The Pentagon has received a big ownership stake in an obscure private oil company that will control crude reserves larger than ExxonMobil's global portfolio if President Donald Trump's Venezuela deal is successful.
The deal comes eight months after Washington ousted former Venezuelan President Nicolás Maduro in a military raid and co-opted the remaining regime led by interim President Delcy Rodríguez.
The Rodríguez government has granted North American Blue Energy Partners, headquartered in Barbados, concessions to 17 oilfields in Venezuela for a century. NABEP's CEO, Alejandro Betancourt, is a controversial figure who has faced investigations into his past ventures.
NABEP has in turn granted the Pentagon's Office of Strategic Capital a 35% equity stake at no cost to the U.S. taxpayer, according to deal details released by the White House this week.
The Trump administration has taken ownership stakes in companies at an unprecedented pace, particularly for a Republican administration, outside major crises like the world wars and Great Depression and Recession. It has argued such deals are needed to secure resources critical to national security.
But it is difficult to find a historical precedent for the U.S. government taking a direct ownership stake in an oil company, not to mention one that will operate fields in a foreign nation, said Tyler Priest, a historian of the oil industry at the University of Iowa.
The deal gives the U.S. majority control over 65 billion barrels of Venezuela's proven crude reserves, the White House said. This is about 20% of the 303 billion barrels the country is thought to possess.
If the White House figures are accurate, NABEP would be the second-largest oil company measured by proved reserves in the world behind Saudi Aramco, said Patrick Rutty, director of global intelligence at Enverus. It would be around four times larger than Exxon's reserves, Rutty said.
The Venezuela deal appears to be unprecedented, Priest said. The U.S. considered taking direct control of an oil concession in Saudi Arabia during World War II but backed down due to industry opposition, he said. Congress almost created a federal oil company in 1976, but the vote narrowly failed.
"For the American government to get involved with a shady businessman concessionaire in a country that is known for endemic corruption, it just raises all sorts of red flags," Priest said.
On top of the Pentagon equity stake, the State Department has the right to purchase 20% of NABEP's oil output at the cost of production rather than market price. The U.S. agency also has the right to first refusal for the remaining 80% of NABEP's production.
The U.S. government can also veto appointments to NABEP's board of directors and a majority of the board must be U.S. citizens. The deal with NABEP is governed by U.S. law and subject to the jurisdiction of its courts.
"This is straight up a state-owned enterprise," said Scott Lincicome, an international trade law expert at the Cato Institute. "De facto control of 100% of output at cost — that's ownership."
The oil bought by the U.S. on favorable terms will help refill the Strategic Petroleum Reserve and "provide supply for military and other sensitive uses," the White House has said.
The Trump administration does not anticipate using the U.S. right of first refusal to the other 80% of NABEP's production, a U.S. official told reporters on a call Tuesday.
Source: Read the original article on www.cnbc.com
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