US structured Venezuela oil position to protect it from dilution, official says

By Mike Stone

WASHINGTON, Sept 4 (Reuters) - The U.S. ‌government structured its 35% ​position in a ​Venezuelan oil venture as warrants that protect Washington's stake from being weakened by fresh raises of capital, a U.S. official said.

Speaking on Thursday about the deal announced last week by President Donald Trump, the official said the ‌Pentagon structured the stake using "penny warrants" in North American Blue Energy Partners (NABEP), giving it the right but not ⁠the obligation to buy the equity at a later date. Penny warrants can be exercised at a token price.

NABEP, controlled by Venezuelan businessman Alejandro Betancourt, was ‌granted 100-year rights to 17 oilfields holding ‌an estimated 65 billion barrels of reserves as part of the recent deal between Washington and Caracas.

The concessions were awarded without a competitive process. The U.S. has been working to revive the South American country's oil sector after American forces captured and ​removed former President Nicolas Maduro from power in January.

The official, speaking on background, explained the structure was designed specifically to maintain U.S. ownership levels even as NABEP raises money to support the project's capital needs.

Broad expansion of offshore oil fields requires billions in investment.

The warrants act ⁠as an anti-dilution mechanism that the U.S. holds until the project reaches maturity, "so that way the U.S. government will realize 35% of the full value of the project ... once ​it reaches mature production, as opposed to being diluted in the interim," the official said.

Crucially, the official said the arrangement still entitles the U.S. to dividends before the warrants are ever exercised. The ​structure, the official said, "gives the United States all the benefits of being ‌an equity holder today while protecting us from dilution while the project is being developed."

The official also confirmed the Pentagon holds a separate right of first offer to purchase NABEP's oil output. Twenty percent ⁠can be purchased at a price reflecting the company's production cost, rather than market rates, with the rest purchased at market prices.

The deal has drawn scrutiny over Betancourt's past business dealings, which have been investigated by U.S. and European authorities. He has never been charged and has denied wrongdoing. Other U.S. officials earlier this week defended ⁠the arrangement, casting the pact as part of a process to align the country's energy industry with U.S. interests.

Venezuela's oil output, which peaked above 3 million ​barrels per day in the late 1990s before collapsing amid sanctions and mismanagement, sits near 1.1 million to 1.2 million barrels a day — a level U.S. Energy Secretary Chris Wright said this week could more than double in a few years as separate deals with Chevron, Eni, ONGC, GeoPark ‌and GE Vernova announced on Wednesday also take effect.

Separately, the official said the Pentagon requires officials who previously worked at Cerberus Capital Management, which is not involved in the Venezuela oil deals, ‌to recuse themselves from any transactions involving the private equity firm's assets and direct any such deals to Commerce Secretary Howard Lutnick for review ⁠and approval.

Lawmakers have demanded greater transparency on contracts linked ‌to Cerberus-affiliated companies and have called for ​a cleaner break between Deputy Secretary of Defense Steve Feinberg, a founder of Cerberus, and procurement decisions.

Cerberus did not immediately respond to a request for comment.

(Reporting by Mike Stone in Washington; Editing by Nathan Crooks ‌and Cynthia Osterman)

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