Trump plan risks derailing Venezuela oil recovery: Bousso

A two-tiered system could emerge if NABEP and the U.S. government are granted privileged commercial terms. Companies competing with NABEP, including Chevron CVX.N, currently the largest U.S. producer operating in the country, would be placed at a structural disadvantage because they would have to buy and sell crude at prevailing market prices while a favoured competitor would enjoy privileged market access. Investors may question whether future projects will compete on economic merit or political connections, and whether the rules of the game may change along with the leadership in Washington and Caracas. That is precisely the kind of market distortion that oil companies considering multi-billion-dollar investments tend to avoid. Chevron and several other international energy companies are this week expected to sign agreements to develop new projects in Venezuela. Those investments are based on the country's current hydrocarbon framework, which was revised to attract foreign capital after Maduro’s ouster. But this new source of uncertainty could significantly dampen investment appetite at precisely the moment Venezuela is attempting to reestablish itself as a major oil producer. President Donald Trump's plan to secure direct U.S. access to a large share of Venezuela's vast oil reserves could end up derailing the country's long-awaited petroleum revival by stifling competition, distorting markets and deterring the foreign investment needed to rebuild the South American nation’s battered energy industry. The plan unveiled on Monday would see Washington acquire a 35% equity stake in private oil firm North American Blue Energy Partners (NABEP), which is controlled by Venezuelan businessman Alejandro Betancourt. The company would receive a 100-year lease on 17 Venezuelan oilfields holding an estimated 65 billion barrels of reserves. In exchange, the U.S. would receive a guaranteed 20% share of production at cost and retain a right of first refusal to purchase all remaining output. The arrangement would make NABEP the world's second-largest private oil company by reserves, behind only Saudi Arabia's national oil giant. NABEP, which currently produces around 170,000 barrels per day, says it aims to raise output to more than 1 million bpd in the near term. The Trump administration argues that the arrangement is a key part of its “three-part plan of stabilization, reconstruction and democratic transition” for Venezuela after its removal of former President Nicolas Maduro in January. The White House adds that the deal will help the U.S. create “new robust, strategic and defensible supply chains” in the Western Hemisphere, allowing Washington to refill its depleted strategic petroleum reserves, lower fuel costs and promote the “revitalization” of U.S. manufacturing. The proposal has already drawn fierce criticism from Venezuela's opposition and Democrats in the U.S., with some calling it akin to modern-day colonialism and others arguing that it bears the hallmarks of election-year policymaking as Trump faces growing pressure over cost-of-living concerns ahead of the crucial midterm elections in November. What’s clear is that his proposal carries significant political, legal and commercial risks, not least the threat of hampering the recovery it’s seeking to encourage. Regenerating Venezuela’s oil industry will be no easy feat. The country's oil production collapsed following years of underinvestment, operational mismanagement and corruption after the sector's nationalisation in 2007, a downturn compounded by U.S. sanctions. Output has fallen from roughly 3.5 million bpd in the 1990s to about 1 million bpd today. Production is initially likely to recover to around 1.5 million bpd within the next two years, according to ROI estimates, as investment gathers pace and existing fields are revived. That would constitute just over 1% of global supplies today. Moreover, Venezuelan output is forecast to reach 2.3 million bpd by 2035 and exceed 3 million bpd by 2050, according to consultancy Rystad Energy, with most of the growth coming from the resource-rich Orinoco Belt. Yet expanding production is only part of the challenge. Decades of neglect have left the country short of the processing facilities, pipelines, storage terminals, export capacity and power infrastructure required to support a large-scale output recovery. Many facilities today lie in complete disrepair, requiring reconstruction from scratch or costly refurbishments. Rebuilding those assets will require tens of billions of dollars and, crucially, the participation of multiple international companies willing to commit capital over several decades. Introducing a new layer of political uncertainty into Venezuela — a country that has nationalized foreign oil assets twice in recent decades — could make securing the necessary financing more difficult or expensive. A plan designed to accelerate the recovery of one of the world's largest oil endowments could thus slow it down instead.

Trump plan risks derailing Venezuela oil recovery: Bousso

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