A massive long-term oil deal expected to grant the US access to a fifth of Venezuela's crude reserves has energy experts and lawyers questioning its legality and eventual execution, while calling on both governments for contract transparency.
The unprecedented pact, announced by US President Donald Trump on Friday and confirmed by Venezuela's interim President Delcy Rodriguez, will put a whopping 65bn barrels of recoverable oil under Washington's control, a volume that surpasses total US proved oil reserves of 46bn barrels.
The agreement did not pass through a competitive process, and its negotiation remained a secret until last week, even amid a sweeping reform of Venezuela's primary hydrocarbons law and the migration of dozens of joint ventures and contracts to new terms, which authorities and operators have not completed.
While Trump said in a social media post last week that the deal would involve "a partnership with private business," the US has not disclosed which companies are lining up to operate the oilfields on its behalf.
North American Blue Energy Partners (NABEP), a company led by controversial Venezuelan investor Alejandro Betancourt that has been acting as a bridge between Caracas and Washington, told the New York Times that it is looking forward to working with the US amid media reports that the company is set to be involved in the deal."If the goal was to try to reduce the risk of investing in Venezuela, the US might be doing the exact opposite with this transaction: further weakening the country's already fragile institutional framework," said Luisa Palacios, adjunct senior research scholar at Columbia University's Center on Global Energy Policy.
According to Venezuelan interim President Rodriguez, the pact will last at least 25 years, in line with the Opec country's Hydrocarbons Law, securing $100bn in investment and $209.3bn in royalties and taxes, which would leave some $19in Venezuela's hands from each barrel produced.
Experts have expressed doubts over the deal's legality, especially since the US, not Venezuela, is set to select the model and companies to operate the fields."Despite being formally recognized by the US, the agreement can be brought to court in the future," said Juan Carlos Apitz, head of Central University of Venezuela's law faculty.
The White House referred Reuters questions to the US Department of Energy, which did not reply to a request for comment.Venezuela's oil ministry and state energy company PDVSA did not reply to requests for comment.
The South American country's expected tax revenue, meanwhile, also seems below what the law mandates."Taxes to be collected, announced by the interim government, are incredibly low," Francisco Monaldi from Rice University's Baker Institute said in a social media post on Saturday. He criticized what he called a lack of transparency surrounding Venezuelan oil policy, which has been under US oversight since it captured President Nicolas Maduro in January.
The 65bn barrels will come from 17 oilfields, with most reserves deposited in eight large blocks in the vast Orinoco Belt, Venezuela's main output region, and the remaining areas across Lake Maracaibo, the country's legacy and investment-thirsty hub, according to a list seen by Reuters.
An analysis by Caracas-based consultancy Gas Energy Latin America found the fields contain 63.7bn barrels of proved reserves calculated using a technically feasible, though as yet unachieved 20% recovery factor. Exhausting their recoverable reserves is expected to take more than 25 years, some experts have said.
However, the areas offer the US a mix of green and brown field assets, allowing the operator to begin with a base of exportable output that can grow as infrastructure repairs in Lake Maracaibo are completed and development plans for the Orinoco Belt's virgin areas, which contain extra-heavy oil, are put in place.
The US's intended 55% participation in the partnership would continue expanding the volume of Venezuelan oil shipped to the US, currently at about 60% of total exports.Facing political pressure over gasoline prices that have ticked up amid the ongoing conflict with Iran, Trump said on Sunday that the fresh Venezuelan barrels will help replenish the US Strategic Petroleum Reserve, which this month fell to 290mn barrels, near a 44-year low.