US Approves Chevron's Return to Venezuela

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Venezuela's Grim Realities

The US paved the way over the weekend for Chevron to restart oil production in Venezuela following the resumption of negotiations between Venezuelan President Nicolas Maduro and the opposition Unity Platform over the future of elections in the country.

The US slapped sanctions on Venezuela in 2019 after Maduro took office following an election many countries and observers said was not free and fair. Those sanctions barred most activity by US firms in the country and banned the import of Venezuelan oil into the US. Washington has not recognized Maduro as the country’s president, instead throwing its weight behind opposition figure Juan Guaido, whose own political fate has seemed uncertain of late.

Chevron did not comment on its likely ramp-up of activity.

Under the new license from the US Treasury Department, Chevron’s joint ventures with state-owned Petroleos de Venezuela (PDVSA) can produce oil, and Chevron can lift that oil as repayment for investments the company has made in developing assets in Venezuela.

The license stipulates that the oil can only be exported to the US — an action prohibited since the Trump administration first implemented sanctions in 2019. A spokesperson for the National Security Council explained to Energy Intelligence that this exclusivity provision is so that Washington can track the flows.

Washington in July gave approval for Italy’s Eni and Spain’s Repsol to undertake similar crude-for-debt swaps, although those do not appear to have the same US destination requirement.

In the three years before sanctions were implemented, US imports from Venezuela ranged between 600,000-800,000 barrels per day.

The new license, which lasts for six months, “means Chevron can now commercialize the oil that is currently being produced from the company’s joint-venture assets,” company spokesperson Ray Fohr said in a statement. It is common for the US Treasury Department to renew time-limited licenses.

Limited Upside

Notably, the license does not allow new drilling to take place on the joint venture assets, which include the Petropiar and Petroboscan producing developments.

Production upside, at least in the near-term, is therefore expected to be limited to incremental improvements in operations and maintenance as Chevron redeploys assets and personnel on the ground as it steps in as operator.

“This authorization will shift oil sales from the black market and nontransparent channels to transparent, legitimate channels, severing the use of corrupt shadow firms that control the flow of Venezuelan oil to countries like China,” a US official said. “Before this license, PDVSA was able to sell 100% of this oil on the black market.”

Production figures have long been hard to come by for the pair of assets. PDVSA has gone quiet, while Chevron’s latest updates date back to 2020. The US major reported then that its net full-year 2019 output averaged 35,000 b/d. Its interests tally 30% for Petropiar and 39.2% for Petroboscan.

Argus reported in September that Petroboscan output had been shut down since June due to full storage capacity.

Chevron has been in talks with Venezuela since Washington in May gave the firm approval to discuss its future operations in the country.

Washington has said for years that sanctions relief could be provided “in order to encourage” a negotiated political solution, as a senior Biden administration official said Saturday. “The United States will take these actions, meaning the alleviation of any sanction, in very close coordination with the Unity Platform in the context of the Mexico City talks.”

Additional sanctions relief — which could allow Caracas to receive revenue from PDVSA’s joint ventures with Chevron — will depend on additional concrete political steps, the US official said. Those steps include an agreement on an electoral calendar, reinstatement of candidates, update of the electoral registry and allowing international electoral observers to return.

Sanctions, Oil Supply, Opec-Plus Supply , Majors, NOCs
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