Chevron Corp has been banned from drilling or transporting oil in Venezuela and its assets there are "mothballed" as the Trump administration cracks down on money going to the government of socialist President Nicolas Maduro, a senior U.S. official said on Wednesday.
The restriction is expected to further reduce Venezuela's crude output, which has fallen by 20% so far this year due to a collapse in oil prices and intensifying U.S. sanctions. Chevron had already halted many of the activities Washington has now prohibited.
Seeking to increase pressure on Maduro, the U.S. Treasury Department late on Tuesday imposed tight new restrictions on Chevron's joint ventures with Venezuelan state-run oil company PDVSA, which could pave the way for the California-based company's departure, after operating in Venezuela for about 100 years.
The license prohibits Chevron or any American company from drilling, bartering or selling oil or petroleum products with the Maduro government as of Tuesday night, the U.S. official told reporters on a call.
Chevron's assets "are mothballed and essentially it's ... a de facto wind-down, which allows them to just ensure that their assets remain viable and that the Venezuelan people that work for them are able to continue getting paid during these dire times," the official added.
The license gives Chevron until Dec. 1 to "wind down" operations in Venezuela, an OPEC member, but the license could be renewed at a later date, allowing the company to stay there longer.
A second senior U.S. official said the Chevron action, part of U.S. President Donald Trump's "maximum pressure" strategy aimed at stifling trade in Venezuelan crude, "will further deprive access to financial lifelines" the Venezuelan leader depends on to keep his hold on power.
The Trump administration has waged a campaign of sanctions and diplomatic measures in an effort to oust Maduro, whose 2018 re-election was considered a sham by most Western countries.
Venezuela's oil exports have dropped by one-third since the United States and dozens of other countries recognized opposition leader Juan Guaido as the country's legitimate interim president in January of last year. Even so, Maduro remains in power, backed by Venezuela's military as well as Russia, China and Cuba.
Chevron said the new license permits the company to undertake limited maintenance of essential operations in the country.
"We will continue to comply with applicable laws and regulations," spokesman Ray Fohr said.
'WHAT LITTLE WAS LEFT'
Washington has ramped up sanctions on Venezuela's key oil industry in recent months. Trump's hardline approach has strong support in the Cuban-American community in south Florida, a key constituency in an important swing state as he seeks re-election in November.
Still, some U.S. officials have privately said Trump is frustrated over the failure of his Venezuela policy to unseat Maduro.
Chevron's joint ventures with PDVSA accounted for 23% of Venezuela's total output of just over 700,000 barrels per day as of late March, according to private estimates. Even before the new restrictions, the company canceled service contracts at its two largest joint ventures, which it attributed to falling crude prices.
"The collapse in prices made it practically irrelevant if Chevron was there or not," said Francisco Monaldi, an energy economist at Rice University, saying that investing in oil production in Venezuela was not profitable at current prices. "It becomes more relevant in three or four months if oil prices recover."
The Petropiar heavy crude upgrader - a Chevron-PDVSA joint venture key for turning Venezuela's sludgy crude into exportable grades, was operating normally on Wednesday to produce some 90,000 barrels, said one person familiar with the plant's operations.
The new restrictions also apply to oilfield services companies like Halliburton and Schlumberger, which have significantly scaled back activities in Venezuela but maintain a presence. The vast majority of their remaining contracts were with Chevron joint ventures, two industry sources said.
"This has dynamited what little was left of the national oil industry," said one person close to a Western oil company in Venezuela. "If we don't have contracts with Chevron, well, we don't have contracts with anybody.
Halliburton declined to comment. Schlumberger said it was working with outside counsel "to interpret the new license and what this means for operations in Venezuela."
The U.S. Treasury recently blacklisted two trading units of Russian oil giant Rosneft, for conducting business with PDVSA. Rosneft had accused Washington of double standards for allowing U.S. companies to continue working in Venezuela.
Rosneft announced last month it was exiting Venezuela and had sold its assets to an unnamed Russian state oil company. The company has since stopped shipping gasoline to Venezuela in exchange for some crude shipments, resulting in acute shortages of motor fuel across the South American country.
Washington has also pressured other companies that swap fuel for Venezuela's crude, including Spain's Repsol, to stop. The official said on Wednesday it had made clear to Repsol such swaps were "sanctionable."
Asked whether Rosneft has done enough to get sanctions lifted on its trading unit, the official said: "Not yet."
Washington was watching closely to see whether Rosneft Trading "permanently ceases any interaction with the Maduro regime," the official said.
(Reporting by Matt Spetalnick and Timothy Gardner in Washington and Luc Cohen in New York; additional reporting by Mircely Guanipa in Maracay, Venezuela and Liz Hampton in Denver; editing by Bernadette Baum, Leslie Adler and Marguerita Choy)