‘Chevron Model’ Unlocking Venezuela’s Energy Potential

US-Venezuela relations are in the spotlight once again as the administration of US President Joe Biden considers whether it will let a program of Venezuela sanctions relief expire in April. At stake is the strong improvement in Venezuelan oil output over the course of 2023, led by Chevron — which resumed operations in Venezuela in late-2022 under its joint-venture (JV) agreement with state oil monopoly Petroleos de Venezuela (PDVSA). What has become known as the ‘Chevron model’ is seen as the main source of the additional 70,000 barrels per day that Venezuela produced last year. Other major operators have replicated the model, but it remains to be seen whether the politics that underpin it can hold.

Even the keenest Venezuela watchers were caught off guard when the US agreed to lift sanctions on the Maduro administration last October in return for taking steps towards free and fair elections in 2024.

The Bahamas Agreement, named after the Caribbean island where it was negotiated, was the latest step towards reopening Venezuela’s prodigious energy reserves to international oil companies (IOCs).

As of December 2023, oil flows from Venezuela were up 70% from their average level in 2022. US oil major Chevron now plans to add a further 65,000 b/d in output from the South American nation by year’s end, up from 135,000 b/d at present.

Other IOCs have looked to follow suit, specifically replicating the Chevron model of operations in Venezuela. This rests on Chevron’s JV agreement (or "mixta") with PDVSA — a prerequisite for operating in Venezuela’s energy sector — which is then overlaid with additional contracts.

Contractual Safeguards

While the JV — with PDVSA as the majority shareholder — enables Chevron to operate in-country, the contracts attached to the JV are designed to safeguard it from mismanagement and potential corruption, especially in procurement and sales.

As such, the Chevron model gives the major control over the sale of the oil it produces in Venezuela, within the bounds of the existing hydrocarbons law — as well as oversight over procurement and adequate cash management controls.

These features were crucial to Chevron receiving the blessing of the US Office of Foreign Assets Control (OFAC) to resume production in Venezuela in late 2022.

Without the additional contracts, OFAC would have harbored legitimate concerns that the proceeds of renewed (and highly lucrative) production in Venezuela could fall into the wrong hands — rather than a portion of the revenues of increased output being used to pay down PDVSA’s existing debts to Chevron and others.

First Mover Advantage

With these issues having been averted, Chevron’s first mover advantage looks to have paid off.

Production jumped over the course of 2023, and as previously mentioned, the majority of the additional 70,000 b/d of Venezuelan oil output last year is said to have come from the Chevron-PDVSA JV.

Chevron, therefore, sits in a privileged position, but its eponymous model is by no means unable to replicated.

Spanish energy firm Repsol enhanced its own pre-existing mixta with PDVSA — which applies to the administration of Petroquiriquire, their joint entity — with a new contractual agreement signed in December 2023.

Commenting on the enhancement, Repsol confirmed that it wants to leverage the newly improved JV to spearhead further output increases.

Exclusive operational control over Petroquiriquire will certainly support efforts to maximize production efficiency and mitigate possible corrupt practices.

Taking a step back from the legalities, the outlook for good governance in the Venezuelan market has markedly improved, while a meaningful, sustained expansion of exports of heavy crude would be a soothing tonic for jittery global energy markets.

Political Uncertainty

But as ever with Venezuela, the politics threaten to get in the way.

In recent weeks, the Biden and Maduro administrations have once again locked horns over the election expected to be held this year, with the former not content with the latter’s efforts to stop a leading opposition figure from joining the ballot.

While some expect President Biden to allow the sanctions relief measures to expire in this context — which would be a severe blow to all IOCs operating in Venezuela, mixta or not — his current polling deficit to former President Trump may serve to inject some much-needed realpolitik into the current debate.

What would that look like? Quite simply, IOCs would continue to increase Venezuelan output to the benefit of global energy markets and thereby prices at the pump. President Biden needs these to be low if he wants to keep Trump from returning to the White House.

The alternative — a return to hostile relations and fractured dialogue between Venezuela and the US — would seem to pose too great an economic threat and it’s ultimately the economy that will determine the outcome of the US election later this year.

When it comes to the all-important energy element of US-Venezuela relations, the current (Chevron) model is clearly working. And if the model is working for both parties, then why attempt to fix it?

Adam DuBard, is a senior associate at the Friedrich Naumann Foundation’s World Order and Globalization Hub in Washington DC. The views expressed in this article are personal, and do not necessarily reflect those of the author’s employer or Energy Intelligence.