Cisneros oil bet exposes Venezuela investment risks

Flagging Venezuelan oil fields at play in a $10bn inheritance battle shed light on the potential risks to private investors that the Opec country is courting to revitalize production.

A 40pc stake in the PetroDelta joint venture is among the assets in the estate of late Venezuelan billionaire Oswaldo Cisneros, who died in Miami last November. Although the joint venture controlled by Venezuelan state-owned PdV accounts for less than 1pc of Venezuela's crude production of around 500,000 b/d, the six heavy oil fields that it encompasses — holding an officially estimated 1.37bn bl of reserves — were once seen as a promising investment.

PetroDelta operates the El Salto, Temblador, Uracoa, Isleño and Bombal heavy oil fields in Monagas state, and the Tucupita heavy oil field in Delta Amacuro state.

CT Energy Holding SRL, a Barbados offshore company controlled by Cisneros, acquired the PetroDelta stake in 2016 in a complex financial transaction. The seller, Texas-based independent Harvest Natural Resources, operated in Venezuela from 1989 to 2017 when its shareholders voted to dissolve the company.

When CT Energy acquired the stake, Cisneros bet the venture would grow into a successful model for Venezuelan private-sector investment, departing from a pattern of PdV partnerships with big foreign oil companies.

Around the time of the deal, PdV said it had received a $1.13bn loan from PetroDelta, which it identified as Cisneros property, to boost production from 40,000 b/d to 110,000 b/d in five years.

Although PetroDelta connected its operations to the national power grid in 2019 to ensure electricity supply -- one of Venezuela's many upstream challenges -- oil production has dwindled to around 3,700 b/d, compared with 36,000 b/d when the acreage was still run by Harvest.

Since 2016, Venezuela's national oil industry has crumbled under the weight of mismanagement, corruption, labor flight and US sanctions. In a failed effort to remove Venezuela's president Nicolas Maduro, the US imposed financial sanctions in 2017 followed by oil sanctions two years later. Among the individuals subject to US targeted sanctions since early 2021 are CT Energy senior executives Alessandro Bazzoni and Francisco D'Agostino for alleged ties to an oil sanctions evasion network.

For now, PetroDelta is languishing in PdV's portfolio as the inheritance battle unfolds across several jurisdictions. Caracas-based law firm Tinoco, Travieso, Planchart and Nuñez, which represents the Cisneros estate, declined to comment.

Venezuela's Seniat tax agency has issued an inheritance tax bill for $3bn or 30pc of the disputed estate. "From Seniat's perspective, the quickest legal option to capture the $3bn may be to seize the PetroDelta stake and try to flip it to a new investor," a source close to the case told Argus.

Since last year, PdV has signed some two dozen contracts with local and foreign companies to reactivate oil fields. The investments are largely on hold in anticipation of legislative action that would provide a more robust legal foundation for private-sector control over joint ventures.