Chevron, Shell closing in on first big oil production deals in Venezuela since US captured Maduro

International oil majors Chevron, opens new tab and Shell, opens new tab are closing in on the first big oil production deals with Venezuela since the US capture of President Nicolas Maduro in January, five sources close to the negotiations told Reuters.

The deals would allow both companies ​to boost production in coveted oil regions in the South American country, the biggest steps to date toward what US President Donald Trump has said would be a $100 billion effort to rebuild Venezuela's oil industry ‌after decades of mismanagement and underinvestment under Maduro and his predecessor, Hugo Chavez.

Venezuela's National Assembly in late January approved a sweeping reform of the country's main oil law. It now grants foreign companies autonomy to operate, export and sell Venezuelan oil even when they are minority partners of state-owned oil company PDVSA.

Chevron and Venezuela's energy authorities have agreed on preliminary terms to expand Chevron's largest oil project, Petropiar, in the vast Orinoco Belt, two of the sources said.

Venezuela's oil ministry, PDVSA and Chevron did not reply to requests for comment.

The deal would give Chevron the rights to produce from the Ayacucho 8 area ​located south of the Petropiar project area, the two sources added, a large block with proven oil resources. This would allow Chevron to make a substantial increase in the extra-heavy oil it produces and exports.

Chevron aims to secure a reduced ​royalty rate for the new area and other tax and trade incentives offered to companies under the new legislation to develop greenfield oil and gas areas, according to the two sources. ⁠PDVSA completed exploration and appraisal in Ayacucho about two decades ago, but it remains largely undeveloped.

Chevron and PDVSA could extend their well-cluster production system in Petropiar to Ayacucho 8, allowing them to boost output relatively quickly, the sources added. The project would be ​Chevron's fifth oil area in Venezuela.

The project could turn Chevron into the biggest private producer in the Orinoco, which holds over three-quarters of the country's total crude reserves. Rival U.S. company ConocoPhillips, which opens a new tab, used to be that region's top foreign producer before it left Venezuela two decades ago following ​a wave of nationalisations.

Chevron and PDVSA were producing around 90,000 barrels per day (bpd) of upgraded Hamaca crude and 20,000 bpd of vacuum gasoil at Petropiar last month, according to a PDVSA document seen by Reuters. Venezuela's total production is around 1.05 million bpd.

SHELL PROGRESSES IN OIL, GAS DEALS

Shell signed preliminary oil and gas agreements with Venezuela last week, when US Interior Secretary Doug Burgum was in Caracas. Venezuela's government did not make public the details of those deals and the fields included.

Reuters has learned from an official summary document of the agreements that Shell aims to develop the Carito and ​Pirital fields in the coveted Monagas North region in eastern Venezuela. These are among the few areas in the country that can produce light and medium crude and natural gas, prized by oil companies that need it for blending to facilitate exports of Venezuela's heavy oil.

Shell confirmed ​in an email that it signed several agreements with the government, engineering companies Vepica and KBR, and oil-service firm Baker Hughes (BKR.O), opens new tab, which "formally articulate Shell's intent to progress a variety of opportunities with Venezuela," including offshore gas, onshore oil and gas, exploration, local content and workforce development. It did not ‌disclose the fields ⁠or give further details to Reuters.

Monagas North could also fit into Shell's broader strategy focused on natural gas, due to its proximity to the country's onshore gas infrastructure and the areas with the most gas flaring in Venezuela. Shell, M&P and other companies have previously designed plans to minimise gas flaring by building the infrastructure needed to capture it, process it and transport it for export, possibly through Trinidad.

The Punta de Mata area, which includes Pirital, Carito and the nearby El Furrial field, produced some 94,000 bpd of crude and some 1.03 billion cubic feet per day of gas last month, according to independent figures. Of that, some 350 million cubic feet per day were flared.

Shell's only project in Venezuela before the preliminary agreement was announced was the flagship Dragon offshore development near Trinidad. ​The company has struggled to advance it after the US imposed ​sanctions on Venezuela's energy sector in 2019. Shell had sold ⁠its stake in the flagship Urdaneta Oeste oilfield to French Maurel & Prom, opens new tab in 2018.

PDVSA and the oil ministry are in talks with about a dozen joint venture partners willing to expand operations to neighbouring fields, mature areas or blocks marked as greenfields, where infrastructure development is needed.

Among other companies seeking to expand the areas where they have projects so they can boost oil and gas output ​are Spain's Repsol (REP.MC), opens new tab and M&P, the sources said. Repsol is the foreign partner with the largest debt to recover in Venezuela, with over $5 billion that accumulated under sanctions, the firm said ​last month.

Chevron and Venezuela's government are ⁠also negotiating for the US major to return two untapped offshore natural gas areas to Venezuela at the Plataforma Deltana project on the maritime border with Trinidad and Tobago, which could be reoffered for private investment.

It is unclear what the terms would be for Chevron to give up those stakes. Chevron is focused on oil rather than gas production in Venezuela.

Venezuela, in February, began a review of all oil and gas projects, starting with production sharing contracts signed by Maduro's administration with little-known firms, and more recently moving to joint ventures with larger partners. ⁠The government is ​requesting documentation on projects from participating companies, the sources said.

PDVSA has taken over the administration and oil sales of many production sharing contracts while it conducts the ​review, suspending them temporarily. Oil ministry officials have told oil executives they would complete the review by the end of March, sources said.

Officials from the oil ministry have told oil executives that projects that were inactive or that did not meet investment targets could see their contracts revoked under the review.

The US ​government is also carefully checking company credentials and sanctions compliance before granting clearance to any existing or new partners, separate sources said.