Capturing Venezuelan Assets

Venezuela has the world’s largest proven oil reserves of any country in the world, even more than Saudi Arabia. Since 2007, after the prior Venezuelan president nationalized all oil assets in 2007, production has dwindled to a trickle. The surprising capture of Venezuelan President Maduro over the weekend and the prospect of changing leadership there favorably impacted our energy holdings on the following Monday market opening.

Valero (VLO) saw the largest gain, jumping by 8.7 percent to 179.69. VLO is in our portfolio because it can refine both light crude oil coming from fracking in the US Permian basin as well as the sticky heavy crude coming from Venezuela. Light crude oil is great for refining into gasoline but not much else. Heavy crude is sought by refiners because it refines into many other products at high profit margins, ranging from diesel fuel to asphalt. Access to Venezuelan crude will benefit VLO over the longer term when production there increases.

Haliburton (HAL) saw the second largest gain, jumping by 8.1 percent to 32.0 because it is a premier supplier of oil services with the equipment and expertise to assist developing production around the world.

Chevron (CVX) jumped by 6.3 percent to 165.75. After the nationalization of Venezuelan oil assets in 2007, all US major oil companies pulled out except for Chevron which left it as the only major oil company currently operating in the country, giving CVX an advantage in participating in the recovery of the much neglected oil assets there.

Exxon Mobil (XOM) jumped by 2.1 percent to 125.21 because it also has expertise in developing oil assets in the region and will certainly participate in developing the massive proven oil reserves that reside in Venezuela.

All of these stocks were added to our portfolio at good values with high dividend yields and promising growth prospects, even with historically low oil prices. The opportunities in Venezuela have enhanced longer term growth profiles, which is why these stocks jumped on Monday’s opening. The near term, however, will undoubtedly see volatility as the political transition in Venezuela rolls out in the months ahead, which will likely offer long-term buying opportunities.