Details of Trump's “largest oil deal in world history” have surfaced: full analysis of 100-year oil field concessions, 35% equity, and 20% oil purchase at a cost price

The Zhitong Finance App learned that details of the US-Commission oil agreement, which US President Trump called the “largest oil deal in world history,” are gradually surfacing.

Trump said the agreement, which was announced last Friday evening, will allow the US to take a place in Venezuela's huge oil reserves. Acting President Delsi Rodriguez of Venezuela said that the agreement was a step in promoting economic recovery and modernizing the country's petroleum industry.

However, this unprecedented arrangement faces great uncertainty in terms of legality, implementation prospects, and political sustainability. The reactions of the two parties in the US were completely antagonistic, and there was also a strong backlash within Venezuela.

Terms of agreement

On Monday evening local time, the White House issued an information note on the agreement.

According to information released by the White House, the provisional government of Venezuela has granted 100-year concessions to the private enterprise “North America Blue Energy Partners” (NABEP) for 17 oil fields, involving proven reserves of about 65 billion barrels. The owner of NABEP is Alejandro Betancourt (Alejandro Betancourt). The company currently produces about 200,000 barrels per day in Venezuela. It is the country's second-largest private oil operator after Chevron (CVX.US), and already has infrastructure such as pipelines and drilling platforms in the relevant regions.

In exchange, NABEP granted 35% of its parent company to the US Office of Strategic Capital (Office of Strategic Capital). According to the White House, this portion of equity represents “up to hundreds of billions of dollars in value and dividend income.” Additionally, NABEP has granted the US State Department the right to purchase 20% of all of its current and future oil field production at production cost prices, and this crude oil will be used as a priority to supplement the US Strategic Petroleum Reserve (SPR). The US State Department also has priority purchasing rights for the remaining 80% of production. The White House said this will provide the US with “reliable energy security within the hemisphere” in case of an emergency.

The US also has veto power over the appointment of NABEP's directors, and the majority of board members must be US citizens. The entire agreement is governed by US law and subject to judicial review by US courts.

In terms of financial arrangements, NABEP plans to invest up to $100 billion to build new oil infrastructure. The White House said the investment will boost Venezuela's economic growth and create thousands of jobs. According to Venezuela's new hydrocarbon law with US support, NABEP is expected to pay Caracas about $200 billion in royalties and taxes within the first 25 years. The US side claims that its supervision will “ensure that taxes and royalties are used in the interests of the Venezuelan people.”

strategic intent

The Trump administration has made no secret of the agreement's geopolitical intentions. The White House fact sheet clearly states that Trump “re-established the Monroe Doctrine” and that most of the oil fields that NABEP will operate were previously controlled by Russian and other companies, or are related to Maduro and Chavez's former administration. The US side said the agreement will “build a strong, strategic, and defensible supply chain in the hemisphere” to serve the US manufacturing industry and energy security.

The arrangement came after US special forces captured then-President Nicolas Maduro in a late-night raid in January of this year and escorted him to New York to face federal drug smuggling charges. Acting President Delcy Rodríguez (Delcy Rodríguez) defended the agreement in a nationally televised address last Saturday night, insisting that “one thing must be absolutely clear: Venezuela reserves ownership and sovereignty over its resources.”

She said the agreement was a step in economic recovery, would modernize the country's oil industry, and hoped Venezuela would become a “global energy power.” She also mentioned that the goal is to reach more agreements with other multinational private companies such as Chevron, Repsol, and Shell (SHEL.US).

However, for American consumers, this deal will hardly bring about substantial price cuts at gas stations in the short term. Experts have repeatedly warned that Venezuela's dilapidated oil infrastructure will take years and billions of dollars to repair, and that a sharp increase in production cannot be achieved overnight.

Amy Myers Jaffe (Amy Myers Jaffe), director of the New York University Energy, Climate Justice, and Sustainability Laboratory, said bluntly that the agreement “may help in the long run, but it won't change the retail price of gasoline at gas stations over Labor Day weekend.”

Currently, the factor that has had a greater impact on oil prices is the war between the US and Iran. After the US attacked an Iranian rocket launcher near the Strait of Hormuz last Sunday, international oil prices rose in response. US crude oil prices rose 1.8% to 84.94 US dollars per barrel on Monday. According to the American Automobile Association (AAA), the average price of gasoline in the US was $4.08 per gallon on Monday, a sharp increase from $3.19 a year ago.

Kevin Book (Kevin Book), managing director of ClearView Energy Partners, points out that there is room for increased production in Venezuela — historically, its daily production was more than 2.5 million barrels higher than the current level — but an investment of this scale “takes time — many years — to deploy and produce the kind of incremental results shown in history.”

Legal and political risks

The deal is in unprecedented territory, both at the legal and diplomatic levels. Amos Hochstein (Amos Hochstein), a former senior energy adviser to the Biden administration, said the agreement “is uncharted territory from a legal and diplomatic perspective” and “carries huge risks” for companies considering doing business under the new arrangement.

He pointed out that if the Democratic Party regains power in Washington, it may challenge the agreement; Venezuela's future government may also not recognize it. “There will be a lot of challenges surrounding what has just been announced,” Hawkstein said. “All I can say is that if it were me, I would be nervous. If I go back to my old position in the next administration, then they should be nervous.”

Bob McNally (Bob McNally), who worked as an energy advisor in the George W. Bush administration, also pointed out that even if the terms of the agreement pass legal review, investors will remain cautious. “The future president may withdraw, and Caracas has already evicted foreign investors twice,” he said.

David Oxley (David Oxley), chief climate and commodity economist at Capital Economics, wrote in his review that on the surface, the agreement may double US oil reserves and reduce dependence on Canadian and Mexican crude oil, but there are logistical barriers, and the valuation of Venezuela's reserves during the Chavez period may have been exaggerated. Even with laws and security guarantees, “it's unclear whether American oil companies would be interested in investing,” he wrote, “there may be more attractive business opportunities elsewhere.”

Opposing voices

Within Venezuela, many people view this agreement as a betrayal of the country's decades-long assertion — that is, “Venezuela's resources belong to Venezuela,” and the leaders will not allow the US government to access these resources.

Ricardo Hausmann (Ricardo Hausmann), a professor at Harvard University and former Minister of Planning of Venezuela, called it a “shameful deal” on social media.

“Venezuelans won't respect this illegal deal, and no major US oil company will take it seriously because they know it won't last,” Hausman wrote on social platforms, adding that Rodriguez “has no legitimacy or constitutional power to commit Venezuela to any such deal.”

The US Congress's position on this deal is equally clear. Trump's allies quickly characterized it as a historic victory. Democrats, on the other hand, harshly condemned it, believing that the arrest of Maduro was aimed at achieving this goal.

Virginia Democratic Senator Tim Kaine (Tim Kaine) called Trump “always eyeing Venezuelan oil” and called it “epic corruption.” “Will Americans' oil prices drop? Who knows, but it's probably not going to push oil prices as much as Trump did through his stupid war on Iran,” Kane wrote on social media.

Maryland Democratic Senator Chris Van Hollen (Chris Van Hollen) said that Trump “put our military at risk just to get Venezuelan oil for his billionaire friends.”

Remaining questions

Despite the White House's factsheet, many key details remain unclear.

For example, the US will receive 55% of NABEP's effective production, but there is no clear distinction between how much of it comes from 35% of the shares and how much of it comes from 20% of the right to purchase at the cost price.

Both parties have not explained who will bear the infrastructure investment and how the costs will be shared. Whether major US oil companies are willing to return to the region is still unknown.

Chevron — the only US oil company currently active in Venezuela — declined to comment; ExxonMobil also declined to comment. The American Petroleum Association (API), the largest lobbying group in the US petroleum industry, also declined to comment on Trump's proposal on Monday, saying it is continuing to review relevant information.

David Oxley (David Oxley), chief climate and commodity economist at KITU Macro, said that on the face of it, the agreement could double US oil reserves and reduce dependence on Canadian and Mexican crude oil. However, Oxley warned in a review that there are logistical barriers to project implementation, and that the value of Venezuela's reserves may have been exaggerated during the time of former President Hugo Chávez.

He pointed out that even with laws and security guarantees, it was unclear whether American oil companies “would be willing to invest” and pointed out that “other parts of the world may offer more attractive business opportunities.”