home Economic Sanctions, Venezuela Venezuela Inks MOU with American Oil Drilling Company

Venezuela Inks MOU with American Oil Drilling Company

For colleagues who follow matters in Venezuela, it seems as if the Venezuela regime is supposedly inking contracts with American companies. According to an article that appeared in the government-owned Telesur media outlet, officials with Horizontal Well Drillers and the government have signed an MOU worth close to $1.3 billion. In the overall scheme of things, it is not a significant commitment but it is more than energy sector chump change.

According to the Telesur article, the Oklahoma-based oil and gas drilling company has been granted concessions to drill at least 200 new oil wells. Under Venezuela’s foreign investment laws and regulatory system, foreign-owned companies must enter joint ventures with, in this case, the state-owned energy company PDVSA. A video clip of the signing ceremony of the MOU is embedded at the end of this post. Odd.

The initial goal is 105,000 barrels in three years; however, it is not clear if this government will be in power in three months, much less three years. At first glance, the rush to bring in U.S. companies seeks rather odd, considering the Venezuelan economy is in shambles and the nation is just about bankrupt. Or maybe it is not odd at all?

It seems like strongman Maduro is heeding the advice of his Cuban colleagues by inviting a small, but enterprising American company to ‘drill baby drill’ in Venezuela. Roughed up in the press the past few weeks over gross human rights violations by the right and the left, Maduro needs to get in the good graces of, among others, Uncle Sam. Maduro even took to Twitter to brag about his business acumen:

Tough to say how this move, likely egged on by Venezuela’s masters in Havana, will play out for the embattled Maduro-El Aissami government. With a strong pro-business, capitalist president in the White House, they figure, what better way to ease political pressure from Foggy Bottom than do new business with American companies? If that is the case, it is too little and way too late.

For weeks, opposition leaders have waged a formidable series of peaceful demonstrations throughout the country that, in some parts, has paralyzed business as usual. Are the protests starting to take a political toll? Too soon to tell.

The Venezuelan opposition movement is somewhat divided and, in the past, the opposition has splintered and fizzled. This time may be different. According to some opposition leaders, the violence has reached crisis levels. It is liberty now, all else later, most seem to say. People are people killed, daily. There is no turning back. Friends and colleagues who work in the region have told me for months that Caracas has become a lawless, veritable no man’s land.

I hope that Horizontal Well Drillers puts as little capital upfront as possible. The venture may be short-lived. Frankly, any U.S. company brave enough to enter the Venezuela market these days should be mindful of not only the compliance risks and political situation in Caracas, but also keep an eye on Washington, D.C. policymakers.

For example, there are several bills under review in the U.S. Congress that would impose economic sanctions on Venezuela, likely on its energy sector or players involved with the energy sector. I think new economic sanctions on Venezuela are becoming a more likely scenario in the weeks and months ahead. In fact, the sanctions may be multilateral in scope with America taking the lead and players in the region to follow.

You’re likely going to be reading a little more in the media, soon, about Venezuela because, among other things, there are Russian interests to take into account in South America and other places in the Americas such as Cuba and Nicaragua. With respect to Venezuela, Russia is a large shareholder in PDVSA. Also keep in mind Iran. You see Iran’s Vice President El Aissami is a close ally of Iran and Iran proxy, Hezbollah.

If crude oil prices stay on the downward trend, places such as Venezuela are going to find themselves in a jam, so will their masters in Havana, another regional actor that is in a world of political economic hurt. Interesting times.

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