Venezuela Partners With Smaller Oil Firms as Chevron Scales Back

Venezuela’s state-run oil company has signed at least nine new deals with foreign service providers, including two Chinese firms, in an effort to keep dollars flowing into the economy after US sanctions forced Chevron Corp. to end production, according to people familiar with the agreements.

The contracts call for the companies to operate wells that already have been drilled and grant the exclusive right to sell the output, a departure from long-standing practice in the country where state-controlled Petroleos de Venezuela SA has always maintained exclusive trading rights, the people said, asking not to be identified discussing private contracts. At least one of the companies has decided not to go forward because it couldn’t get a US license to operate there, according to one of the people.

The accords illuminate President Nicolas Maduro’s strategy for shoring up the economy and filling the void left by Chevron and other Western majors after President Donald Trump’s administration refused to extend licenses that allowed them to operate in the country despite sanctions. Chevron accounted for almost a quarter of Venezuela’s oil production, the country’s most important industry and biggest source of foreign currency. 

Chevron’s license allowing it to produce and export crude to the US ended in early April and the company was allowed until May 27 to wrap up work. Permits for US service providers Halliburton Co., Schlumberger NV, Baker Hughes Co. and Weatherford International Plc expired in early May.

“PDVSA has a plan to keep producing oil despite the US’s unilateral coercive measures,” Vice President and Oil Minister Delcy Rodriguez said May 29. PDVSA and Venezuela’s oil ministry didn’t reply to a request for comment.

The new agreements call for each of the foreign companies to get control over at least one block of land in either Zulia state or the Orinoco Belt area, the two richest oil producing regions, according to the people. PDVSA will have a stake of at least 50% in whatever crude is produced — the exact percentage varies by block — and the partner company will handle all operations and its share of the oil sales. The foreign companies will be exempt from some taxes. PDVSA will pay for its share of investments with crude.

The companies include Aldyl Argentina SA and the Chinese firms Anhui Guangda Mining Investing Co. and China Concord Resources, according to a PDVSA internal document seen by Bloomberg. A US company — North American Blue Energy Partners, a unit of energy magnate Harry Sargeant III’s Global Oil Management Group — signed a deal but has since indicated it won’t go forward because it couldn’t get a license to operate in Venezuela, one person said.

Representatives for Aldyl, Anhui, China Concord and North American Blue Partners didn’t respond to requests for comment.

Venezuela touted the contracts as opportunities for risk-tolerant service firms to fill the void left by the oil majors that have been forced to exit, some of the people said. Generally, the companies can try to get around US sanctions by using cryptocurrency accounts and other forms of payment that are beyond the controls of US regulators.

“The only way Venezuela can maintain and increase its production is by relying on private local and international companies that don’t care about US sanctions,” lawmaker William Rodríguez, a member of the energy committee at the National Assembly, said in an interview. “Unlike 2019, when sanctions first hit, there’s a framework in place to operate outside the US banking system and a structured market with ally countries, including China, Iran and Russia.”

Unlike previous joint-venture contracts, the new deals don’t need National Assembly approval as they are signed under Maduro’s anti-blockade law, which critics say is unconstitutional and circumvents the hydrocarbons law that limits foreign involvement in Venezuela’s oil industry. 

Venezuela produces about 1 million barrels of oil a day, and output could fall by half after Trump’s policies take full effect, according to Oxford Economics. 

Other forecasts are less pessimistic, though. Francisco Monaldi, the director of the Latin American energy policy at Rice University’s Baker Institute for Public Policy in Houston, said output may fall just 11% by the end of this year.

While Chevron will no longer be permitted to produce oil in Venezuela, it does have a waiver to conduct equipment maintenance in the South American nation.

PDVSA is forecasting the nine blocks that will be operated under these new 20-year contracts will produce a combined 600,000 barrels a day with $20 billion in capital expenditures, according to the document seen by Bloomberg. PDVSA plans to sign more of these contracts over the next months, partly undoing the late President Hugo Chavez’s oil nationalization wave in the mid-2000s.

“PDVSA has tried this before with little success in the past, although these new terms are far more attractive than previous ones,” Monaldi said. The key, he said, is that PDVSA must offer consistent supplies of crude oil to “these companies willing to risk the consequences of trading in the black market.”

To contact the editors responsible for this story:

Crayton Harrison at tharrison5@bloomberg.net

Brendan Walsh, Simar Khanna

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