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Analysts say Chevron's sanction waivers in Venezuela also benefit US interests

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Analysts say Chevron's sanction waivers in Venezuela also benefit US interests

Another round of sanction waivers will allow Chevron Corp. to continue to operate in Venezuela for at least the next three months, but some analysts anticipate additional extensions will be granted in 2020 as a way for the U.S. to maintain its presence in the turbulent Latin American country.

After imposing sanctions against Venezuela's oil sector in January, the U.S. Department of Treasury has been granting waivers to Chevron that allow the California-based oil major to maintain its partnership with affiliates of state-owned oil company Petróleos de Venezuela SA, or PDVSA. The latest three-month waiver allows Chevron to operate in Venezuela through Jan. 22, 2020.

Some U.S. government officials are reportedly in favor of allowing the waiver to expire to put additional pressure on Venezuela, and many analysts believe it will be difficult for U.S. President Donald Trump to grant future extensions ahead of the 2020 election.

However, others believe Trump will opt to roll over the waiver again in January 2020 in the hopes that socialist Venezuelan President Nicolas Maduro will be ousted soon.

"The view in Washington is that a regime change is inevitable. Having an American presence there [with Chevron] during any transition period would be beneficial for the U.S. and Venezuela," Schreiner Parker, vice president Latin America at Rystad Energy, said in an Oct. 23 phone interview.

If Chevron were to withdraw now from Venezuela, Russia would have the most to gain, PRICE Futures Group analyst Phil Flynn said in an Oct. 22 email. "The Russians are making their move, and this is a deterrent to keep them out," Flynn said, noting that Maduro's regime is deep in debt to the Russian government and could give its oil fields to Russia to help pay its liabilities.

Chevron's exit from Venezuela would disrupt one-third of the country's oil production, which would allow the Chinese or the Russians to move in to "backfill" that lost output, Parker said.

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In April, Venezuela's crude oil production slumped to its lowest level since January 2003, averaging 830,000 barrels per day, down from 1.2 million bbl/d at the beginning of this year, according to data from the U.S. Energy Information Administration.

The sanctions against PDVSA were first imposed at the end of January, preventing U.S. citizens from conducting business with PDVSA in an effort to cut off a key source of funding for Maduro's government. However, at the time, Chevron, as well as oil field services companies Halliburton Co., Schlumberger, Baker Hughes a GE company LLC and Weatherford International PLC, were initially granted a six-month waiver to continue operating in the Latin American country. At the end of July, that waiver was renewed for 90 days through the end of October.

"We remain focused on our base business operations and supporting the more than 8,800 people who work with us and their families. Our operations continue in compliance with all applicable laws and regulations," Chevron spokesman Ray Fohr said in an Oct. 21 email after the waiver extension was granted.

Chevron entered Venezuela in the 1920s and currently participates in five onshore and offshore production projects in the country. Chevron and PDVSA are partners in four joint-venture operations. Chevron has a 30% stake in Petropiar in Venezuela's Orinoco Belt and a 39.2% interest in Petroboscan in western Venezuela, and also has a presence offshore Venezuela, operating and holding a 60% stake in Block 2.

In the second quarter, Chevron's net production in Venezuela averaged 34,000 barrels of oil equivalent per day, none of which was upgraded to synthetic crude, according to an August filing with the SEC. The sanctions also ban U.S. exports to Venezuela of diluents, or unfinished oils used to process the country's heavy crude.

Chevron also said in the SEC filing that at the end of the second quarter, the value of its Venezuelan investments was approximately $2.7 billion and the company saw losses of $21 million for its share of net income from equity affiliates in Venezuela during the first six months of this year when the sanctions first went into effect.

"Future events could result in the environment in Venezuela becoming more challenged, which could lead to increased business disruption and volatility in the associated financial results," Chevron said in the SEC filing.

The sanctions require payments for PDVSA-owned products to be placed into an escrow account that cannot be accessed by the Venezuelan company. The U.S. had been a key destination for Venezuela's oil but without access to payments for its shipments, exports to the U.S. have plunged. Before the sanctions went into effect, the U.S. imported nearly 500,000 bbl/d of oil from Venezuela. According to the EIA, just 11,000 bbl/d of Venezuelan oil flowed into the U.S. in May, down from 114,000 bbl/d in April.

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