U.S. Secures 35% Stake in Venezuelan Oil Venture Under New Energy Agreement

The White House has released additional details of an agreement giving the United States government a direct ownership interest and preferential purchasing rights in a Venezuelan oil venture controlling development rights to approximately 65 billion barrels of proven reserves.

The agreement brings the U.S. government into a direct commercial relationship with North American Blue Energy Partners, or NABEP, a privately held Venezuelan oil company led by businessman Alejandro Betancourt.

Under the agreement, Venezuelan interim authorities have granted NABEP 100-year concessions covering 17 oil fields. The fields contain approximately 65 billion barrels of proven oil reserves, representing roughly one-fifth of Venezuela’s total proven reserves.

The U.S. Government’s 35% Ownership Interest

The United States will receive a 35% equity stake in NABEP’s corporate parent through the Department of War’s Office of Strategic Capital.

The White House says the stake will be provided at no cost to American taxpayers and could ultimately represent hundreds of billions of dollars in value and dividends if the venture reaches its projected scale.

The agreement also gives the U.S. government significant rights over the company’s future production.

The State Department will have the guaranteed right to purchase 20% of NABEP’s production at production cost. It will also have a right of first refusal to purchase the remaining 80% of the company’s output.

The White House says the oil could be used to help replenish the U.S. Strategic Petroleum Reserve and provide supplies for military and other sensitive uses.

U.S. Governance Rights

The agreement gives Washington more than an economic interest.

The U.S. government will have veto authority over the appointment of members of NABEP’s board, while a majority of board members must be U.S. citizens.

The agreement is governed by U.S. law and subject to the jurisdiction of U.S. courts. The White House also says NABEP will use U.S. auditors, lawyers and advisers.

The combination of equity ownership, purchasing rights and governance authority gives the United States a substantial role in the commercial structure surrounding the 17 oil fields.

NABEP’s Role

NABEP will remain responsible for developing and operating the fields.

The company describes itself as Venezuela’s second-largest private oil producer and currently produces more than 200,000 barrels per day, according to CBS News. NABEP has stated that it intends to increase production to more than 1 million barrels per day in the near term.

Venezuelan interim President Delcy Rodríguez has stated a longer-term objective of increasing national production to more than 1.5 million barrels per day.

Those production targets are goals, however, and do not represent current production.

$100 Billion Investment Commitment

NABEP has committed to investing up to $100 billion in Venezuela’s oil infrastructure.

The investment is intended to rehabilitate existing infrastructure and expand production. The White House says new Venezuelan oil output will also support investment in U.S. refineries, drilling equipment and infrastructure.

The investment figure represents a commitment or projected capital deployment, not $100 billion already spent.

Venezuela’s oil infrastructure has deteriorated substantially following years of underinvestment, declining production and economic instability. Analysts have therefore cautioned that bringing large volumes of additional Venezuelan crude to market could take years.

What Happens to Venezuela’s Revenue?

Venezuelan officials have projected that the agreement could eventually generate more than $200 billion in taxes and royalties for the Venezuelan government.

That figure is a projection over the life of the development program, not revenue currently collected.

The Venezuelan government has described the agreement as a means of attracting private capital while retaining national sovereignty over its natural resources.

Chinese and Russian Interests

The agreement also changes the foreign participation structure of Venezuela’s oil industry.

Several of the fields covered by the new arrangement had previously been associated with Chinese or Russian operators. The transfer therefore places a number of strategically important Venezuelan oil assets within a framework increasingly aligned with U.S. capital, equipment, refining and government purchasing.

Congressional Questions Remain

The agreement is also likely to receive scrutiny from Congress.

As of September 1, Congress has not established a formal requirement to ratify the arrangement as a treaty, and the administration has described the agreement as being governed by U.S. law rather than presenting it as a conventional treaty requiring Senate ratification.

The Constitution’s treaty process is distinct from other forms of international agreements and requires the advice and consent of two-thirds of the Senate for treaties.

The precise role Congress will play in this transaction therefore remains an open question.

Lawmakers may examine the administration’s authority to give the Department of War an ownership interest in a foreign oil enterprise, the legal structure of the equity stake, the role of the Office of Strategic Capital and whether any legislation, appropriations, sanctions changes or other statutory authority is required to implement portions of the agreement.

For now, the more precise description is that congressional oversight and potential authorization remain unresolved issues, rather than stating that Congress must formally “ratify” the agreement.

What Is Known — and What Is Not

The agreement establishes several concrete elements:

• NABEP has received 100-year development rights covering 17 oil fields.

• Those fields contain approximately 65 billion barrels of proven reserves.

• The U.S. government will receive a 35% equity interest in NABEP’s corporate parent.

• The State Department will have the right to purchase 20% of production at cost.

• The State Department will have first-refusal rights over the remaining production.

• Washington will have significant corporate governance rights.

• NABEP has committed to investing up to $100 billion in Venezuelan oil infrastructure.

• The Monroe Doctrine has been reasserted as part of this agreement.

What remains uncertain is how quickly production will increase, how much capital will ultimately be deployed, how much oil will reach U.S. refineries, whether Congress will assert a formal authorization role and whether other international oil companies will expand their Venezuelan operations.

The agreement therefore represents a major change in the structure of U.S.-Venezuelan energy relations, but many of its largest economic consequences remain dependent on implementation, however, the prospects are historic if recognized.