ExxonMobil Is Reportedly Nearing a Deal to Invest in Venezuela's Oil Fields. Is XOM Stock a Buy?

One of the more spectacular returns in the global oil industry might be happening right now.

According to several media reports published after market close on Thursday, ExxonMobil (NYSE:XOM) is in advanced discussions to invest in oil fields in Venezuela. The company exited that market in mid-2007 following a series of disputes with the government of former President Hugo Chávez, which aimed to effectively renationalize the domestic oil sector.

If it plays its cards right, the U.S. energy giant could even get its hands on the advanced project it operated all those years ago. Here's a look at how a return to the country might affect the company.

Look who's coming back... maybe

With the recent capture and arrest of former president (and Chávez protege) Nicolas Maduro and the ascension of a more U.S.-friendly administration, Venezuela is more open to foreign involvement in its oil sector.

Energy companies from outside the country's borders have already gotten involved; on Wednesday, for example, billionaire Harold Hamm's Continental Resources signed a memorandum of understanding with PDVSA, the state-run oil company, to develop one part of the country's main oil region, the Orinoco. Further afield, Italy's Eni, which already had a presence in Venezuela, signed a contract earlier this month to expand its operations. And one of the few U.S.-based oil majors that stayed despite pressure from previous administrations, Chevron (NYSE:CVX), similarly agreed to boost its operations, committing to $7 billion in investments over five years.

That's likely why news of ExxonMobil's apparent plans to return didn't trigger a significant reaction from investors -- the stock basically traded sideways in after-hours action Thursday following those media reports. If the articles are accurate, the company's move isn't all that surprising given the opportunities presented, and some might view it as being relatively slow and Johnny-come-lately.

A suite of possibilities

The sources of those reports provided differing nuggets of speculation. The Wall Street Journal, citing unnamed "people familiar with the matter," wrote that ExxonMobil was on the brink of signing a deal, specifically an MOU with PDVSA that could be finalized as soon as the end of this month. That would lay the groundwork for the company to invest in a series of developed and undeveloped fields. Collectively, these could contain the equivalent of over 50 billion barrels of oil, according to the newspaper’s sources. That's quite a significant number given that the Venezuelan government says the country's total is roughly 300 billion.

Also citing "people familiar with the matter" who were unidentified, Reuters wrote on Thursday that the company has expressed particular interest in the Petromonagas project in the Orinoco, in addition to a neighboring block.

Petromonagas -- formerly known as Cerro Negro -- might ring a bell for longtime ExxonMobil investors and observers, as the company once held a stake in the project. One of its major advantages is the presence of an operational upgrader facility. This can convert the sour, heavy (i.e., sulfur-laden and viscous) crude that characterizes the Orinoco into the sweeter and lighter grades favored by customers abroad.

One likely complicating factor with Petromonagas, however, is the stake held by the Russian state (transferred after that country's Rosneft purchased a 40% holding in 2020). It isn't clear whether that stake would be sold or if a potential new investor would be a co-stakeholder with Russia, which has been heavily sanctioned because of the Ukraine war.

Buyer, beware

In short, then, there are numerous possibilities for ExxonMobil's apparent goal of returning to Venezuela. With those differing reports -- none of which have been confirmed by the company -- it's tough to nail down its exact strategy for this now. So I think investors were right not to pile into or bail out of the company's stock, given that its involvement is only advanced speculation at this point.

Having said that, if ExxonMobil does indeed establish a splashy new presence in Venezuela, it would absolutely affect the company's operations and fundamentals. There is much work to do in the domestic industry, however, given its years of neglect and decline, so that isn't an automatic win. All the same, to my mind, this is undoubtedly a major development to monitor for anyone invested in global oil stocks, not only ExxonMobil.

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chevron. The Motley Fool has a disclosure policy.