What is happening with Venezuela’s oil licenses?
Spain’s Repsol was granted a specific license to work in Venezuela’s oil and gas sector this week, being the second company to succeed after Paris-based Maurel et Prom.
In an interview with Efecto Cocuyo, Francisco Palmieri said that 20 to 50 oil and gas companies have submitted bids for a specific license to operate in Venezuela.
In a previous interview in late April Palmieri, who is the US’s Chief of Mission of the Venezuelan Affairs Unit said that licenses had not yet been granted at the time because there was a “great quantity” of them, and that “they are being evaluated one by one.”
After GL 44 expired on April 18th, the Treasury’s OFAC said that it would be giving “non-public” special licenses on a case-by-case basis, with a 45-day wind-down period.
As time runs out before May 31st, only Repsol and Maurel et Prom have been granted permission under this scheme. Chevron and Shell will also continue to operate under older licenses. As of 23 May, no US company—besides Chevron’s 2022 authorisation—has been given a specific license.
According to a senior Biden administration official, granting them would “take into consideration the national security interests and foreign policy interests of the US through close consultation with and receiving foreign policy guidance from our State Department.”
The most likely scenario is that companies already operating in the South American country will be granted their request. In this probable case, authorisations would be for parties that already signed contracts before the April 18th deadline.
A source in the oil sector said that the State Department has been contacting firms that sent requests late last week. Companies presented their submissions to the OFAC as early as April 17th, over a month ago. This delay could reflect ongoing negotiations with Caracas, rather than the OFAC being overwhelmed, as Palmieri has suggested.
Repsol aims to double its oil production to 40,000 b/d within a year, while Maurel et Prom plans to reach 50-64,000 b/d from 16,500 b/d, as they have said to the press. Both are also producing natural gas. Each foreign oil company can only offer modest production increases, but if all are aggregated they can make a substantive impact on Venezuela’s production of 700-800,000 b/d.
In newer agreements, multinationals are also obtaining greater financial and operational control over that of PDVSA, which is required to have a stake in all ventures. As well as to improve efficiency, they are offering greater transparency and removing intermediaries, both of which are crucial in efforts to combat corruption.
Who is asking for a license?
We can safely assume that companies that sought deals under GL 44 are after a specific license. These would include companies like LNG Energy Group, which signed a production-sharing agreement just before the April deadline.
We are seeing that non-US, western-aligned companies are rushing for licenses, and they are more successful thus far. We also know that Colombia’s Ecopetrol and India’s Reliance Industries are also seeking a permit. Italian Eni is working on similar conditions as Repsol, and is likely to either get formal permission or continue operating under a comfort letter.
Traders like Trafigura and Global Oil Management Group are also expected to be on the list, as they rushed to Venezuela in the six-month period opened by GL 44, narrowing the discount of local oil products.
In the meantime, the current uncertainty could be boosting Chevron’s position, which has a more stable authorisation. The oil giant could continue to play a key role as an intermediary to ship Venezuelan crude to the US market, where its qualities are in high demand.
Shell, which was authorised to work with Trinidad’s National Gas Company and PDVSA, asked for an extension in early April, as it would only last until 2025. Offshore natural gas projects particularly require long-term commitments, and Shell is proposing a 15-year license for this reason. The British multinational has said that it plans to invest $1bn but that it needs certainty before making the FID.
BP has halted talks to start a project similar to Shell’s, again meant to bring together shared offshore gas fields between Venezuela and Trinidad, using the latter’s extensive infrastructure.
Incentives for an election, or too little too late?
Looking towards the election, in the last year the Maduro government has been looking for substantive sanctions relief. One expectation was more room for oil firms to operate, according to a source with information on the bilateral talks.
Alternatively, Maduro hoped to access frozen funds—there is an unrealised plan to release $3bn under UN supervision from 2022—or be able to reach out to international financial institutions like the IMF, which still has $5bn set aside for the country’s pandemic recovery efforts.
The plan would have been to use the extra cash to spend it and increase their chances of victory in a competitive election. However, in this respect, specific licenses being granted now could be too little too late.
On the other hand, the Biden administration considers that it has not seen sufficient progress towards a competitive election in order to ease its noose on Venezuela’s economy. By doing so, however, the only reason to hold a competitive election—normalisation and sanctions relief—is gone, while the threats on Venezuelan government officials remain.
Accepting oil companies’ bids could still be part of a negotiation between Washington DC and Caracas, and this is the most likely case. Whether or not they are granted will reflect the progress of such talks; it is not oil firms that are being evaluated, but the relationship with Venezuela.
