (BKR - Free Report) and Weatherford to continue functioning in Venezuela after former President Donald Trump's administration slapped oil sanctions on the country in January 2019.

Last year, the restrictions on the US firms' ongoing participation were tightened, prohibiting Chevron from acquiring, drilling, lifting or processing crude or oil products from Venezuela. The provisions of the existing waiver, effective until Dec 1, remain the same.

The license will enable firms to execute transactions with Venezuela's state-owned oil corporation PDVSA for regulating restricted vital activities in the country or winding down operations by Dec 1. If the corporations do not comply with this rule, they risk facing penalties or other harsh actions from the US government.

The Struggling Venezuelan Oil Industry

To the uninitiated, during 2019 Venezuelan presidential crisis, Trump imposed sanctions on the Venezuelan state-run oil firm PDSVA in a bid to oust President Nicolas Maduro. As part of U.S. sanctions, American companies were restricted to conduct business with Venezuela's PDVSA.

However, the United States granted a six-month waiver to Chevron as well as major oilfield firms including Halliburton, Schlumberger, Weatherford and Baker Hughes to conduct transactions with PDSVA. While almost all the above already exited the country, Chevron remains the last U.S. oil major operating in the crisis-stricken country.

Years of mismanagement, ramped-down investment and alleged government corruption have deteriorated Venezuela’s energy industry. With the country on the verge of a political and economic collapse, oil output has dwindled by more than 50% since 2016. Financial caps levied on the Maduro regime by the United States and sporadic power blackouts throughout the country further crippled the Latin American nation’s energy sector.

Final Thoughts

Per reliable sources, the Biden administration has no imminent intentions to remove the waiver from Venezuela's oil industry or to modify its stance on coercing Maduro to submit to a fresh election. Although US sanctions failed to achieve that goal, Biden's government is considering a possible amendment to its foreign policy with Venezuela on the radar. However, the matter doesn’t top the agenda for the White House at the moment.

Notably, Venezuela — holding the largest proved oil reserves in the world — could offer substantial rewards to the oil companies if Maduro quits office. Chevron’s interest in the extension of exemption signals the firm’s plans to play a long game in crisis-hit Venezuela. Even if Maduro retains power, the waiver extension would allow the firm to bet on a future payoff in a region with significant barrels of proven crude reserves. Also, if Maduro’s regime falls, the presently Zacks Rank #3 (Hold) company will gain handsomely from the country’s extensive geologic resources under the waiver expansion. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Brief on the Company

Chevron is one of the largest publicly-traded oil and gas companies in the world with operations spread to almost every corner of the globe. A component of the Dow Jones Industrial Average, this energy player is a fully-integrated company, participating in every energy-related process, ranging from oil production to refining and marketing.

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