Simon Mugo

Investing.com — The Pentagon plans to take a 35% passive stake in a private company holding Venezuelan oil rights, marking an unusual expansion of the U.S. government’s role from facilitating energy investment to directly owning an interest in an oil venture, the Wall Street Journal reported exclusively.

The Defense Department’s Office of Strategic Capital plans to structure the investment in North American Blue Energy Partners through penny warrants, giving Washington equity ownership without requiring significant upfront capital, according to the WSJ.

The Pentagon would also receive preferential rights to purchase 20% of the company’s future oil production at cost. The Defense Department is expected to hold both the government’s equity interest and purchase rights.

NABEP, led by Venezuelan businessman Alejandro Betancourt, would have the opportunity to develop 17 oil fields. The company has become Venezuela’s second-largest private oil producer behind Chevron over the past two years.

The structure emerged after major U.S. oil producers remained reluctant to commit substantial capital to Venezuela, citing legal, security and infrastructure concerns. The Trump administration had sought to persuade Exxon Mobil and ConocoPhillips, among others, to return to the country and accelerate production.

The State Department led negotiations before bringing in the Pentagon’s strategic capital office late in the process to devise a financing mechanism. Senior Pentagon and State Department officials, including OSC Director David Lorch, traveled to Venezuela in July to negotiate terms.

The arrangement could put U.S. oil companies in the unusual position of competing against a privately operated venture backed by the federal government.

Questions also remain over how quickly the fields could translate into additional supply. Venezuela currently produces about 1.1 million barrels per day, and analysts cited by the WSJ said rebuilding deteriorated infrastructure could take years.

Industry participants have also raised concerns about whether future Venezuelan governments could challenge the agreement, creating uncertainty over the durability of the Pentagon-backed investment.

____
https://finance.yahoo.com/energy/articles/pentagon-35-stake-venezuela-oil-035001573.html