In late August the White House announced an agreement with Venezuela for US control of around 20 per cent of the country’s oil reserves. Through the deal, the Pentagon’s Office of Strategic Capital will acquire a 35 per cent equity stake in North American Blue Energy Partners (NABEP), one of the largest private oil producers in Venezuela. The US will gain access to over 65 billion barrels of proven oil reserves. 

Venezuela’s Interim President, Delcy Rodríguez, says the wealth generated by the deal – which she claims will amount to $100bn in investment and over $200bn in tax revenue – will be ‘converted into wellbeing’ for her country’s people. It’s expected that the money paid by NABEP in royalties and taxes will help fund Venezuelan social programmes as well as crucial relief for the country as it recovers from two devastating earthquakes.

In August, the Venezuelan government reported that the death toll from the earthquakes, which struck the centre and northwest of the country in June, had risen to over 6,500. ‘The earthquakes constitute one of this decade’s biggest tragedies,’ says Elisabeth Eljuri, a Venezuelan lawyer and former Vice-Chair of the IBA Oil and Gas Law Committee, who’s based in the US. ‘Venezuela was not prepared for this and, beyond loss of life, there is a tremendous need to prioritise reconstruction and access to basic services for the displaced population,’ she says. ‘This should be a top priority at this time.’

In April, Venezuela passed a new Organic Mining Law, which opens the sector to private and foreign investment. It allows for full foreign ownership in certain mineral categories and extends licence terms to 30 years, with the option to renew twice, for a further ten years each time. The new legislation aims to modernise the country’s mining industry and removes previous restrictions on private sector participation.

Interim President Rodríguez has described the OHL reform as updating how oil production is managed in Venezuela, with the goal of improving production and commercial efficiency. She has emphasised that the reform isn’t about privatisation and that state ownership of oil is ‘non-negotiable’. 

Indeed, Eljuri says that ‘the reform preserves, and in some respects, reinforces, the executive’s discretion.’ She highlights that key parts of the economic and contract regime, including regarding royalties, marketing rights and access to arbitration, remain subject to ministerial authorisation and may be adjusted over time. In this sense, the OHL reform ‘represents a clear improvement over the prior framework’ but ‘it does not yet constitute a fully competitive or self-executing investment regime comparable to other Latin American hydrocarbon jurisdictions,’ says Eljuri.

Regulations to implement the OHL reform were enacted by Venezuela in July. These set the royalties, taxes and rights applicable to various hydrocarbon projects while also implementing provisions for international arbitration. The OHL reform ‘permits, though does not mandate, the use of arbitration and other alternative dispute resolution mechanisms’ in hydrocarbon trading, says Eljuri. 

Speaking at the American Association of Petroleum Geologists conference in Texas in May, Venezuelan hydrocarbons minister Paula Henao explained that the reforms allow for disputes with investors to be resolved within international forums, rather than parties being limited to Venezuelan courts. Henao emphasised that this provision represents an additional guarantee for investors, highlighting that Venezuela had received substantial interest from companies considering operations in the country. 

Carlos Pérez-Cotapos, Co-Chair of the IBA Mining Law Committee, says the most significant legal changes cover three areas. ‘First, the reforms have opened the possibility for private investors to participate directly in sectors that were previously reserved to the state, particularly the oil and mining industries,’ he says. ‘Second, the reforms provide a legal framework to regularise contracts that had previously been executed under Venezuela’s Anti-Blockade Law and that were not fully recognised from an international perspective.’ The new legislation, says Pérez-Cotapos, provides a clearer legal basis for the granting of licences and their recognition internationally. 

‘Third, the reforms permit the use of international arbitration and introduce protections commonly found in international investment frameworks,’ says Pérez-Cotapos, who’s Managing Partner at Cariola in Santiago. ‘These include mechanisms designed to protect investors from adverse legal changes and to restore the economic balance of contracts if subsequent legislative reforms negatively affect an investment.’

Eljuri highlights that Venezuela’s new mining law also includes incentives to attract investment into the country, such as licence terms of 30 years and the option to renew these for two additional periods of ten years each. Licences can also be transferred between companies. 

After the end of what Eljuri calls an ‘initial wait and see period’, other major international investment deals besides the NABEP-US agreement were announced in late August and early September. For example, Chevron will invest $7bn in Venezuela to access two further heavy oil fields, while Italy’s Eni also signed a new deal. 

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