US Plans for Venezuelan Oil Could Boost Reliance and ONGC Profits

Leading Indian companies Reliance Industries and Oil and Natural Gas Corporation (ONGC) are poised to benefit significantly from potential changes in Venezuela’s oil sector, should a US-led takeover and restructuring occur. Investment banking firm Jefferies suggests that both companies could see improvements in supply chains, cash flows, and overall valuations if sanctions on the Venezuelan government are eased or lifted.

Venezuela, holding around 18% of the world’s proven oil reserves, currently contributes less than 1% to global crude output, with production levels dipping below 1 million barrels per day. Consequently, the geopolitical developments surrounding a potential US takeover of Venezuelan oil assets are not expected to significantly impact crude prices in the short term, even if trade flows see alterations.

Investment Opportunities for Indian Firms

Jefferies anticipates that American oil companies will invest considerably in Venezuelan oil fields once sanctions are lifted. Such investments could enhance production capabilities through 2027-2028, possibly exerting downward pressure on crude prices unless the Organization of the Petroleum Exporting Countries (OPEC+) implements compensatory cuts.

For Reliance, a critical opportunity lies in gaining access to discounted Venezuelan crude, which its Jamnagar complex is equipped to process. Reliance previously collaborated with PDVSA in 2012 to obtain nearly 20% of its daily crude requirements from Venezuela. This partnership ended following the tightening of US sanctions in 2019. With recent indications from Washington about selling Venezuelan crude to global buyers, Jefferies believes that Reliance could secure long-term supplies at a discount once again. This would enhance the company’s gross refining margins and cash generation.

For ONGC, Jefferies identifies a more immediate financial benefit. The company has been awaiting the recovery of long-overdue dividends from its Venezuelan operations. Currently, it has not received its share of dividends from production activities at the San Cristobal field, with unpaid dues exceeding $500 million. Should a US-led restructuring facilitate cash repatriation, ONGC could recover this amount and potentially revitalize the development of the Carabobo asset in the Orinoco Belt.

Market Outlook and Risks

Jefferies has maintained ‘Buy’ ratings for both Reliance and ONGC, setting target prices of ₹1,785 and ₹310, respectively. These figures indicate a potential upside of 12% for Reliance and 28% for ONGC based on their most recent closing prices.

Nevertheless, the firm has highlighted key risks that could impact these projections. These include the possibility of weaker-than-expected refining and petrochemical margins, as well as higher cash burn rates in Reliance’s new energy and e-commerce ventures.

As the situation evolves, the corporate strategies of Reliance and ONGC may significantly shift, potentially positioning them to capitalize on a restructured Venezuelan oil landscape.