Is the West’s 100-Year Venezuela Oil Bet About To Backfire?

Centuries ago, the untamed jungles of Venezuela’s Orinoco Basin helped power the myth of El Dorado, a city made entirely of gold. But for the new adventurers staking a claim in the country’s black gold instead, there is no myth involved, but rather the world’s largest crude oil reserves of 303 billion barrels. The latest two firms to sign agreements in this black gold rush are the U.S.’s Halliburton and France’s TotalEnergies, with each having played central roles in the West’s search to replace lost oil and gas supplies resulting from sanctions on Russia after it invaded on 24 February 2022. So, what is the West’s plan in Venezuela from now on and will it work? Oilfield service provider Halliburton has signed two memoranda of understanding (MOUs) with Brazil’s largest private natural gas operator, Eneva, and engineering firm WESCA (West-Construcciones, which is focused on developing heavy oil resources in the Orinoco and Maracaibo basins). The U.S. giant will deploy its digital technologies and subsurface interpretation tools to handle field evaluation and development planning. According to data from Baker Hughes, there were only two active onshore drilling rigs in Venezuela at the end of July, although since then SLB has stated that it has as many as 15 rigs already positioned in the country that could return to service within one year. In effect, then, Halliburton is positioning itself to capture the immediate wave of service and capital expenditure spending required to bring the Orinoco Belt’s drilling capacity back to life. Related: The World’s Gold Producers Are Starting to Hoard Their Own Gold Although no details were publicly available on the deal that Total signed with PDVSA, a senior source who works closely with the European Union’s (EU) energy security complex exclusively told OilPrice.com last week that among the oil fields included is Travi, a major light crude oil field located in the northern part of eastern Venezuela’s Monagas state. In contrast to the 75% or so of the country’s oil reserves that are classified as ‘heavy’, the northern Monagas fields -- including Travi, Orocual, and Jusepin -- contain predominantly light crude oil that is often used to dilute extra-heavy crude grades. The new deal marks a reversal of TotalEnergies previous stance on Venezuela, which saw it withdraw from the joint venture Petrocedeno in 2021. The recent agreement may well signal a broader shift by European majors back into the country on the basis that legal protections for them under the post-Nicolás Maduro government are tough enough to protect their interests over the long term. In this context, the Orinoco Belt-block operated by Petrocedeno is now part of the agreement signed between the U.S. Departments of State and Defense and North American Blue Energy Partners in late August. This agreement saw Washington take over more than a fifth of Venezuela’s oil reserves in a deal signed by U.S. Energy Secretary Chris Wright on 2 September, which was characterised by U.S. President Donald Trump as being “the biggest oil deal in world history”. That looks a reasonable statement, given that it covers 65 billion barrels of proven crude oil reserves across 17 fields -- nearly 1.5 times the size of the U.S.’s entire current territorial reserves of around 46 billion barrels. The 100-year length of the concession also dwarfs the typical 20-to-30-year span of modern oil concessions. Unsurprisingly, the private entity driving the deal -- North American Blue Energy Partners (NABEP) -- has become the second-largest private oil company by reserves in the world (after ExxonMobil), while the U.S. Department of War holds a 35% equity stake. The extraordinary move was, in turn, part of Trump’s second-presidency vision of the world, as delineated in the U.S.’s ‘2025 National Security Strategy’. It states: “After years of neglect, the United States will reassert and enforce the Monroe Doctrine to restore American pre-eminence in the Western Hemisphere, and to protect our homeland and our access to key geographies throughout the region.” It adds: “We will deny non-Hemispheric competitors the ability to position forces or other threatening capabilities, or to own or control strategically vital assets, in our Hemisphere. Venezuela is part of what Washington sees as its own primary hemisphere. These ideas dovetail with the 31 August White House Fact Sheet which, under the sub-heading ‘Reasserting The Monroe Doctrine & Expelling Foreign Adversaries From Our Hemisphere’, states: “The majority of the incremental oil fields to be operated by NABEP were previously controlled or operated by Russian and Chinese firms, or by corrupt cronies of Maduro and [Hugo] Chavez.” It continues: “These malign foreign actors looted Venezuela’s resources for the benefit of American adversaries like Cuba, Russia and China and failed to invest in Venezuela’s infrastructure or development.” The new deal with Venezuela, it adds, is precisely part of the re-establishment of the Monroe Doctrine, focused on “purging malign influence from our backyard and ensuring American dominance in our hemisphere is never again questioned”. With an eye, perhaps, on future energy security threats resulting from military actions by China, the Fact Sheet concludes: “By working with both new and old partners, President Trump’s Administration is forging new robust, strategic and defensible supply chains in our hemisphere to support the revitalization of our manufacturing and energy sectors after years of globalist decline.” That said, although international oil companies’ faith in the legal security surrounding their investments looks well placed, it is by no means guaranteed. The major problem from this perspective is that Venezuela’s constitution requires National Assembly approval for any long-term concessions over strategic national resources -- 100 years and oil absolutely fit the bill here. Worse still in this respect is that the deal was negotiated by an interim government whose constitutional legitimacy is already contested. Consequently, any future government could argue that as the interim administration lacked authority, the entire agreement should be declared ultra vires (beyond legal powers) and void. In fact, this could be done even without any change in government, as Venezuela’s Supreme Tribunal of Justice possesses the constitutional mechanisms to challenge, freeze, or entirely invalidate the NABEP concession. Such a challenge could be mounted solely based on the transfer of control over Venezuelan oil reserves to a foreign power, which is also strictly prohibited under the country’s constitution. Nonetheless, given evidence that the full weight of Trump’s presidency is behind the deal, plans are afoot from other powerhouse oil firms to re-establish a strong presence. U.S. oil and gas giant Chevron’s chief financial officer, Eimear Bonner, during a recent earnings call highlighted that the supermajor has increased its oil production in Venezuela from 40,000 barrels per day (bpd) to 250,000 bpd over the past few years. Based only on its three current joint ventures in the country, output has risen over just the past six months by 12% year on year to 280,000 bpd. This followed the mid-April announcement of an asset-swap agreement with PDVSA, under which Chevron received an additional 13.21% interest in the Petroindependencia joint venture, increasing its total stake to 49%. The U.S. firm’s other two joint ventures include Petropiar (in which a Chevron subsidiary holds a 30% interest and has the rights to develop the adjacent Ayacucho 8 area in the Orinoco Oil Belt), and Petroindependiente (in which it has a 25.2% non-operated interest in the west of the country). Looking ahead, Bonner added that Chevron expects its production across Venezuela to rise by 50% between now and the end of 2028, which would bring the total up to 420,000 bpd. Natural gas expansion projects are also being worked on in parallel with those in oil, with Repsol and Italy’s Eni having finalised a joint strategic arrangement with the Ministry of Hydrocarbons for a major gas project at the jointly owned Cardón IV asset in the offshore Perla field, which already supplies around 30% of Venezuela’s gas demand. Moreover, following a preliminary MoU signed in April, UK oil and gas supermajor BP officially set up a permanent office in Caracas, appointed a dedicated country manager, and secured an official license to explore and develop Phase 2 of the offshore Loran gas field. The British firm will act as the primary operator of the venture, holding equal interest alongside Abu Dhabi National Oil Company’s international arm and Qatar-based UCC Holding. The Loran Phase 2 block alone contains an estimated 4 trillion cubic feet (Tcf) of recoverable natural gas, but it extends across the border into the Trinidadian Manatee/Manakin fields, which are estimated to contain up to 10 Tcf of gas. According to BP, it will pipe the extracted gas directly to Trinidad, rather than building new facilities in Venezuela, whereupon it will be liquefied at the Atlantic LNG export terminal (in which BP owns a 45% stake) and shipped to global markets from there. BP has also recently finalised a separate preliminary agreement for the Carúpano East Block, located in the Mariscal Sucre maritime area off Venezuela’s northeastern coast. By Simon Watkins for Oilprice.com More Top Reads From Oilprice.com