A Tale of Two Oil Fortunes

Energy and Capital editor Keith Kohl shows readers two countries with rich oil resources, yet only one is about to deliver investors a huge profit windfall. A Tale of Two Oil Fortunes [Keith Kohl Photo] By [Keith Kohl]( Written Wednesday, August 9, 2017 It was the best of times; it was the worst of times... That’s how this story begins, right? That about sums up the situation over Mexico’s and Venezuela’s oil industries right now. These two countries have been among the world’s top oil exporters Both countries have faced an oil crisis in the last two decades, and each took a radically different path. And let’s be clear here: There is no better example of how not to develop your oil resources than Venezuela. For a country that boasts the largest cache of proven oil reserves on Earth — 297 billion barrels — you would expect that things are going well. After all, Venezuela was a founding member of OPEC. Surely being a part of that cartel of oil exporters comes with certain advantages. Now, even though I have my own strong reservations regarding the extremely poor quality of those reserves, I’ll save my denigration of the Orinoco Belt for another day. You and I both know the situation couldn’t be much worse... And it all started with one fateful decision. Elon Musk's Deadly Blunder Elon Musk is known as a billionaire entrepreneur and overall world-class success story. But he recently made a mistake that could cost him and his company, Tesla Motors, their dominance in the lithium battery industry. How is this possible? Well, it all stems from a design flaw in Tesla’s batteries — a crucial flaw that one of its competitors is now using to steal business. It’s already taken one of Tesla’s biggest clients — a major German automaker — but that’s just the start. Here’s the crazy part, though... the part that’s got investors swarming. This competitor? It's a tiny company only about 1/500 the size of Tesla. That small, yet dangerous enough to have Elon losing sleep at night. Get the name and the rest of the story [right here.]( Venezuela: The Poorest Oil-Rich Country on Earth On May 1, 2007, Venezuela’s President Hugo Chavez seized all foreign oil assets in the country. To be fair, they were given a warning. In one swift, catastrophic move, Chavez singlehandedly doomed the future of his country’s oil industry. He certainly didn’t take any lessons from Saudi Arabia’s government, which took control of the remaining interest in Aramco in 1980. Mind you, this was after buying a 25% stake in the company in 1973 and an additional 35% stake in 1974. Chavez, on the other hand, ripped control from Big Oil in the blink of an eye. Rigs, trucks, tools... he grabbed everything he could get his hands on. His parting words to them were prophetic, “If they do not agree, they are totally free to leave.” And with PDVSA in complete control of developing Venezuela’s oil resources, what could possibly go wrong? Well, it turns out a lot. Look, I can’t blame anyone for believing that nationalizing Venezuela’s oil industry was a good move. As you can see below, the country’s oil output did rise to about 3 million barrels per day between 2008 and 2014: [chart-1-ven-eac] Of course, crude prices increased dramatically during that time frame. And make no mistake; extracting the heavy crude from the Orinoco Belt comes at a much higher cost than, say, the tight oil resources in the lower-48 states. Unfortunately for them, things quickly deteriorated once oil prices crashed in the summer of 2014. The crisis was two-fold given the severe lack of investment and infrastructure. Considering the deplorable state of the country today, as well as potential sanctions by the U.S. being placed on Venezuela’s oil industry, there’s no drilling their way out of this crisis. It’s irreversible at this point. If only they had taken a lesson from Mexico... 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So my pessimism over Mexico’s oil industry is understandable, isn’t it? “You’re wrong,” I overheard my colleague Christian DeHaemer muttering to himself this morning. He had heard me discussing the future of Mexico’s oil industry and grunted his disagreement after seeing this chart breaking down its oil production on my computer screen: [mex2charteac] You can see how drastically production from Cantarell has fallen in just 12 years. Then Chris did something unexpected... he smirked. That’s the moment I knew I was wrong. “Those guys have something big up their sleeves,” he told me without a hint of hesitation. All it took was one massive discovery to turn things around. You see, Mexico didn’t go down Venezuela’s path... Instead, Mexico did the opposite and opened up its energy sector to international oil companies. It was a historic decision for a country that had total control over its oil industry for decades. “And it’s paying off handsomely — for both of us!” Chris’s bullish sentiment wasn’t lost on me. In fact, what he showed me next left me speechless for several minutes as I digested his [latest]([investment presentation]([.]( Once it finished, I found myself [reading over the transcript]( and poring over the details again. If you haven’t checked out the incredible situation developing in Mexico’s oil industry yet (which includes a tiny company he discovered that is sitting right smack in the middle of this new discovery), I strongly urge you to take just a few moments out of your day and see this for yourself firsthand. [You can learn the full details here.]( Until next time, [Keith Kohl Signature] Keith Kohl [[follow basic]@KeithKohl1 on Twitter]( A true insider in the energy markets, Keith is one of few financial reporters to have visited the Alberta oil sands. His research has helped thousands of investors capitalize from the rapidly changing face of energy. Keith connects with hundreds of thousands of readers as the Managing Editor of [Energy & Capital]( as well as Investment Director of Angel Publishing's [Energy Investor.]( For years, Keith has been providing in-depth coverage of the Bakken, the Haynesville Shale, and the Marcellus natural gas formations — all ahead of the mainstream media. For more on Keith, go to his editor's [page](. Enjoy reading this article? [Click here]( to like it and receive similar articles to read! 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