Possibly, if these events hadn’t all been concurrent, I mightn’t have noticed either tale, or the events it encompassed.
But they did all unfold at the same time. And they struck me quite forcibly.
One struck me in particular, for reasons I suspect will be obvious. So I’ll just mention that one at the outset, to get things started.
In October 2022, a batch of Venezuelan bonds bought by Goldman Saches back in May 2017 reached their final maturity date. The bonds were against the Venezuelan state-owned oil and gas company, Petroleos de Venezuela, S.A. (PDVSA). They were nominally worth $2.8 billion when purchased for some $865 million in 2017. Many business and political commentators thought it was a bad buy at the time: a use of investors’ money that was neither sound from a business standpoint nor impressive from a moral one.
An amount like $2.8 billion isn’t that significant in the grand scheme of global investing and finance, at the scale Goldman Sachs operates. But it’s still noteworthy that it was one of the related events around which the Biden administration’s decision last week to authorize Chevron to resume pumping oil in Venezuela unfolded.
And we’ll get to all that. But first, the other tale, which is about Nevada and Utah.
In recent weeks, the Biden administration proposed to open up some parcels on public land for oil and gas lease purchases in both states. The opening of a comment period was duly notified to the public, and The Hill reported on it last week.
Out of curiosity, I looked into the parcels in question, whose locations in Nevada and Utah can be found here.
I can’t say I was that surprised to discover that the parcels – depicted on the maps – are located outside the areas of richest-concentration, highest-payoff oil and gas reserves, as demonstrated by current drilling and recoveries and predicted by geological surveys.
Here are the lease locations in Nevada (from the PDF map here).
This map, zoomed out, shows the lease locations in relation to the locations of active leases and production in Nevada.
The state website map is interactive at the link, and you can verify that there are hardly any active producing sites in Lincoln County or the southeast corner of Nye County’s northern hook. (This site allows non-mapped searches that verify the same thing.) Note that the brown-colored locations are plugged wells; the black locations are active.
The proposed Nevada lease sales would be out in lonely, unpromising country.
Here are the leasing parcels in Utah, per the PDF maps here.
The zoomed-out view, with current oil and gas activity from the Utah Department of Natural Resources, is up to date.
I’ve chosen these particular full-state presentations for Nevada and Utah because they mesh well for a look at the states side by side.
The states share a common, major geological and mineral resources feature, the Mississippian Antler Basin.
A key feature in Utah, meanwhile, is the very active Uinta Basin on the northeast side.
These features give a general idea of where the oil and gas potential is especially good based on surveys as well as existing extraction.
The final map shows the states, the current production pictures, the major features mentioned, and the Biden administration’s proposed lease sale locations for 2023.
The unpromising locations of the parcels comport with what I’ve been hearing from industry experts about the Biden administration concessions on oil and gas drilling. It would take considerable investment and time to prove these leases out and extract product from them, if it’s even possible.
It’s a good question whether current prices make the prospect worthwhile, but that’s not even the right question. The right question is whether future expectations about oil and gas prices, versus the geological information and the predictable sunk costs of committed investment, make the prospect worthwhile.
One thing looks to be for sure. These leases, even if someone comes along to purchase them, aren’t going to do the American consumer any good in the next few years.
Was this just a rote exercise, meant to send superficial signals that are basically misleading about administration intent? I’ll leave you to explore further and form your own judgment about that.
But that’s not the end of it. There were clues to what this move might be “about” in the article at The Hill.
“The land in question would be leased under updated provisions from the Inflation Reduction Act, President Biden’s expansive climate and infrastructure package that became law earlier this year,” writes author Zack Budryk. “Under the updated regulations, minimum bids would be set at $10 per acre, a fivefold increase from the previous minimum of $2 per acre. This marks the first increase in the minimum in 35 years.”
The Hill continues: “The sales will also reflect updated royalty rates for oil and gas leasing, with minimum rates increasing from 12.5 percent to 16.7 percent. Meanwhile, while rental rates before the act were $1.50 per acre for five years and $2 per year thereafter, the new rates will increase to $3 per acre for the initial two years, $5 an acre for the third through eighth years and $15 in the ninth and tenth years.”
Well, gee whiz. If this were anyone but a Democratic federal administration, the entire universe would agree that it’s cynically trying to get someone to snap at leases at higher base rates, in order to boost revenues for the government.
It seems like a good question to me why U.S. companies that are already drilling nearby in proven areas, with lower rates and fees, would be eager to buy new leases at higher rates in order to either sink money into them in iffy political conditions, or just hold them for a while and see what happens. It does make me wonder if foreign buyers (perhaps with an agenda) might be the target audience here. (For completeness, I note that researching foreign ownership of land in the affected counties in Utah and Nevada didn’t turn up anything obvious. There is no registered foreign ownership in the lease areas of the Nevada counties – Lincoln and Nye – and the foreign-owned land in Utah doesn’t appear to overlap the lease areas. A significant landowner to the west of the northern parcel bloc in Utah is China-owned Smithfield Farms, but the parcels being proposed for lease don’t seem to be linked there.)
We’ll see where it goes. But we won’t see these leases making the slightest difference to gas prices at the pump any time soon.
Meanwhile, in Venezuela, a much more widely reported development: the Biden administration’s decision to allow Chevron to start pumping oil there again. The Trump administration imposed sanctions that stopped Chevron’s activities in Venezuela back in 2019, and the Biden team is now lifting the clamp off Chevron.
Except for one arcane and little-reported sequence of events, it’s mostly hard to draw firm conclusions from the various things that have been happening around the U.S. presence in Venezuelan oil and gas. But they involve an awful lot of federal investigations, claims against U.S. companies, allegations of corruption, and Chinese oil and gas activity in Venezuela.
I’ll briefly outline a summary – non-comprehensive, no doubt – of those happenings, before getting to the arcane business.
One item is that out of the blue, in early October, the Biden administration secured the release of a group of hostages known as the “Citgo 6” who were being held in Venezuela.
Citgo, the U.S. company, was bought by Venezuela’s PDVSA in a series of transactions back in the 1980s and 1990s, and throughout the regimes of Hugo Chavez and Nicolas Maduro has been a source of borrowing power for PDVSA, and hence for the regimes. This has resulted in claims being levied against Citgo in U.S. courts because of assets collateralized on behalf of PDVSA – and, inevitably, its owner, the government of Venezuela.
In November 2020, after Joe Biden was elected president, the Maduro regime imprisoned the Citgo 6 on bogus charges and has held them essentially on a hostage basis ever since.
In 2022, starting in March, Biden sent negotiating teams to Venezuela to talk about oil and gas cooperation – ostensibly to relieve the global pressures of energy scarcity and price after Russia invaded Ukraine – and on 1 October the Citgo 6 were released, in exchange for two Venezuelans jailed in the U.S. since 2015 on drug charges. The Venezuelans are relatives of Maduro’s wife.
Aside: In a bizarre turn of events, an individual – Leonard Glenn Francis – known as “Fat Leonard,” in whose allegedly corrupt logistics activities in Southeast Asia a number of U.S. Navy officials have been implicated, turned up in Venezuela not long before the prisoner swap. Francis was reported to be in Venezuela seeking asylum in late September 2022, after removing his ankle monitor on or about 4 September and escaping home confinement in the San Diego area, where he was awaiting sentencing on federal charges. (This will not, incidentally, be the most noteworthy development in our saga.)
Back to our story. In October 2022, federal prosecutors in New York indicted some Russians and two Venezuelans on charges of smuggling and money-laundering using Venezuela’s PDVSA as the “beard.” The Russians are thought to have been pursuing the effort on behalf of the Kremlin and Moscow’s war effort in Ukraine. One of the Russians indicted, though unnamed, sounds to the writers in the Fortune article like Oleg Deripaska, oligarch-about-Spygate.
A separate case with similar characteristics had been brought earlier in Connecticut, against another set of defendants.
Fortune points out that under U.S. sanctions, “Venezuela’s oil sells at a deep discount — about 40% less than the market price, according to the indictment. But such choice terms require some unorthodox maneuvering.” A discussion of typical shell companies, rogue shipments, and related maneuvers follows.
If this doesn’t seem like a situation in which the best course is to allow Chevron to resume pumping with partnered PDVSA entities in Venezuela, I’d have to agree.
That’s especially the case because in August 2022, another Venezuelan was indicted in federal court in Florida for bribery and corruption involving the PDVSA subsidiary Petropiar, which is Chevron’s partner in oil activities in the Orinoco Basin.
Don’t forget China
Taking things a bit out of turn: China also processes crude out of the Orinoco Basin, via a PDVSA crude-blending partnership called Sinovensa. As U.S. media outlets observe, the Orinoco heavy crude is some of the “dirtiest” available. Fox Business found it a head-scratcher why the Biden administration would prioritize having “dirtier” crude come into the U.S.
China, meanwhile, is taking advantage of the situation by collecting a “dirty oil” tax on the discounted product. The crude has wound its way to China via the maneuvers described in the Fortune article, which keeps Chinese companies and their foreign correspondents from running openly afoul of U.S. sanctions. The crude-blending operation via Sinovensa involves oil pumped in the Orinoco Basin, however, which probably includes the oil pumped by Chevron and Petropiar.
Petropiar, incidentally, continues to pump, and has all along. What Biden is permitting is a resumption of Chevron’s participation in the venture.
In that regard, another promising aspect of the China connection was reported recently by Voice of America. China’s CNPC (oil and gas) firm concluded a $3 billion contract for the blending operation with PDVSA in August 2019, after the Trump administration had imposed sanctions that suspended Citgo’s activities in Venezuela in January 2019. (Remember, Citgo imports crude from Venezuela to U.S. refineries. Chevron is the Petropiar partner; Citgo is a U.S. subsidiary of state-owned PDVSA.)
The 2019 agreement was a follow-on to an earlier $4 billion joint CNPC-Venezuela venture for multiple oil projects in the Orinoco.
In October 2019, CNPC and Sinovensa suspended their crude-blending venture due to “high stocks,” or in other words, more inventory on-hand than could be moved on the market.
If that sounds weird, given the timing at the very least (mere weeks after the August 2019 announcement of the venture); yes. No disagreement here.
A report some 18-plus months later indicated that the crude-blending operation restarted in 2021, although it isn’t clear from what I’ve found if the operation had resumed earlier and then been stopped again. The 2021 report cited a local gas plant outage as the reason for the suspension in question at that point.
Enter the Chinese defense industry
But here’s what VOA reported in August 2022 – about related events in 2019 and 2020.
In August 2019, at the same time the $3 billion crude-blending operation under Sinovensa was announced, the Chinese partner, CNPC, ceased transporting oil from Venezuela.
“China National Petroleum Corp (CNPC) stopped carrying Venezuelan oil in August 2019 after Washington tightened sanctions on the South American exporter,” says VOA.
“But it [oil] continued to find its way to China via traders who rebranded the fuel as Malaysian, Reuters has reported.” That path via third-party shell companies fits the description of sanctions evasion outlined by numerous news sources.
VOA continues: “Since November 2020 China Aerospace Science and Industry Corp (CASIC) has been carrying Venezuelan crude on three tankers it acquired that year from PetroChina, CNPC’s listed vehicle, the sources said.” CASIC is a nominal “contractor” basically controlled by the People’s Liberation Army.
Let’s pause for a moment to take stock. The picture of Venezuelan oil since 2019 has been a morass of sanctions-evading rogue shipments and cash discounting, with continued operations involving China exploiting the situation for sovereign-wealth gain and using a defense industry “aerospace” company to transport oil from Venezuela to China. Russian oligarchs and Venezuelan conmen have been indicted in U.S. courts for corrupt practices relating to this trade. (All of that, by the way, completely ignores Iran’s connection to oil and gas, and oil and gas transport and profits, in Venezuela. That would be a whole separate article.)
And now the Biden administration plans to permit Chevron to jump back into it. Keep in mind that what Chevron does, because it’s being authorized by the White House, would enable other parties to avoid U.S. sanctions by doing business with Chevron. In other words, more European and Asian companies could get back in without incurring U.S. sanctions. (Biden has already authorized Italy’s Eni and Spain’s Repsol to resume operations in Venezuela without being considered in breach of U.S. sanctions.)
The Biden administration announcement about Chevron spoke at length of prohibiting the Venezuelan state from profiting off this concession. But I gotta be honest with you: it doesn’t sound to me like this is the situation in which to take guarantees about that seriously. At best, there may be federal court indictments two or three years from now for all the shenanigans likely to ensue.
Rounding the final corner to that promised arcane development
There’s also a report from July 2022 that if the U.S. were to lift sanctions, Citgo would resume importing Venezuelan crude into the United States. (This report was made during the period since March 2022 when U.S. and Maduro regime officials were discussing such a prospect.)
There’s a recurring problem with Citgo arising from Venezuela’s use of it to leverage debt. As a subsidiary, Citgo is an asset of PDVSA, and has been used over the decades for borrowing, including borrowing from Russia as well as Western sources. Cases seeking debt recovery through Citgo have been percolating in U.S. courts for some time.
If Chevron and lifted sanctions breathe new life into PDVSA’s bottom line (including getting higher prices for Venezuelan oil), creditors are expected to line up at the trough to press their Venezuelan claims against Citgo. (Notice that the sales process for Citgo cited at the WSJ link kicked in just as the U.S.-Venezuela negotiations on resuming U.S. oil operations in Venezuela began; i.e., in March 2022. Note as well that the creditors may include China.)
In that regard, it’s interesting that Citgo announced its biggest quarter ever in the second quarter of 2022 (April-June; the announcement was made in the busy month of August 2022).
Citgo CEO Carlos Jorda didn’t hold back: “The good results will reduce debt, Jorda said. The improved revenue has helped the company´s plans to pay debt ahead of maturity. Citgo announced in a separate press release on Aug. 11 it was buying up to $284 million of its debt maturing in 2024.”
There’s a sense in which you might ask “Why wouldn’t they announce this great news?” – but in the midst of negotiations to lift sanctions on U.S. partnerships with Venezuelan oil, when Citgo is being eyed as the chief asset sump of Venezuela’s state-owned oil company, it seems more than a tad particular. You don’t need night-vision goggles to see the target painted on Citgo’s back.
So here, at last, is the arcane development. In 2019, the Trump administration put Citgo under the control of the Venezuelan shadow opposition government of Juan Guaidó, who in the view of the Venezuelan National Assembly had won the presidential election of 2018. The measure was to signify Trump’s backing of Guaidó.
“As part of a U.S. pressure campaign against Mr. Maduro,” the Wall Street Journal recounted, “the Trump administration in 2019 placed control of Citgo with U.S.-backed opposition leaders and shielded it from the claims of creditors owed money by the bankrupt government in Caracas.”
The Guaidó opposition government repudiated debt incurred by the Maduro and Chavez regimes, however. “The opposition didn’t make a scheduled payment of principal and interest in 2019 to bondholders,” WSJ continued, “and instead sued in New York federal court to have the debts declared unenforceable. A New York judge sided with bondholders in 2020, prompting the [Guaidó] opposition’s appeal to the [U.S. federal] Second Circuit.”
Now, the October 2022 nugget, which prompted the WSJ report: the Second Circuit sent the Guaidó opposition’s appeal to the New York State Court of Appeals.
One could take days longer and dig further, but it’s doubtful there’d be much public information to clarify why the U.S. Second Circuit prefers to have a state court issue this ruling. The ruling would ordinarily be issued in greater obscurity from a state appeals court, at the very least.
As with everything else – including the contemporaneous maturation of the Venezuelan bonds Goldman Sachs bought in 2017 – it’s food for thought, as the Biden administration seems to play a kind of charade with U.S. oil and gas leases, while going all-in on one of the most corrupt, dysfunctional, politically polluted, China- and Russia-infested oil and gas environments on the planet.
Feature image: A pumping jack does its tireless work in Utah. Fox 13 Utah video, YouTube.