The economics were never complicated. What’s complicated is watching someone ignore them on live television.
By R. Thornton Whitfield
I spent four decades in the petroleum industry, much of it in what we politely call “challenging operating environments”—Nigeria, Kazakhstan, Angola, and yes, Venezuela in the 1990s, before it became what it is today. I understand how these things work. Which is why watching the administration’s Venezuela strategy unfold has been, professionally speaking, excruciating.
The economist Paul Krugman published an analysis this weekend that summarizes the situation accurately. I don’t agree with Krugman on most things. But on the basic economics here, he’s simply stating what anyone in the industry could have told you—and would have, if anyone had thought to ask.
The Breakeven Problem
Let me explain something that should have been explained to the President before any of this began.
The breakeven price for drilling in America’s major shale formations—the price at which a new well becomes worth drilling—is approximately $62 per barrel. Current prices are below that. This is why the Bureau of Land Management auctioned over 20,000 acres of public land in Colorado last week and received zero bids. Not low bids. Zero.
This is not woke environmentalism. This is arithmetic.
If oil companies aren’t bidding on land in Colorado, why would they invest billions in Venezuela? The administration seems to have assumed that capturing Maduro would unlock some vast opportunity. It did not. Venezuela’s reserves are primarily heavy crude—Krugman correctly notes that experts describe its viscosity as similar to cold peanut butter. Extracting it requires injecting steam. The infrastructure to transport it is decrepit. Rehabilitation estimates start at $10-20 billion. Full restoration to 1990s production levels would require $100 billion or more.
These numbers were available before the invasion. They’re available now. They haven’t changed.
The Meeting
On Friday, the President met with top energy executives at the White House. According to reports, the meeting was moved at the last minute from a closed-door session to a live-televised event in the East Room. The intention, presumably, was to show industry leaders praising the Venezuela operation and expressing eagerness to participate.
That is not what happened.
Darren Woods, CEO of ExxonMobil, stated plainly that Venezuela is “uninvestable” under current conditions. He was being diplomatic. What he meant was: you have made it uninvestable by conducting this operation without consulting us first.
The President’s response was to say he is “inclined” to block ExxonMobil from investing in Venezuela because he “didn’t like their response.”
In forty years, I have never seen anything like this.
How This Should Work
I am not going to pretend that the oil industry operates by Sunday school rules. We work in difficult places. We manage risk. We build relationships with governments of varying legitimacy. We have done this for a century, and we have developed processes.
The process is not complicated: before you commit military resources to secure energy assets, you consult with the companies that would develop those assets. You understand the economics. You assess the infrastructure. You evaluate the security environment. You determine whether the investment makes sense.
Then—and only then—do you proceed.
The administration did this backwards. They captured the country. They announced on television that American companies would be developing the oil. And then they invited executives to the White House to ask if they were interested.
The day after that meeting, the U.S. Embassy in Venezuela issued a security alert warning of armed militias, roadblocks, kidnapping, torture, and “arbitrary enforcement of local laws.” This is the operating environment into which the President is demanding we invest.
The Real Problem
The President is a real estate developer. He thinks in terms of deals and leverage. He believes that if you control something, you can force people to pay for it.
Oil doesn’t work that way. You cannot leverage geology. You cannot negotiate with breakeven economics. The viscosity of heavy crude does not care about your television ratings.
Woods told him the truth, on camera, and is now apparently being punished for it. This is not how you build relationships with an industry you need. This is how you ensure that every future conversation happens through lawyers, with extensive documentation, and with no executive willing to say anything that might be used against them.
I would have been happy to explain all of this beforehand. Many of us would have. But no one called. No one asked. The decision was made by people who do not understand the first thing about what they were deciding.
“Drill, baby, drill” was always a slogan, not a policy. Krugman is correct that it has now died—killed not by environmentalists but by basic economics. What concerns me more is that no one in a position of authority seems to have understood it was never alive.
Newswax Guest contributor R. Thornton Whitfield spent 40 years in the petroleum industry, retiring as Senior Vice President of International Operations after what the board described as a “mutual agreement about leadership transition timing.” He now advises energy firms and sovereign wealth funds from Zurich. His memoir, “Extracting Value: A Life in Global Energy,” has been optioned by a production company that has not returned his calls since 2023. His compensation throughout his career was, he notes, “appropriate to the value delivered to shareholders.”
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