Venezuela Signs Oil Agreements With Chevron After US Deal

0:00Bloomberg Businessweek Daily is brought to you by HPE, bringing you the self-driving network, a network that's self-optimizing, self-healing, and self-protecting, and only continues to get smarter. Learn more at hpe.com slash networking. Some people treat ChatGPT like some kind of smart search engine, and some use it to get work done. ChatGPT Work is a new way of working in ChatGPT that can take action across your apps and files, stay with a project for hours if needed, and turn a goal into finished work. It's designed to help you move from a chaotic starting point to a reviewable first version.

0:36So all the source materials, briefs, and scattered information that you have to grind through to turn into something useful can just become something useful. Put ChatGPT to work on your most ambitious ideas and projects. Get started at ChatGPT.com by selecting Work Mode, available on Plus and Pro plans. Healthcare doesn't always work great. If you've ever waited on a refill or couldn't schedule an appointment, you get it. That's the kind of stuff Optum is changing. They're using data and technology to integrate patient care, pharmacy, and everything else. So healthcare is connected, not complicated.

1:13What's that look like? Cheaper prescriptions that are easier to get and care that looks at the whole person. How you need it. Optum is helping make healthcare work as one for everyone. Learn more at business.optum.com. Bloomberg Audio Studios. Podcasts. Radio. News. This is Bloomberg Business Week Daily. reporting from the magazine that helps global leaders stay ahead with insight on the people, companies, and trends shaping today's complex economy. Plus, global business, finance, and tech news as it happens. The Bloomberg Businessweek Daily Podcast with Carol Masser and Tim Stenebeck on Bloomberg Radio.

1:58Bloomberg News Washington correspondent Tyler Kendall is in Venezuela where she spoke earlier today with both the U.S. Energy Secretary as well as Mike Wirth, the CEO of Chevron. Tyler, welcome. What can you tell us about what energy companies are doing today in Venezuela? Well, we actually just finished a signing ceremony that took place in the presidential palace where I am right now, where we saw a flurry of deals from the private sector that are boosting their investment to help drill more and increase the oil output in Venezuela. Because relatively speaking, we really haven't seen production ramp up in the wake of the of Nicolas Maduro, data analyzed by Bloomberg News, showing that Venezuela right now is averaging about 1.1 million barrels per day.

2:39That is well below the height of production nearly three decades ago. That was around 3.5 million barrels. The backdrop here is that senior administration officials tell me this is really part of a bid to try to make the industry more comfortable in investing in Venezuela amid this relative hesitancy. And the backdrop includes that U.S. government deal where the government is going to be taking this equity stake in a private company that has been granted a 100-year lease to develop nearly 17 strategic oil fields. There are some questions here about the legal durability as well as the feasibility when it comes to scale.

3:15But as you're about to hear, the U.S. Energy Secretary told me that they are expecting to ramp this up at full speed. There's scale already in several of those fields. A number of them haven't seen any meaningful development yet. Some of them were at Russian partnerships or Chinese partnerships or frankly criminal partnerships. So this is to bring these fields into real commercial development. But the speed of things, I mean, so far we have gone at Trump speed in Venezuela. Country production is up 25 percent. Exports are up 50 percent. We think even for production today already elevated, that could double by the end of this decade.

3:57The U.S. government will also be granted the right to purchase 20 percent of the production output from this joint venture at cost. So below market price, we're told that that will then be used to refill the Strategic Petroleum Reserve, which is at record lows, though. Tim, we heard I asked the energy secretary directly about whether or not Venezuelan food would really go into the SPR. And he said instead this is going to be some sort of swap mechanism. but it is designed to help bolster those supplies since they are running pretty low. And Tyler, you've had a busy day. You also spoke with Chevron CEO Mike Wirth.

4:32What exactly did he tell you? I know a lot of questions around what kind of protections that Chevron built into this investing deal. Right, exactly. That is perhaps one of the biggest questions here. What exactly did they get either from the Venezuelan government or assurances from the U.S. government when it comes to expanding investment here in Venezuela on the heels of what is the largest financial commitment that we've seen so far from a major oil company since the ouster of Nicolas Maduro. And I'll let him answer that question for me. Take a listen to what he told me earlier when I pressed him on exactly what this contract is going to look like.

5:09As important as the commercial and fiscal terms were the legal terms and the protections for investors, which is an issue that we deal with in many, many countries around the world. And And so we have provisions in there that are very strong relative to other contracts as it relates to resolving disputes, ensuring that the tax and royalty regime that we've agreed to and will invest under isn't changed on us.

5:40Worth told me that this development is expected to double Chevron's development here in Venezuela over the coming years. Lisa and Tim. He's currently right now inside the presidential palace meeting with these other energy CEOs, as well as the energy secretary and the interim president of Venezuela, Delce Rodriguez. Left with you. I'm wondering what happens next. I mean, there's a lot of questions, not just about the durability of this deal, as you mentioned, how many years this continues to go on. But what's the next thing that you're watching out for to try to understand the full extent of American investment in this country?

6:20Well, there are questions here about exactly what happens with the 17 strategic oil fields. It is our understanding. And the secretary confirmed to me that in this joint venture, they're not going to have the ability for this private company, North American Blue Energy Partners, to solely develop it on their own. That means that they're going to have to bring in some other producers. There are questions here about whether or not those other producers are going to want to do it. But that is the point of today, to try to get their interest in order to make this a viable investment and commitment, which they say could produce 65 billion barrels of oil.

6:56So there's questions there. There's also some questions here around the legality of this deal related to Venezuela's constitution and whether or not there was a competitive bidding process involved. The State Department says that this was fully vetted and it does meet that legal scrutiny, but that could be also something to watch in the coming days. All right. Tyler Kendall, she's Bloomberg News Washington correspondent in Caracas, Venezuela. Tyler, just great, great work down there. Appreciate you taking the time to join us too here on Bloomberg Business Week Daily. You're listening to the Bloomberg Business Week Daily podcast.

7:25Catch us live weekday afternoons from 2 to 5 Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube.

7:36Fighting between the U.S. over control of Stradivarius and Iran, it's intensified, okay? It was at a lull and now it's triggering fears of extended conflict. Also, a fresh jump in energy prices. That's what we're seeing right now. The war passing its six-month mark. So we want to get you caught up to date with all this. Joining us now is Chris Kennedy. He's Bloomberg Economics, Economic Statecraft Lead. Chris, thank you for joining us. First of all, get us caught up to date. So what's the latest with the tit-for-tat strikes and what's sparking this rise in the conflict overall? all? Well, we're seeing basically a continuation of this tit-for-tat strikes followed by lulls.

8:14Right now, we've seen attacks by the U.S. on various Iranian sites, retaliatory attacks from Iran on U.S. bases. And then on Monday, we saw a couple tankers hit by Iranian drones or missiles. And this is the new normal or the old normal, if you will. It seems to be where we are at the moment. Both sides seem to be avoiding a true escalation that could lead to full-out conflict again, probably for good reason. But in terms of what matters for the global economy, we're still waiting on a little bit of information. It's hard to really assess whether this most recent back and forth has affected traffic through the Strait of Hormuz and those vital oil exports from the Persian Gulf.

8:59We should have a little bit more information in a couple days. At first glance, It does seem like volumes are holding up. Right now, we're at a seven-day average export of about seven and a half million barrels per day. Still substantially below where we were pre-war, but up from the period, the early onset of the war. And yet, gasoline prices are the highest going back to June 10th. So the highest in more than two months at$4.12 a gallon. not what the president wants to see just a few months away from the midterms. Chris, I guess I wonder if this is going to be the status quo until something big actually happens.

9:44I think so, Tim. I think the issue that we're facing now is that global refining capacity is basically being exhausted. We are running as much crude through refineries as we can get right now. We're seeing diesel prices approaching all-time highs, probably will hit all-time highs in the coming days. Gasoline prices are high. And I think we're at this point, you know, just over two months out from the election, from the midterm elections in November, where what's happening in the strait probably won't, even if we had a complete cessation of hostilities, it will take some time for energy markets to normalize.

10:23And that goes for the Venezuela deal as well. Nothing that's being done at that level is going to have an impact on the near term in terms of energy prices that consumers and firms are paying. Well, Chris, I want to touch upon the Willie Wedd. Chevron CEO Mike Worthy said he sees a steadier oil market due to increase supplies from the street. But he did say there's also risk. And, of course, we see that, too. What was your take on his reaction? Yeah, so I think we are seeing, again, we're seeing exports through the Persian Gulf increase. We're seeing that the U.S. and allies have figured out a way to shuttle oil from inside the Strait of Hormuz to outside the Strait of Hormuz and deliver that to the global market.

11:06But there are risks, of course. There's risks to that traffic if we continue to see, if we see an uptick of attacks on vessels. But I think, you know, we're dealing with a larger problem here. Ukraine has disrupted a lot of Russia's refining capacity. Russia has traditionally been a source of the significant amount of traded diesel, for instance. We're seeing demand for diesel from Brazil. We're getting into planting season in South America. There's just a lot of pressure points. There's a lot of points of failure. Global stockpiles are running low. We entered this conflict with record stockpiles.

11:40Those have largely been exhausted. A lot of the emergency releases are trending downward now. So I think we are in this very sort of fragile energy market where there's not a lot of downside to refined product prices and there is potentially upside. Chris, I want to stick on Venezuela because this note from you and your colleague Jimena Zuniga really got my attention. And it's about something that we haven't talked about much in the last few days with regard to increased investment in Venezuela. And that has to do with what this means about the view of America in the country. You and Jimena writing that this could rekindle nationalist and anti-American sentiment that had largely receded.

12:22I think it is notable. We've had some reporting over the weekend about the way that this deal actually united folks against President Delce Rodriguez. Why should we be so focused on the view of America in Venezuela right now? Well, I think are we going to see a democratic transition in Venezuela? Our view is yes. It's a matter of when, not if. And the problem now is you have the Trump administration inking a deal with this interim government that gives the U.S. effective control over Venezuelan oil reserves for 100 years. I mean, this really harkens back to previous, if you think about Iran in 1951 to 53, where the U.S.

13:04backed a coup of the Iranian, of the democratically elected Muzadek in 53 and backed the Shah and the knock-on effects over time there. What we're seeing here is the situation where the U.S. has effectively endorsed this interim government, essentially for the time being, really backing away from hard timelines on a democratic transition. And it really is reaffirming some of the more cynical but perhaps realistic takes at the onset of this war, or sorry, of the Maduro operation, that this was all about oil. Chris, I want to see if you can touch on sanctions for a bit and kind of where we stand with that.

13:46You had Treasury Secretary Scott Besson. He told reporters at the G20 finance summit that was recently that Iran leaders were, quote, panicked. That's the word he used over the country's economic problems. Are they? Because now we see things start to spark up once again. It's hard to say. So, of course, we have the big elephant in the room when it comes to the U.S. sanctions program, this economic warfare or asphyxiation, the terms that are being thrown around here. The big elephant is China. President Xi is planning a visit to the U.S. in a couple of weeks. really, if the U.S. is going to take a really hard line on Iran, it will require the U.S.

14:30to start sanctioning major Chinese banks, trading houses, other entities. And so far, we've seen no appetite for that from the Trump administration, and for good reason, because Beijing still has significant leverage over the U.S. in terms of rare earth exports, but also in a number of other areas that we probably haven't even observed yet. Chris, there's so much to talk about with you. I mean, we're running out of time. We could go completely around the world with you. What is the one area, just in the last minute that we have with you, that investors, in your view, need to be most focused on about affecting the global economy?

15:11It's a good question. There's truly so much. Of course, I mean, bond markets are something that everybody's watching right now. We've gotten a little bit of a slightly calmer today. But in terms of energy markets, I really do think that we are in a very difficult situation right now. And I think there's going to be a question of what happens in the next two months as President Trump approaches the midterms. We're seeing that races are continuously tilting toward the Democrats. Is the president going to feel like he needs to take some additional action, either to resolve the situation in the strait or perhaps distract from the situation in the strait.

15:49It's very hard to predict what this president will do. But this is this is the reality of the situation right now. There's not much that the status quo can offer him. Yeah. Whether or not the Republicans who are up for reelection want this to be the focus. Chris Kennedy is economic state craft lead for Bloomberg Economics. We should note, too, that the president said he will make many campaign stops in 30 days before the election. Stay with us. More from Bloomberg Businessweek Daily coming up after this.

16:41way of working in ChatGPT that can take action across your apps and files, stay with a project for hours if needed, and turn a goal into finished work. It's designed to help you move from a chaotic starting point to a reviewable first version. So all the source materials, briefs, and scattered information that you have to grind through to turn into something useful can just become something useful. Put ChatGPT to work on your most ambitious ideas and projects. Get started at chatgpt.com by selecting work mode available on plus and pro plans what if you could have more wins more support more sound effects at lpl financial we like the sound of that because lpl offers more advisors what if you could have more ways to help your clients ready to invest what if you could find an advisor that really understands you when it comes to your finances your business your future.

17:37At LPL, we ask, what if you could? Paid advertisement. Investing involves risk, including potential loss of principal. LPL Financial LLC member FINRA SIPC. You're listening to the Bloomberg Business Week Daily podcast. Catch us live weekday afternoons from 2 to 5 p.m. Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube. Well, I'm watching shares of cannabis company Aurora Cannabis and Curaleaf. U.S. listed shares of Aurora up about 1.4 % right now. 1 % right now. U.S. listed shares of Curaleaf up about 2.7%. Here's why we are watching. Aurora Cannabis urging shareholders to reject Curaleaf's unsolicited takeover bid.

18:24Curaleaf responded to Aurora Cannabis's director circular, reaffirming its hostile takeover bid at a 45 % premium to Aurora's unaffected trading price and urging Aurora shareholders to engage. There is a lot happening. And for more, we're turning to at least one side of this. And that's with Miguel Martin, the CEO of Aurora Cannabis. He joins us from Richmond, Virginia. Miguel, you and the board say this undervalues Aurora. I get that. I understand the sentiment, certainly. Apart from that, though, why do you think this is not in shareholders' best interests? Well, first and foremost, thanks for having us to talk about this important point.

19:03So when we looked at this offer, we look at the totality of the offer. It is our responsibility to do what's best for shareholders. So the first thing the company did is establish a special committee for that with some of the best advisors in North America. And you referenced the director circular in there. You see an independent opinion on valuation. You've also seen comments from some of the leading analysts in the cannabis space, particularly TD Cowan, all talk about the inadequacy of this offer. And so I think it really comes down to three points. The first point is the actual price for it with a cap of five dollars doesn't recognize the innate value of these assets.

19:41Secondly, for a company that is debt free with almost 150 million in cash being looked at to take paper from a company that's over a billion dollars in debt and trades on a secondary exchange, this doesn't seem to make sense for our shareholders. And lastly, when you look at the way the offer sort of lands in terms of common multiples and other valuations, it just doesn't seem to be there. So therefore, we've made the recommendation to our shareholders. They get to make the final determination. nation. In Canada, it's 105 days. And so this process will continue. And we put a lot of information for our shareholders on protecturora.com, where they can see these details that were laid out in the circular today.

20:22All right. So Miguel, you laid everything out for us, but what is it going to take to change your mind? What do they have to do differently? Well, I think very simply, you know, the nature of the offer has to be more compelling in terms of being representative of these assets. By their own admission, these EU GMP production facilities in Canada, servicing some of the highest regulatory markets in the world, like Germany and Poland and UK, have innate value, and that value is increasing. We think our standalone plan is very compelling, but in terms of that offer, it's got to be commensurate. Again, in the circular, you can see an independent valuation that the special committee used to look at and lays out exactly sort of the thinking to your question.

21:03Is there a price, though, or a structure that you could tell us that would bring you to the table? Yeah, I'm not going to tell you the price or the structure. I can tell you that any offer that comes our way, we will look at. That was the first offer that we've received, again, through a special committee, which is proper governance. We looked at it. We used external advisors, and it was found to be inadequate. There is absolutely a price and absolutely a structure. We owe that to our shareholders. We've always said we'll do what's in the best interest of our shareholders. And again, they get to vote.

21:36This is not our decision. They have 105 days to tender their shares. We encourage them to reject this offer, again, because it's inadequate, both in its amount as well as its structure. So you are open to other offers then, Miguel? Yeah, absolutely. I think you have to be as a CEO or as a board of a publicly traded company. You work for shareholders. And again, there was valuation work put out in that circular. And if there was a compelling offer that we thought best met the needs of our shareholders, both in price and structure, we would recommend for it. Well, let's talk about the strategy that, Miguel, you say is working.

22:13You argue that Aurora has transformed into a focused, high margin company. You say business is growing, particularly in international markets and shareholders should retain value of momentum. them. Share with us specific milestones over the next 12 months that proves this standalone strategy can create more value than Cureleaf's offer. Yeah, you know, listen, it's a great question. So first and foremost, what do we agree upon? These are unique production assets that really could not be replicated or replaced in less than, say, four or five years unless you had hundreds of millions of dollars. So the EU GMP certification that all of our facilities now have, you know, are unique and allow us to access these key markets.

23:01You cannot get products into Germany, nor Poland, nor some of these other key markets without that designation. Our facilities have gotten it and have it for three additional years because we just got that certification. So that's the first milestone. Do you have the production capacity to be able to access these markets. I think secondly is, are you growing in those high margin key markets? And we are. We have a leadership position in Canada, Western Europe, Eastern Europe, as well as in Australia and New Zealand. And then when you look at the overall plan, you know, is it predicated on, you know, things that have to happen?

23:34Unlike the U.S., where there's a lot of maybe could have, would have, should have in terms of whether it's the tax treatment of 280E or the legalization of REC, the markets that we operate in have, you know, status of established regulatory regimes that we've been able to navigate. Last year, we were Canada's largest exporter. We just made a big acquisition of another EU GMP facility. So I think, you know, if you're asking for milestones, first, it's the production capacity, which you're seeing. And then secondly, we have earnings on November 4th, in which our shareholders will have the opportunity to see how well it's doing.

24:07But But clearly, you know, given the uniqueness of these assets, given the right decision to focus on medical cannabis, given the margins of the company and given the fact that we have no debt with over one hundred and forty million dollars in cash. I think you see a compelling argument to get fair value for these offers. And this offer just wasn't that. I want to just clarify something you said. You said you were the biggest exporter in Canada, biggest cannabis exporter, biggest overall exporter, biggest, biggest cannabis. Okay, I just wanted to clarify. Okay, thank you. We're not the first quarter in Canada of cannabis.

24:39Okay, thank you. Thank you. Lisa, go ahead. Yeah, so are we talking about medical cannabis? Because you're talking about growth, and I heard you explaining everything, especially overseas, but what do you think of the growth of the medical cannabis business in general? Medical cannabis has been the best part of the cannabis sort of ecosystem, you know, for the last couple of years. I think a lot of people that are in the U.S. don't understand what medical cannabis means internationally. Internationally, it is a physician providing a prescription to a patient. And in most cases, that's received at a pharmacy.

25:14The margins are strong because of that model. And it's also a much more consolidated piece of business. You know, as an example, in the rec business in Canada, which is one of the only federal rec constructs, It takes about 30 or 40 country companies to get to about 80, 90 percent of the business and take Germany or Poland, three or four companies where one of them gets you to 80 or 90 percent of the business. So medical cannabis is steadier and stickier from a pricing standpoint. It's more consolidated and has had the fastest growth and the most upside as more countries have brought on medical cannabis.