Why ConocoPhillips Rallied on Monday

Shares of U.S. oil and gas major ConocoPhillips (NYSE: COP) rallied as much as 6.5% on Monday, before settling into a 3.2% gain as of 12:42 p.m. EDT.

Conoco, along with other U.S.-based oil and gas producers, oil services companies, and refiners, rallied today in response to the U.S. ousting Venezuelan President Nicolás Maduro last Friday night.

This past weekend's events could open up Venezuela's vast oil and gas reserves to U.S. companies. Moreover, ConocoPhillips, in particular, is owed billions by Venezuela, which seized the company's assets back in 2007.

Conoco could get back its billions

U.S. oil companies have a long history of development in Venezuela, dating back approximately a hundred years. However, in 2007, then-President Hugo Chávez forcefully renegotiated contracts with international oil majors on significantly more favorable terms for the country, effectively nationalizing their assets.

While Chevron (NYSE: CVX) continued operating in the country, ConocoPhillips left and took the Venezuelan government to international arbitration courts. Although the courts awarded ConocoPhillips about $10 billion in damages, Venezuela has reportedly only paid out a fraction of those claims.

There is still considerable uncertainty surrounding the governance situation in Venezuela, so it's by no means a sure thing that Conoco will be able to recover those sums or reinvest in the country.

Nevertheless, the prospect of Conoco receiving billions in overdue penalties, along with the prospect of regaining access to Venezuela's plentiful oil reserves, sent shares higher. Notably, Venezuela has the largest amount of proven oil reserves of any country in the world, at roughly 300 billion barrels of oil equivalent (BOE), even surpassing those of Saudi Arabia.

Image source: Getty Images.

But there's a good reason why the stock's not up more

Despite the political turmoil in the world's most oil-rich nation, oil prices rose just 1.7% today and remain close to $58 per barrel, which is a low price level last seen in early 2021, in the latter stages of the pandemic. This is because, although Venezuela has the world's largest oil reserves, years of underinvestment have caused the country to only supply about 1% of the world's oil today. So, the political disruption there shouldn't cause a huge disruption to the world's current oil supply. Additionally, reopening Venezuela's reserves will take tens of billions in investment, which oil majors are likely reluctant to spend, given the continued political risk.

That being said, the ousting of the current Maduro regime at least opens up a greater probability of U.S. oil companies reentering Venezuela, and for Conoco reclaiming its seized assets.

Billy Duberstein and/or his clients have positions in ConocoPhillips. The Motley Fool has positions in and recommends Chevron. The Motley Fool recommends ConocoPhillips. The Motley Fool has a disclosure policy.