US allows Chevron to remain in Venezuela: Update2

Spanish Market: Crude oil
26/07/19

Updates throughout.

An essential partner in Venezuela's oil production may continue operations into October after the US Treasury Department today extended a license for Chevron and oil field service providers to remain operating in the sanctioned country.

The department allowed Chevron, Halliburton, Schlumberger, Baker Hughes and Weatherford to maintain current contracts in Venezuela until 25 October under a new license issued less than 24 hours before that authorization was to expire. The extension fell far short of the 18 months — with continuous, monthly renewals — given earlier this year to Venezuelan-controlled US independent refiner Citgo, or the initial 180-day license issued to the companies in January.

The license will instead now expire around the same time that more than $900mn in principal and interest on a 2020 bond for Venezuela's national oil company, PdV, comes due. The US will in three months again weigh Chevron's foothold in a still-lucrative oil resource against [waning patience](https://www.argusmedia.com/en/news/1947927-guaido-short-on-time-and-money-to-turn-venezuela

) with the country's opposition leadership and any continued oil revenue filtering to Venezuelan president Nicolas Maduro.

"The limited scope of the license is intended to facilitate US oil companies in abiding by their contractual obligations, maintaining their operations, assuming they choose to do so, and avoiding economic harm to the United States," the State department said. "The United States will continue to take appropriate action against Maduro and those aligned with him."

Venezuela's US-backed opposition has campaigned unsuccessfully for six months to unseat Venezuelan president Nicolas Maduro. US sanctions imposed in January on PdV sought to cut the Maduro regime off from its principal source of cash.

The US halted exports of naphtha essential to Venezuela's crude blending programs and reduced imports from the third-largest supplier of heavy crude to US refiners to zero in May. But the opposition has struggled to take meaningful control of key Venezuelan institutions over that time, and the US wrestled with how to further pressure the regime.

"We are trying to ensure that there are not wealth and resources that are getting into the pocket of Maduro and his cronies and flowing to the Cubans," secretary of state Mike Pompeo said yesterday. "Where we make a decision on a license or a particular designation of an individual, those are all aimed to support the strategy, which is the ultimate beacon for our direction."

PdV did not respond publicly to the decision. Initial reaction inside the company was relief that its most consequential partner would be staying, for now.

Chevron key PdV partner

Most if not all of the services companies have already left Venezuela, but Chevron is state-owned PdV's main western partner. It owns a 30pc share in the PetroPiar crude upgrader, which PdV is converting into a blending facility. The company also holds 39.2pc and 25.2pc stakes, respectively, in the PetroBoscan and PetroIndependiente heavy oil ventures. The 400,000 b/d PetroIndependencia Orinoco extra-heavy crude joint venture, in which Chevron has a 34pc share, is in the early stages of development.

Chevron operates block 2 off eastern Venezuela with a 60pc interest. This contains the majority of the 10.25 Tcf (290bn m³) Loran-Manatee gas field straddling Venezuela's maritime border with Trinidad and Tobago.

Maduro's government threatened to seize Chevron's assets if Washington did not extend its permission to operate in Venezuela. The company said it would continue to follow all laws and regulations in its business in the country.

The Venezuelan assets are a small part of Chevron's global portfolio. Chevron's combined net daily offtake in 2018 from the four joint ventures averaged 42,000 b/d of crude and 9mn cf/d of associated natural gas, according to the company. But the potential for future growth is huge, considering the Opec country's abundant reserves and nearby markets. The assets would also position Chevron to play a key role in Venezuela's future reconstruction.

The new deadline for Chevron will make October a critical month for the fate of the opposition campaign. The PdV bond payment is backed by shares in PdV's US refining subsidiary Citgo — Venezuela's most valuable state asset. The opposition paid $72mn in interest on the bond in May, using frozen PdV funds in the US that the Treasury Department released for this purpose. Now the opposition is hoping Treasury will grant permission to negotiate with bondholders to reschedule the looming principal payment.

But the administration has become wary of releasing funds to the opposition, concerned that the money could be mismanaged. Opposition leader Juan Guaido could lose his leadership of the National Assembly — and, consequently, his claim to interim presidency — by the end of the year. Arguments to maintain Chevron and other oil companies' presence in Venezuelan could weaken with Guaido's standing come October.

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19/12/24

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