Venezuela Oil Deal: Good, Bad, and Crazy

A lot of ink has been spilled over the MOST HISTORIC OIL DEAL IN THE HISTORY OF THE WORLD that Trump announced last week. But much of the hysteria is misplaced because few people know what was actually agreed and who the players really are.

First, consider the structure of the deal. Venezuela is transferring 17 oil concessions to North American Blue Energy Partners (NABEP), which has a total of 65 billion barrels of proved reserves (about 20% of Venezuela's total proved reserves). NABEP will invest $100B in refurbishing the fields and oil infrastructure.

The US government gets a 35% interest in NABEP through the DoW's Office of Strategic Capital. The US is given its stake and doesn't have to purchase it. I'm not clear whether it will have to pay its share of future capital calls, which would be significant. The Dept. of State will be able to purchase 20% of NABEP's output at the cost of production and has the right to purchase the remaining 80% at market prices. Given that it is expensive to produce Venezuela's heavy, tarry crude with its high sulfur content, the right to purchase 20% at production cost is not as valuable as getting the same deal for light, sweet Saudi crude. But it is still a significant benefit.

NABEP is headquartered in Barbados, and all its other offices are in Venezuela. Many claim it is an American company, but I can't find any evidence of this. It will have to meet US audit standards under the terms of the deal, and a majority of its directors must be American. But this is much less important than it seems because it is easy for a corrupt company to meet US audit standards, and it's easy to find compliant American directors.

The power behind NABEP is Alejandro Betancourt, who made his fortune in the early years under Chavez in petroleum and power plants. He has been investigated for corruption and money-laundering in the US, Switzerland, and Spain, but he has not yet been indicted. He is accused of stealing massive amounts under Chavez from government contracts to build power plants. He has invested his fortune outside Venezuela, in the US and Europe primarily—hence the money laundering accusations.

Betancourt was instrumental in the overthrow of Maduro and VP Delcy Rodriguez taking the reins of government.

NABEP is currently the third largest oil company in Venezuela, behind the state-owned Petróleos de Venezuela, S.A. and Chevron. Because Venezuela's oil fields and infrastructure are so run-down, it will take massive investment to make its 17 new fields profitable. Thus, the requirement is to invest $100B. But NABEP has little technical or managerial expertise, so it will have to bring in many American contractors to refurbish the fields. The organization will also have to raise massive sums of capital, and who will want to invest billions in a company inescapably corrupted by operating in the politically risky Venezuelan environment? The only accomplishment shown on the NABEP website is refurbishing the GP-28 drill barge. This is a far cry from working over neglected wells, rebuilding pipelines and processing facilities, and managing giant projects. It looks like the dog that caught the car.

Before now, several of the 17 fields were operated by Chinese and Russian companies, so it is good that they are being kicked out.

On August 8, NABEP kicked out one of its large minority shareholders, Harry Sargeant III. Sargeant was under US sanctions (from the Trump I administration) for working with Maduro, so this was a cleanup item. Sargeant's share was 30%, so the US government is basically getting this share.

The crazy part of this deal is that it is drawing the US deeper into Venezuela's corrupt oil politics. Defense and State now have a stake in the fortunes of Delcy Rodriguez and Betancourt. This reminds me of the banana politics of the Central American countries that pulled American politicians and Marines into corrupt governments. NABEP's 100-year concessions are stirring significant resentment in Venezuela, and PDVSA has a lot of power—they will be working to undermine the deal.

All players must be concerned about the longevity of the deal. Will it survive the end of the Trump II administration? Will it survive the end of Delcy Rodriguez's rule? Do Trump or any of his family members have a personal stake in NABEP? Will NABEP be able to attract even a large part of the required $100B investment? Will it attract competent technical and managerial talent to manage its massive new projects? I'm guessing that by 2030 the deal will either be canceled or significantly restructured, but there will be a lot of corruption and messiness before then.

It is terrible for the US government to take a stake in foreign oil fields. It will divert DoW and State attention from their main jobs, respectively, of killing people and breaking things and defending American diplomatic interests. And it will embroil us in corrupt, nasty local politics of the type that created so much anti-American resentment in Central America.