US-Venezuela Oil Deal Unfolds Amid Legality and Feasibility Concerns
The US and Venezuela have negotiated a massive oil output deal that requires a complicated three-layer structure to develop at least part of the 64 billion barrels of proved reserves in 17 oilfields.
The first layer is the government-to-government pact, which aims to secure US access to the oilfields through a partnership with private business and grant most production will be shipped to the US for energy security. The agreement has not been fully released due to Venezuela's recent reform of its main oil law removing mandatory oversight by the National Assembly.
Venezuela's hydrocarbons law only authorizes two models: joint ventures and production-sharing contracts, with a new partnership between North American Blue Energy Partners (NABEP) and Venezuela's state-run oil company PDVSA potentially absorbing NABEP's existing projects to provide a base of exportable oil output.
The most complicated part of the deal is an equity transaction for the US to secure participation in NABEP's operations, with the Pentagon planning to take a 35% passive stake through 'penny warrants' that give equity ownership without requiring significant upfront capital. The US also negotiated rights to secure an additional 20% from the fields' total oil output.