HomeWorldChevron Gets U.S. License to Pump Oil in Venezuela Again

Chevron Gets U.S. License to Pump Oil in Venezuela Again

WASHINGTON — The US said it would allow

Chevron Corp.

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to resume pumping oil of its Venezuelan oil fields after the administration of President Nicolás Maduro and a opposition coalition agreed to implement an estimated $3 billion humanitarian aid program and continue dialogue in Mexico City on efforts to hold free and fair elections.

After the Norway-brokered agreement signed in Mexico City, the Biden administration granted a permit to Chevron allowing the California-based oil company to return its oil fields in joint ventures with Venezuela’s national oil company, Petroleos de Venezuela SA. The new license, granted by the Treasury Department, allows Chevron to pump Venezuelan oil for the first time in years.

Biden administration officials said the license prohibits PdVSA from receiving profits from Chevron’s oil sales. The officials said the US is ready to revoke or change the permit, which is valid for six months, at any time if Venezuela fails to negotiate in good faith.

Venezuela produces some 700,000 barrels of oil per day, compared to more than 3 million in the 1990s.


Photo:

Isaac Urrutia/Reuters

“If Maduro tries to use these negotiations again to buy time to further consolidate his criminal dictatorship, the United States and our international partners must reverse the full force of our sanctions,” said Sen. Robert Menendez (D., NJ), the chairman of the Senate Foreign Relations Committee.

The US policy change could be an opening for other oil companies to resume operations in Venezuela, two years after the Trump administration clamped down on Chevron and other companies’ activities there as part of a maximum pressure campaign designed to the government headed by Mr. Maduro. The Treasury Department’s action did not say how non-US oil companies could reconnect with Venezuela.

Venezuela produces some 700,000 barrels of oil per day, compared to more than 3 million barrels per day in the 1990s. Some analysts said Venezuela could hit 1 million barrels a day in the medium term, a modest increase that reflects the dilapidated state of the country’s state-run oil industry.

Some Republican lawmakers criticized the Biden administration’s decision to clear the way for Chevron to pump more oil into Venezuela. “The Biden administration should allow U.S. energy producers to unleash DOMESTIC production instead of begging dictators for oil,” wrote Rep. Claudia Tenney (R., NY) on Twitter.

Biden administration officials said the decision to issue the license was not in response to oil prices, which have been a major concern for President Biden and his top advisers in recent months as they try to tackle inflation. “This is about the regime taking the steps necessary to support the restoration of democracy in Venezuela,” said one of the officials.

The Wall Street Journal reported in October that the Biden administration was preparing phasing out sanctions about the Venezuelan regime to allow Chevron to pump oil there again.

Jorge Rodriguez led the Venezuelan government delegation to the Mexico City talks.


Photo:

Henry Romero/Reuters

Under the new license, profits from oil sales will be used to pay back hundreds of millions of dollars in debt PdVSA owes Chevron, government officials said. The US will require Chevron to report details of its financial operations to ensure transparency, they said.

Chevron spokesman Ray Fohr said the new license allows the company to market the oil currently produced in the joint venture assets. He said the company will conduct its business in accordance with the current framework.

The license prohibits Chevron from paying taxes and royalties to the Venezuelan government, surprising some experts. They had expected direct revenues to encourage PdVSA to divert oil shipments from obscure export channels, usually to heavily discounted Chinese buyers, which Venezuela has relied on for years to evade sanctions.

“If this is the case, Maduro has no significant incentive to let that many shipments of Chevron go out the door,” said Francisco Monaldi, director of the Latin America Energy Program at Rice University’s Baker Institute for Public Policy. Sending oil to China, even at a hefty discount, would be better for Caracas than just paying debt to Chevron, he said.

The limited scope of the Chevron license is seen as a way to ensure Mr Maduro stays on track in the negotiations. “Rather than fully opening the door for Venezuelan oil to flow immediately to the US market, the license proposes a normalization trajectory likely to depend on concessions from the Maduro regime on the political and human rights front,” said Luisa Palacios, senior researcher at the Columbia University Center on Global Energy Policy.

The license puts Venezuelan oil back in the US, historically its largest market, but only if the oil from the PdVSA-Chevron joint ventures is first sold to Chevron and the companies are not allowed to export to any jurisdiction other than the United States. ”, which appears to limit PdVSA’s own share of sales to the US market, Mr. Monaldi said.

The license prohibits transactions involving goods and services from Iran, a US-sanctioned oil producer that has helped Venezuela overcome the sanctions in recent years. It blocks transactions with Venezuelan entities owned or controlled by Western-sanctioned Russiawhich has played a role in Venezuela’s oil industry.

Jorge Rodriguez, the head of Venezuela’s Congress and also the government delegation to the Mexico City talks, declined to comment on the issuance of the Chevron license.

Freddy Guevara, a member of the opposition coalition delegation, said the estimated $3 billion in frozen funds earmarked for humanitarian aid and infrastructure projects in Venezuela will be administered by the United Nations. He warned that it would take time to fully implement the program. “It starts now, but the time period is up to three years,” he said.

Venezuelan state funds frozen in overseas banks by sanctions are expected to be used to alleviate the country’s health, food and electricity crises, in part by building infrastructure for electricity and water treatment needs. “Not a single dollar will go to the regime’s vaults,” Guevara said.

Chevron plans to recover lost production while performing maintenance and other essential work, but it will not undertake major work requiring new investment in the country’s oil fields until its $4.2 billion debt is repaid. That could take anywhere from two to three years, depending on oil market conditions, people familiar with the matter said.

PdVSA owes Chevron and other joint venture partners their share of more than two years of oil sales revenue after 2020 US sanctions prevented the Venezuelan company from paying its partners, one of the people said. The license would allow Chevron to collect its share of dividends from its joint ventures such as Petropiar, in which Chevron is a 30% partner.

Analysts said the new deal raises expectations that will take time and work to fulfill. “Ensuring the success of talks will not be easy, but it is clear that offering gradual relief from sanctions such as these to encourage agreements is the only way forward. It’s a champagne-popping moment for the negotiators, but there’s still a lot of work to be done,” said Geoff Ramsey, director of the Washington Office for Latin America in Venezuela.

Write to Collin Eaton at collin.eaton@wsj.com and Andrew Restuccia at andrew.restuccia@wsj.com

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