NABEP: two locks for the operator; Venezuela's share has no equal

The oil agreement between the U.S. government and NABEP shields the company from the next governments of both countries, and it does so with two locks. One is in the agreement with Washington, governed by U.S. law and, failing that, Texas law. The other is in the hydrocarbons law Venezuela reformed in January. What Venezuela is owed has no equivalent lock.

The 18-page agreement is not public. What is known about its contents comes from a copy reviewed by a U.S. news outlet and described on October 20. The White House, the State Department, the Pentagon and NABEP responded by defending the agreement, without disputing its clauses. Venezuela's law, by contrast, is in the Official Gazette and can be read in full.

The Washington lock

According to that copy, NABEP will have a seven-member board, with a majority of U.S. citizens, that will govern it for an initial 15-year term and decide how its successors are chosen. Alejandro Betancourt is the only member the agreement names, as chief executive. Removing him, changing the board or approving deals with shareholders, affiliates or relatives takes five of the seven votes. The text requires no seat for the Venezuelan government.

Disputes between the company and the United States go to the federal court for the Northern District of Texas. Washington receives 35% of the parent company at one cent per share, over a 75-year term; the right to buy 20% of the crude at $30 a barrel, according to one of the supporting documents; first priority on the rest for 50 years; the entire supply if it declares a national emergency; and the right to match any better terms NABEP gives anyone else.

The document is marked "sensitive." A clause bars NABEP from disclosing its existence and terms.

People involved in the negotiation said the structure was designed so that neither a Trump successor nor a future Venezuelan government could dismantle the company. In exchange, NABEP must maintain anti-money-laundering controls, accept audits and inspections by the U.S. government and provide it with budgets and financial statements. It is unclear whether those reports will ever be made public.

Secrecy was, according to people who followed the deliberations, one of the advantages of choosing NABEP. Its parent company is in Barbados, whose corporate law does almost nothing to force disclosure of who owns what, and the agreement does not identify the investors who would benefit. One of them summed it up with an example: Chevron could not give the Pentagon 35% of its shares. When the government bought into Intel and MP Materials, the agreements were filed with the Securities and Exchange Commission, and it committed to vote with the board.

The Caracas lock

The second lock is not secret. It is in the reform of the Organic Hydrocarbons Law published in the Gazette on January 29, which the White House described as "adopted with U.S. support." The law says contracts with private operators will maintain the economic balance "originally agreed" for their entire term. If the legal, fiscal or regulatory framework later changes against the project, the Hydrocarbons Ministry must adjust royalties, taxes, fees or terms to "restore to the operating company the economic position it would have had" without those changes.

For the royalty, the law sets a ceiling. The state is entitled to "up to" 30%, the ministry sets each project's rate and may change it when necessary "to guarantee the economic balance of the project." The integrated tax, of up to 15%, and income tax can be cut for the same reason. The state's protection comes at the end: when the contract expires, assets and data pass to the Republic without compensation.

Along the way, the law clears up a doubt in circulation. The 25-year cap, extendable by 15, applies to joint ventures; the contracts with private companies the reform created do not carry it in their text. What does not add up is the story. Caracas spoke of 25 years, Washington of 100, and the copy of the agreement mentions neither figure: U.S. purchase rights last 50.

Venezuela's share

Venezuela did not sign the agreement upstairs.

The secretary of state said so on September 1: "this is not an agreement with the interim government. It is with a private company." The White House promised about $200 billion in royalties and taxes for Venezuelan governments over the first 25 years, and the copy of the agreement does not explicitly oblige NABEP to pay them. That obligation would have to be in the Venezuelan contracts, which have not been published. The acting president spoke of a minimum royalty of 16%. The law sets no minimum, so if one exists, it is in those contracts.

The discount has a price. With output close to 200,000 barrels a day, 20% is about 40,000. At $30 a barrel, against the $93.75 Merey averaged in September according to OPEC, the difference comes to about $2.5 million a day, more than $900 million a year. NABEP pays it first, and 35% of NABEP is owned by the same government that buys. The Venezuelan treasury may pay too: if the royalty or income tax is computed on the sale price, a barrel sold at $30 leaves less than one sold at market price.

Neither the copy of the agreement nor the law says on what price it is calculated.

Nor did the National Assembly approve a contract. On September 1 it voted a "backing" of the agreement, which reaffirms Venezuelan sovereignty over its resources and speaks of 25 years.

Who can open the locks

In Washington, the question is under what law it was signed. The agency the government has for investing abroad, the DFC, cannot invest in Venezuela: a bill by two Republicans from May proposes removing the country from its list of countries of concern, and it has not advanced. The Pentagon's Office of Strategic Capital was used instead, whose law defines the assistance it can provide as a loan, a guarantee or technical assistance, and does not include oil among its sectors. Four Democratic senators pointed this out in a letter on September 30.

November 3 decides who asks those questions from January. With one chamber, Democrats could subpoena documents they can now only request by letter, and make public what today only the Senate can read.

In Caracas, the lock is the law. María Corina Machado, in the country since Sunday the 25th (how she returned), said in mid-October that she would respect contracts that comply with Venezuelan law and that Betancourt would not be a serious partner. The law they would have to comply with is January's, and it already says who pays if it is changed: the state, by compensating the operator. Betancourt has not been charged in any country.

Three documents would change this reading: the agreement with its "implementation documents," still under negotiation and on which closing depends; NABEP's contracts with the royalty for each field; and the rule stating on what price the oil sold to Washington is valued. Until they appear, the operator has two locks and Venezuela's share depends on papers no one has shown.