License to pump oil depends on progress toward free elections by Maduro regime and opponents

Collin Eaton, José de Córdoba and Patricia Garip, WSJ

HOUSTON/MEXICO CITY/BOGOTA
EnergiesNet.com 12 06 2022

Chevron Corp. scored a reversal of fortunes in Venezuela last weekend after the U.S. government allowed it to pump oil there again, but its new license to operate carries considerable risk.

The oil giant will have to partner with an authoritarian regime accused of crimes ranging from human-rights violations to sprawling corruption to state-sponsored narcotics trafficking.

Days after the U.S. authorized Chevron’s return, the company’s top executive there met with Venezuela’s oil minister, a man the U.S. has accused of drug smuggling. Tareck El Aissami, who denies the U.S. accusations, tweeted congratulations to the company on its coming centennial in Venezuela following the meeting. He said Chevron and Venezuela would soon sign new contracts to boost production.

“TIME TO PRODUCE!!” tweeted Mr. El Aissami, for whom the U.S. has offered a reward of up to $10 million for information leading to his capture.

Chevron spokesman Ray Fohr said it is normal business practice for its top executives in Venezuela to meet with authorized representatives of the country’s government and national oil company, Petróleos de Venezuela SA, or PDVSA, in relation to U.S.-authorized activities.

Mr. El Aissami and Chevron’s country manager, Javier La Rosa, signed multiple contracts Friday on live TV in Caracas.

Winning the six-month license last weekend culminates Chevron’s years long strategy of remaining in the country despite tightening U.S. sanctions and accusations of enabling the regime of Venezuelan President Nicolás Maduro. Chevron’s energetic lobbying campaign helped it win the right to run its oil operations in Venezuela and sell the output, potentially recovering more than $4 billion in debt from PDVSA.

Chevron is so far the only major Western oil company cleared by the U.S. to resume operations in a country possessing some of the world’s largest oil reserves. Investments in new assets are still prohibited.

But as the U.S. oil giant readies crews to boost production of Venezuela’s oil and export cargoes to U.S. refiners, it is further entangling itself in fraught international and domestic politics that pose a risk to its investments.

“This isn’t your typical business deal,” said Francisco Monaldi, a director of the Latin America Energy Program at Rice University’s Baker Institute. “It is no doubt risky.”

For one thing, the U.S. says the deal hinges on the progress of future negotiations between Mr. Maduro’s government and a coalition of his political opponents to hold free elections within two years. The success of these negotiations, which resumed last weekend in Mexico, is far from assured.

Last year, Mr. Maduro walked away from similar talks. And this past week, four days after the license was granted, Mr. Maduro railed against the opposition coalition he will be negotiating political terms with, calling them “right wing coup conspirators, interventionists, pro-gringo terrorists.”

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The U.S. says that renewal of Chevron’s six-month license is contingent on concrete progress in the negotiations, and that it is willing to revoke the license if it isn’t satisfied with the process.

Chevron’s gamble might help its oil business. The number of places around the world where it can sink big investments into fossil-fuel development has declined in recent years. Sanctions have cut off Russia to Western oil companies, and Middle Eastern countries increasingly choose their own state-owned producers to develop their reserves. Meanwhile, U.S. shale fields are showing signs of aging, and some investors have soured on mega-offshore projects.

Analysts say Latin American countries like Brazil and Guyana will play a central role in the future of the Western companies, even as more of them, especially from Europe, focus on natural gas and renewable energy instead.

Some analysts and executives say they believe the issuance of the Chevron license signals the beginning of the end of sanctions barring the Western oil industry from Venezuela. Spain’s Repsol and Italy’s ENI are among non-U.S. companies that are pressing Washington for equal terms, according to people familiar with the matter.

Venezuela has figured prominently in Chevron’s international operations for almost a century, as the company calculated it had the wherewithal to outlast changing governments in Caracas and Washington alike. It remained there even as many of its peers, including Exxon Mobil Corp. and ConocoPhillips, pulled out when their assets were nationalized, and some European companies exited some assets following strict U.S. sanctions.

The logic of Chevron’s bet on staying put in Venezuela is that it will have earlier access to the country’s vast resources if the political clouds clear, said Edward Chow, a former Chevron executive and a senior associate at the Center for Strategic and International Studies.

“If and when conditions allow real investments to take place a few years from now, you’ll be at the head of the line,” Mr. Chow said.

Former and current U.S. officials said Chevron orchestrated a persistent campaign to reopen Venezuela, involving efforts by Chief Executive Mike Wirth and other top executives. Earlier this year, Mr. Wirth told U.S. Energy Secretary Jennifer Granholm that Chevron could quickly increase production in Venezuela, shoring up global oil supplies following Russia’s invasion of Ukraine, people familiar with the meeting said.

“It’s a textbook example of how effective lobbying can be and get you what you want even if it’s not the best thing for U.S. foreign policy,” said Juan Cruz, a former top official for the Western Hemisphere at the National Security Council during the Trump administration.

Chevron’s Mr. Fohr said it is regular practice for the company to meet with U.S. officials “to share perspectives on a range of energy issues,” including Venezuela. He said the company doesn’t comment on those private meetings.

Mr. Maduro’s government has already reaped huge political benefits from the deal and could receive desperately needed oil revenue, analysts say. Though Chevron is banned from paying taxes or royalties to the Venezuelan treasury under the new license, the PDVSA-controlled joint ventures it participates in will make such payments, replenishing the government’s coffers as production rises, according to University of Denver international affairs professor Francisco Rodríguez.

Thomas Shannon, a former undersecretary of state for political affairs during the Obama and Trump administrations, says the Biden administration made a strategic decision not to cede the country and its oil industry to U.S. rivals.

“Given the Chinese presence, the Russian presence and the Iranian presence, it was really important to have a U.S. company in Venezuela,” he said.

Even so, Chevron will have to contend with the country’s acute economic and political turmoil, said Luis Pacheco, a former corporate planning executive director at PDVSA. Chevron faces myriad challenges to boosting production—everything from dilapidated infrastructure, to an oil workforce decimated by the outflow of refugees. Restoring oil production at Chevron’s joint-venture projects with PDVSA could cost the company billions of dollars over the next few years, some analysts say.

“Now the company will be able to start recovering some of what it is owed, but whether it succeeds will ultimately depend on political change,” Mr. Pacheco said.

Write to Collin Eaton at collin.eaton@wsj.com and José de Córdoba at jose.decordoba@wsj.com

wsj.com 12 05 2022