Trump’s oil deal with Venezuela raises red flags for some major producers, sources say

An unprecedented deal for the U.S. to gain access to a fifth of Venezuela’s oil reserves – and the central role a Venezuelan businessman will play – is prompting questions and hesitation from some oil companies evaluating potential investments in the country, sources familiar with the situation told Reuters. A White House fact sheet released late on Monday outlined an arrangement under which private oil firm North American Blue Energy Partners (NABEP) would receive a 100-year lease for 17 oilfields in Venezuela holding some 65 billion barrels of oil reserves. The U.S. will take a 35% equity stake in the corporate parent company, receive a guaranteed 20% of the oil production and hold a right-of-first-refusal to purchase all of the remaining output. NABEP is controlled by Venezuelan businessman Alejandro Betancourt, who has been the subject of investigations by U.S. and European authorities following past dealings with the Venezuelan government, although he was never charged. He has previously denied allegations against him. “Oil majors and large foreign companies negotiating contract migrations want to make sure they will not be seated at the same table with Betancourt,” said a person involved in preparations for an event where energy contracts are expected to be signed this week. NABEP, which produces around 170,000 barrels of oil a day, did not immediately respond to a request for comment for this story. In an emailed company statement after the White House released details of the agreement, Betancourt said that the transaction would “unleash that potential to the great benefit of both Venezuelans and Americans.” “Mr. Betancourt has been in the Venezuelan oil industry for more than 15 years with a consistent track record of success, most recently at the helm of NABEP, where he rapidly scaled the company’s production,” the company said in the statement, adding it has a near-term goal of increasing production to more than 1 million barrels of oil per day. Others may be more cautious, illustrating the uphill battle President Donald Trump faces to convince major U.S. oil companies, particularly ExxonMobil XOM.N and ConocoPhillips COP.N, to invest in Venezuela and quickly expand the country’s oil production. Both companies left Venezuela in 2007 after their assets were nationalized by the government of former President Hugo Chavez, and both have repeatedly said that their requirements of legal certainty and contract sanctity have not yet been met to reenter the country. Trump told reporters on Monday that Exxon was among the companies going into Venezuela, without elaborating. ExxonMobil declined to comment when asked about Trump’s statement. A ConocoPhillips spokesperson referred to an earlier statement that said any investment decision would be guided by a number of factors, including policy stability and adherence to the rule of law. U.S. GOVERNMENT COULD BECOME COMPETITOR The planned structure and the massive assets NABEP could accumulate in the OPEC country are raising concerns that American oil companies could face competition from the U.S. government itself in Venezuela, the sources added. That could add more obstacles to Trump’s goal of increasing Venezuela’s oil output and exports to boost U.S. reserves, said Alejo Czerwonko, chief investment officer of emerging markets for UBS. “You would need sizable investment and know-how from the likes of Exxon and ConocoPhillips,” he said. “How do you lure these companies into the country?” “There’s still a lot of unknowns and confusing elements,” said Radhika Bansal, a senior vice president at Rystad Energy, in an interview earlier on Monday before the White House published details about the agreement. There are, however, some deals getting done. Chevron – the largest U.S. oil producer in Venezuela and which never left the country – along with Italy’s Eni ENI.MI, India’s ONGC, Colombia’s GeoPark GPRK.N and U.S. GE Vernova GEV.N are on track to sign agreements for energy projects in Venezuela this week, Reuters reported on Monday. Those deals, and others, including licenses recently granted to Shell SHEL.L and BP BP.L for major offshore gas projects, are separate from the U.S. endeavor with NABEP. Most of those companies and dozens more have been in negotiations since the beginning of the year to migrate their existing contracts in Venezuela to new terms authorized in a sweeping energy reform, which also encourages project expansions. Chevron is trying to add at least one new block in the vast Orinoco Belt to its portfolio and also aims to negotiate an area in Monagas North that could become a source of diluents for its extra-heavy oil output.