Trump’s state capitalism comes to the oil industry with his unprecedented Venezuela deal

In this article CVX XOM 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 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 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.

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 U.S. considered taking direct control of an oil concession in Saudi Arabia during World War II but backed down due to industry opposition, Priest said.

Congress almost created a federal oil company in 1976, but the vote narrowly failed, he said. The Venezuela deal appears to be unprecedented, Priest said. "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," he said.

'State-owned enterprise' 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.

The first refusal right is a long-term insurance policy that the U.S. would use when it faces a crisis, said the official, who spoke on the condition of anonymity to discuss the deal freely. The deal is "first and foremost about geopolitics," the official said. "This was an opportunity to secure fields that had largely been under the influence of Chinese and Russian companies."

Big Oil hesitant The Trump administration's goal is to encourage private investment in Venezuela by strengthening investor confidence in the country through the U.S. government's presence, Energy Secretary Chris Wright told CNBC's Brian Sullivan on Wednesday in Caracas. The NABEP deal is "not a displacement or a replacement of private companies," Wright said.

The U.S. government will "not be the operator or producer" of Venezuela's reserves, he said. Washington has partnered with NABEP as most U.S. oil majors are hesitant to invest in Venezuela, after the socialist government in Caracas nationalized industry assets in 2007. ExxonMobil CEO Darren Woods told Trump that Venezuela is "uninvestable" during a televised meeting at the White House in January.

ConocoPhillips doesn't plan to return to Venezuela until it recovers the money it is owed by Caracas, CEO Ryan Lance indicated in February. Chevron is the only U.S. oil major active in Venezuela. It announced a separate deal this week to invest $7 billion to more than double its production in the country by 2031.

"This entity came about due to a lack of private investment interest in Venezuela," Lincicome said of the NABEP deal. "It's hard for me to see where private capital now floods in." Betancourt's record The U.S. official said the Trump administration partnered with NABEP because its CEO is a "good oil operator" who in "the past has been helpful to the United States government."

But Betancourt has faced money laundering and corruption allegations. He has not been charged with a crime and has denied wrondgoing. "I'm not nominating anyone for sainthood here," the U.S. official told reporters when asked about Betancourt's past.

The CEO is not facing any charges in the U.S. for violation of its laws, the official said. "This individual, in particular, is a proven oil operator who we believe can, given his knowledge of the industry, bring these fields into productive capacity that produces the oil necessary to generate the revenue necessary for Venezuela to emerge from really 20 years of being in the hole," the U.S. official said.

Betancourt scaled NABEP's production in Venezuela from 18,000 barrels per day to more than 200,000 bpd, the company has said. This makes NABEP the second-largest private oil producer in the Venezuela, according to the company's statements. NABEP has said the deal will bring nearly $100 billion of investment to Venezuela's oil sector.

Its near-term goal is to increase its production to more than 1 million bpd. Legality uncertainty But the U.S. government's partnership with NABEP faces legal and political uncertainty that raises doubts about the deal's long-term viability.

"As with the other equity deals, the Trump administration does not appear to have laid out any legal rationale or justification for how they think they can do this," said Peter Harrell, who served as an international economics advisor on the National Security Council under President Joe Biden. U.S. government statements have created confusion.

Before the deal was announced, the Pentagon said "the Office of Strategic Capital (OSC) does not take equity stakes in private companies." "Under its statutory authority, OSC's role is strictly limited to providing capital assistance in the form of a loan, loan guarantee, or technical assistance," Pentagon spokesperson Sean Parnell said in a statement to CNBC on Aug.

28. The White House then confirmed Monday that the OSC would receive a 35% stake in NABEP under the deal. A U.S. official subsequently told reporters on the Tuesday call that "the equity position is structured consistent with the statutory authority granted to the Office of Strategic Capital."

If a Democrat wins the 2028 presidential election, the deal will be reconsidered at the least and possibly terminated altogether, said Bob McNally, president of Rapidan Energy. If a Republican is the next president, a future Venezuelan regime could rip the agreement up, McNally said.

"The U.S. goal is to de-risk private long-term investment but significant political risks in both Washington and Caracas will limit the plan's impacts," McNally said.