(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)
By Robert Cyran
NEW YORK, Aug 31 (Reuters Breakingviews) – One of the biggest oil deals ever is not especially artful. President Donald Trump said on Sunday that the United States would take control of 65 billion barrels of Venezuelan reserves. Details are sparse, but there’s enough to significantly discount its political, legal and economic viability. Absent some crafty fine print that persuades industry titans to invest $100 billion, there’s probably very little to the bold pronouncement.
Venezuela has around 1 trillion barrels to extract. It’s mostly in the Orinoco Oil Belt, however, undeveloped. The heavy, tar-like crude is also expensive to produce, and full of impurities. Current production amounts to just over 1 million barrels per day, meaning many fields would be new with a break-even price of $80 a barrel on key greenfield sites, according to energy consultancy Wood Mackenzie. It’s hardly an attractive trade at today’s inflated prices.
Large amounts of capital will be required to drill in the jungle, build pipelines, source light hydrocarbons to make the oil less viscous, and secure ships for transport. U.S. refiners on the Gulf of Mexico are already operating at about 95% of capacity. And despite what Trump suggests on social media, Venezuela’s crude cannot top up the U.S. strategic petroleum reserve, at its lowest level since 1982, because the facilities as of today are unable to store such heavy oil.
In addition to capital and technical skill, greater certainty over many years will be necessary. It’s far from assured, as Venezuela has nationalized oil assets before. As part of the deal, Washington plans to take a 35% stake in a company run by Venezuelan businessman Alejandro Betancourt and to secure rights for 20% of its production at cost, according to the Wall Street Journal. This investment would be structured by the Pentagon using penny warrants, dubious currency that will be controversial in both countries. Plus, Trump wraps up his term in two years and Venezuela’s unelected president holds power on an interim basis.
Given all these questions and challenges, it’s hard to see why Western oil companies would be interested. Chevron has stayed in Venezuela, and should produce about 280,000 barrels per day this year. It is also already poised to unveil a new and completely unrelated agreement to increase output substantially.
Others, including ExxonMobil, have been cooler on the country. In January, boss Darren Woods called it “uninvestable.” Oil is easier and cheaper to pump in other places. A vague, flimsy and imperialistic arrangement for expensive, hard-to-reach, low-quality crude isn’t much to crow about.
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CONTEXT NEWS
U.S. President Donald Trump on August 28 unveiled a deal on social media that puts 65 billion barrels of recoverable oil in Venezuela under majority control of the United States.
Venezuela’s interim President Delcy Rodriguez confirmed the arrangement, saying it calls for the development of 17 fields, investment of more than $100 billion, and some $200 billion in tax revenue for her country.
The U.S. government plans to take a 35% stake in North American Blue Energy Partners, a company run by Venezuelan businessman Alejandro Betancourt, and secure preferential rights to buy 20% of its production at cost, the Wall Street Journal reported on August 29. The Pentagon’s Office of Strategic Capital intends to structure the investment through penny warrants, it added.
Trump also said on Truth Social that he would use Venezuela’s oil to refill the U.S. Strategic Petroleum Reserve, a process that would begin shortly.
(Editing by Jeffrey Goldfarb; Production by Maya Nandhini)