Written by: Marianna Parraga and Deisy Buitrago
HOUSTON/CARACAS, March 10 (Reuters) – International oil giants Chevron and Shell are approaching their first major oil production deals with Venezuela since the U.S. captured President Nicolas Maduro in January, five sources close to the negotiations told Reuters.
The deals will allow both companies to increase production in the South American country’s coveted oil regions; The biggest step yet toward what U.S. President Donald Trump says will be a $100 billion effort to rebuild Venezuela’s oil industry after decades of mismanagement and underinvestment under Maduro and his predecessor, Hugo Chavez.
Venezuela’s National Assembly approved a sweeping reform of the country’s main oil law in late January. It now gives foreign companies autonomy to exploit, export and sell Venezuelan oil, even if they are minority partners in state-owned oil company PDVSA.
Chevron and Venezuela’s energy authorities have agreed on preconditions to expand Chevron’s largest oil project, Petropiar, in the vast Orinoco Belt, two of the sources said.
Venezuela’s oil ministry, PDVSA and Chevron did not respond to requests for comment.
The two sources added that the deal would give Chevron the right to produce from the Ayacucho 8 field, a large block with proven oil resources, located south of the Petropiar project area. This will allow Chevron to achieve a significant increase in the extra heavy oil it produces and exports.
Chevron aims to receive reduced royalties for the new field and secure other tax and trade incentives available to companies developing new oil and gas fields under the new legislation, according to two sources. PDVSA completed exploration and evaluation at Ayacucho nearly two decades ago, but it remains largely undeveloped.
Sources added that Chevron and PDVSA could expand their well cluster production systems at Petropiar to Ayacucho 8, allowing them to increase production relatively quickly. The project will be Chevron’s fifth oil field in Venezuela.
The project could transform Chevron into the largest private producer in the Orinoco, holding more than three-quarters of the country’s total crude oil reserves. Rival US company ConocoPhillips was the region’s largest foreign producer before abandoning Venezuela two decades ago following a wave of nationalizations.
Chevron and PDVSA were producing about 90,000 barrels per day (bpd) of upgraded Hamaca crude oil and 20,000 bpd of vacuum kerosene at Petropiar last month, according to a PDVSA document seen by Reuters. Venezuela’s total production is around 1.05 million barrels per day.
SHELL PROGRESSES ON OIL AND GAS DEALS
Shell signed preliminary oil and gas agreements with Venezuela last week while U.S. Interior Secretary Doug Burgum was in Caracas. The Venezuelan government has not publicly disclosed the details of these agreements and the areas they cover.
Shell aims to develop the Carito and Pirital fields in the coveted Monagas North region in eastern Venezuela, Reuters has learned from an official summary document of the deals. They are among the few fields in the country capable of producing light and intermediate crude and natural gas, prized by oil companies that need blending to facilitate export of Venezuela’s heavy oil.
Shell confirmed in an email that it has signed several agreements with the government, engineering companies Vepica and KBR, and oil service firm Baker Hughes, which “formally express Shell’s intention to advance a variety of opportunities with Venezuela, including offshore gas, onshore oil and gas, exploration, local content and workforce development.” It did not disclose the areas or provide further details to Reuters.
Monagas North could also fit into Shell’s broader strategy focused on natural gas due to its proximity to the country’s onshore gas infrastructure and the regions where gas is most flaring in Venezuela. Shell, M&P and other companies had previously devised plans to minimize the gas explosion by creating the infrastructure needed to capture the gas, process it and possibly transport it for export through Trinidad.
The Punta de Mata region, which includes Pirital, Carito and the nearby El Furrial field, produced about 94,000 barrels of crude oil per day and about 1.03 billion cubic feet of gas per day last month, according to independent figures. Of this, approximately 350 million cubic feet per day were flared.
Before the term sheet was announced, Shell’s only project in Venezuela was the flagship Dragon offshore development near Trinidad. The company has struggled to move forward following U.S. sanctions imposed on Venezuela’s energy sector in 2019. In 2018, Shell sold its shares in its flagship Urdaneta Oeste oil field to French Maurel & Prom.
PDVSA and the oil ministry are in talks with about a dozen joint venture partners willing to expand their operations to neighboring areas where infrastructure development is required, developed areas or blocks marked as green areas.
Sources said that Spanish Repsol and M&P are among other companies trying to expand the areas where their projects are located in order to increase oil and natural gas production. Repsol has become the foreign partner with the largest debt to be rescued in Venezuela, with more than $5 billion in debt accumulated under sanctions, according to the firm’s statement last month.
Chevron and the Venezuelan government are also negotiating for the U.S. ambassador to return to Venezuela two unused offshore natural gas fields in the Plataforma Deltana project, which are located on the maritime border with Trinidad and Tobago and could be re-offered for private investment.
It is unclear what the conditions would be for Chevron to give up these shares. Chevron is focusing on oil production rather than gas production in Venezuela.
Venezuela began examining all oil and gas projects in February, starting with production-sharing contracts signed by the Maduro administration with little-known firms and more recently moving to joint ventures with larger partners. Sources said the government has asked for documents related to the projects from the participating companies.
PDVSA took over the management and oil sales of many production sharing contracts and temporarily suspended the contracts while it conducted the investigation. Sources said oil ministry officials told oil executives they would complete the review by the end of March.
Officials from the oil ministry told oil executives that contracts for projects that are inactive or do not meet investment targets may be canceled as part of the review.
Different sources said the US government carefully checks the company’s credentials and compliance with sanctions before allowing existing or new partners.
(Reporting by Marianna Parraga in Houston and Deisy Buitrago in Caracas, additional reporting by Sheila Dang. Editing by Simon Webb and David Gregorio)
