Venezuela’s oil sector gets a lifeline as the US eases sanctions and ONGC hopes to recover $413 million

Venezuela, a country with the world’s largest oil reserves, has been suffering from a severe economic and political crisis for years, partly due to US sanctions that have crippled its oil industry. But a recent easing of some of those sanctions by the Biden administration has raised hopes for a revival of the sector and a recovery of some of the unpaid dividends owed to foreign investors.

One of those investors is ONGC Videsh Ltd (OVL), the overseas arm of India’s state-owned Oil and Natural Gas Corporation (ONGC). OVL holds a 40% stake in the San Cristobal oilfield in eastern Venezuela’s Orinoco heavy oil belt, which is operated jointly by OVL and Venezuela’s national oil company PDVSA (Petroleos de Venezuela SA).

OVL and PDVSA signed two agreements in November 2016 for the redevelopment of the project, which provided a mechanism to liquidate the outstanding dividends of $537.63 million due to OVL. Under the loan arrangement, OVL provided a loan of $17.11 million and received part of the outstanding dividend amounting to $124.81 million as of March 31, 2023. However, due to US sanctions, these agreements came to a standstill and the balance dividend of $412.82 million remained pending.

The US Treasury Department partially lifted sanctions on Venezuela’s oil and gas sector last week, through a new six-month license that authorizes transactions in the country’s energy sector. The license is to be renewed only if Venezuela meets its commitments leading to fair voting in the next year’s presidential election. The US government also amended two other licenses to remove the secondary trading ban on certain Venezuelan sovereign bonds and PDVSA debt and equity.

The easing of sanctions will allow US companies to buy oil from Venezuela for the first time in years and make its shipments more attractive to global trade. It will also enable OVL to resume its operations in the San Cristobal field and recover some of its dividend income. According to sources, OVL is hoping to recover about $413 million of unpaid dividends from the project.

The partial lifting of sanctions will also benefit Venezuela’s oil production, which has fallen from about 3.2 million barrels per day (bpd) in 2000 to 762,000 bpd in September 2023, making it the 10th-largest producer in OPEC despite its significant oil reserves. Analysts expect that Venezuela’s oil output could increase by about 200,000 bpd, or 25%, in the next six months if the sanctions relief is maintained.

However, there are still many challenges and uncertainties facing Venezuela’s oil sector, such as the lack of investment, maintenance, technology, skilled workers, and infrastructure. Moreover, the political situation in the country remains volatile and unpredictable, as President Nicolas Maduro faces pressure from the opposition and international community to hold free and fair elections next year.

The US has said that it will continue to monitor Venezuela’s progress on electoral reforms and human rights and that it reserves the right to revoke or modify the licenses at any time if Venezuela fails to meet its obligations. Therefore, the future of Venezuela’s oil industry and its foreign partners depends largely on how the Maduro government handles the political transition and economic recovery.

This post Venezuela’s oil sector gets a lifeline as the US eases sanctions and ONGC hopes to recover $413 million was originally published at Finance Crave