Analysts doubt Trump’s 65bn-barrel Venezuela oil deal will draw investors

Summary:

The latest:

Washington plans to take a 35 per cent stake in North American Blue Energy Partners, a private company holding rights to 65bn barrels of Venezuelan crude, under an agreement Donald Trump announced on social media on Friday with few details. The US president said the plan would boost American reserves, revive Venezuela’s energy sector and lower petrol prices. Analysts told the Financial Times the impact on fuel costs would take years.

Details:

• The structure: NABEP is led by Alejandro Betancourt, a Venezuelan businessman who owns the country’s second-largest private oil business. The deal gives Washington the right to buy, at production cost, a guaranteed 20 per cent of offtake from all current and future fields the company operates, according to the Financial Times.
• The offtake terms: Washington would also hold right of first refusal on the remaining 80 per cent of production, intended to guarantee supply in emergencies. A White House factsheet said NABEP plans to award licences or form joint ventures with energy groups to develop 17 Venezuelan oilfields under 100-year concessions.
• The Russian and Chinese angle: The White House said the majority of the incremental oilfields to be operated by NABEP had previously been controlled or operated by Russian and Chinese groups. The factsheet did not name the companies involved or set out a timetable for awarding the licences.
• Industry silence: The plan stunned the US oil industry, which was not briefed before Trump’s announcement, the FT reported. ExxonMobil, ConocoPhillips and Chevron all declined to comment. The agreement is meant to overcome reluctance to commit capital to a country that has expropriated billions of dollars of US assets.
• The cost estimate: Schreiner Parker, partner at Rystad Energy, put the investment requirement at potentially close to $100bn over time, citing the need for gathering systems, pipelines, power, upgrading capacity, diluent, logistics and rehabilitation of degraded infrastructure. He estimated 10 years to develop the 17 fields.
• The production picture: Parker said the fields could add about 1.5mn barrels per day. Venezuela currently produces roughly 1.12mn b/d, down from 3.5mn in its 1970s peak and less than a tenth of US output at 13.8mn b/d. Most of its reserves are heavy, tar-like crude requiring specialist equipment.
• The political risk: Bob McNally of Rapidan Energy Group said Washington’s goal is to de-risk long-term private investment, but political risks in both capitals will limit the plan. Assuming it passes legal muster, he expects it to be reconsidered or terminated by a new US president in 2029.
• Democratic opposition: Senior Democrats called the deal corruption on an epic scale and signalled scrutiny if they win November’s midterms. Maryland senator Chris Van Hollen said Trump put US service members at risk to obtain Venezuelan oil for his billionaire allies.
• Legal and reputational doubts: Some experts told the FT the agreement runs contrary to Venezuela’s constitution, and warned Betancourt’s involvement could deter investors after money laundering investigations in Switzerland. Harvard economist Ricardo Hausmann questioned how a central role for Betancourt or the Pentagon serves Venezuela’s national interest.
• Street reaction: Leftwing groups demonstrated in Caracas on Saturday against what they called US guardianship of Venezuela, and opposition figures also criticised the deal. Elias Ferrer of Orinoco Research said the framing of the announcement would build resentment against interim president Delcy Rodríguez, Trump and the US.
• A separate deal: Chevron is expected to announce an expansion of its Venezuelan operations this week, struck outside the Trump agreement. The FT reported that existing foreign investors are open to expanding if Caracas improves its tax and royalty terms, but new entrants remain hard to attract.

Background:

The US military carried out an operation in January to capture former leader Nicolás Maduro. Delcy Rodríguez now serves as interim president and is described as a critical partner of the Trump administration. Venezuela has expropriated billions of dollars of US assets in recent decades.

Between the lines:

The deal’s core weakness is duration. Investors are being asked to commit to 100-year concessions and roughly $100bn in infrastructure, while McNally expects a 2029 US president to revisit it and notes a future Venezuelan government could tear it up, as has happened twice before. Ferrer’s warning about accumulating resentment applies to the same partner Washington depends on to keep the framework alive.

What’s next

Chevron’s expansion announcement is expected this week. November’s US midterm elections would determine whether Democrats gain the position to scrutinise the agreement, and full legal details of the deal have yet to be released.