The US and Venezuela: How Washington Is Taking a Bigger Role in Oil

The White House has revealed the full terms of its Venezuela oil agreement, giving the US government major ownership, purchasing and governance rights over fields containing more than 65 billion barrels of proven crude reserves.

The agreement centers on North American Blue Energy Partners (NABEP), which received 100-year concessions for 17 Venezuelan oil fields. The reserves involved represent roughly one-fifth of Venezuela’s estimated 303 billion barrels, the largest proven crude reserves in the world.

US Gets Oil, Ownership and Board Power

Under the agreement:

1. The 17 fields contain ~65 billion barrels of proven oil reserves
2. The US government receives a 35% equity stake in NABEP’s parent company at “zero cost to taxpayers”
3. The US receives the right to purchase 20% of all current and future production at production cost
4. The US also receives the right of first refusal to purchase the remaining 80% of production
5. The US government receives veto power over board appointments, while a majority of NABEP’s board must be US citizens
6. NABEP plans to invest up to $100 billion into Venezuelan oil infrastructure to rapidly increase production
7. Venezuela is expected to receive ~$200 billion in royalty and tax payments over the first 25 years

The White House says the arrangement could provide cheap oil for the Strategic Petroleum Reserve, military needs and other uses while reducing the influence of China and Russia in Venezuela’s energy sector.

Before the US blockade, roughly 80% of Venezuela’s crude exports went to China.

$100 Billion Investment Plan

NABEP plans to invest as much as $100 billion in new Venezuelan oil infrastructure, with the goal of significantly increasing production.

The company is also expected to pay Venezuela around $200 billion in royalties and taxes during the first 25 years of the agreement.

But one major question remains: where will the $100 billion come from?

Venezuela’s oil infrastructure needs substantial investment, meaning it could take years before production increases enough to materially affect global supply or US gasoline prices.

There is another complication. Venezuelan crude is very heavy and is not directly suitable for much of the US Strategic Petroleum Reserve, although officials are considering swaps that could allow Venezuelan crude to help refill it indirectly.

The Deal Is Already Controversial

NABEP is controlled by Venezuelan businessman Alejandro Betancourt, who has previously been investigated by authorities in the US and Europe over his business dealings, although he has not been charged.

Venezuela’s opposition has also criticized the agreement. Opposition leader María Corina Machado argues that the interim government does not have a democratic mandate to make such a long-term deal involving the country’s natural resources.

Investor takeaway: The agreement gives Washington extraordinary influence over a huge portion of Venezuela’s oil reserves, potentially creating another long-term source of crude for the US. But the market impact will depend on whether NABEP can actually raise the promised $100 billion, rebuild Venezuela’s infrastructure and increase production. For now, the deal is strategically significant, but lower US gasoline prices are unlikely to arrive quickly.

Source: White House, Bloomberg, Reuters, The Guardian, FP