By Luc Cohen and Brian Ellsworth
CARACAS (Reuters) - Venezuelan state oil firm PDVSA [PDVSA.UL] has signed a deal with little-known U.S. energy firm Erepla that is part-owned by a prominent Florida Republican to help increase the socialist-run country's plummeting crude oil output, the company said.
Erepla Services LLC, part-owned by Republican Harry Sargeant III and which Delaware state records show was only registered two months ago, said it plans to invest up to $500 million to increase production at three Venezuelan oil fields in exchange for a portion of the crude produced.
The arrangement faces significant hurdles including obtaining an exemption from Trump administration sanctions that block U.S. companies from providing financing to the government of President Nicolas Maduro or Venezuelan state firms.
It is a further sign that Venezuela is tapping inexperienced firms to stem massive declines in crude output as more established oil companies steer clear of the troubled country due to concerns about U.S. sanctions and overall dysfunction.
Erepla said that the agreement will "revitalize oil production" at the Tia Juana Lago and Rosa Mediano fields in the western Lake Maracaibo region and in the Ayacucho 5 bloc, in the eastern heavy-oil Orinoco Belt.
The company added that the deal gives it "enhanced managerial participation" in the projects and will be responsible for procurement, a key difference from long-established joint ventures between PDVSA and oil majors like Chevron Corp <CVX.N>, where PDVSA has full operational control.
It said Erepla would be "responsible for the entirety of the investment." A spokesman declined to elaborate on how it would raise the funds.
Neither PDVSA nor the Oil Ministry responded to a request for comment.
The Erepla spokesman confirmed media reports that Sargeant, who has served as finance chairman of the Florida Republican Party and currently runs asphalt trading and shipping firm Global Oil Management Group, is a part-owner of Erepla.
The spokesman declined to say what size stake Sargeant has in the company.
The deal is the first new partnership between PDVSA and a private company since Oil Minister Manuel Quevedo in August announced a set of "joint service agreements" with 14 little-known companies that did not appear to have experience operating oilfields and PDVSA.
Those contracts were similar to ones rolled back under late socialist leader Hugo Chavez, who expanded the state's role in the OPEC country's energy industry.
Output has continued to stagnate since the deals were signed, dropping to 1.46 million barrels per day in November from more than 2 million at the end of last year, according to OPEC figures, in a sign of the company's struggles under military rule.
COMPLYING WITH SANCTIONS
Washington has levied several rounds of sanctions on Venezuelan that block U.S. citizens from providing financing to Maduro's government without placing explicit restrictions on commerce or investment.
But because PDVSA is perennially cash-strapped, agreements to boost production usually involve partner companies putting up significant amounts of up-front funding that could run afoul of sanctions.
Erepla said it had applied to the U.S. Treasury Department's Office of Foreign Assets Control, which implements sanctions, for a "Specific License affirming the agreement." The Treasury Department, which is affected by the ongoing U.S. government shutdown, did not immediately respond to a request for comment.
Consulted on how a company with no evident oil-field experience would be in a position to take on the project, the Erepla spokesman said the firm's "ownership includes serious and significant oilfield production capabilities as well as heavy oil refining ability."
Maduro, who has deepened Venezuela's relationships with U.S. adversaries like Russia and China, often accuses the United States of plotting to overthrow him and steal the OPEC nation's oil wealth.
The deal has been criticized by hardline Chavez supporters, who say it cedes too much control to a foreign company.
"This is the worst giveaway in the history of our country's oil industry," former Oil Minister Rafael Ramirez wrote in a blog post on Sunday. "Maduro and Quevedo will have to be held to account for giving away assets belonging to all Venezuelans and ceding our sovereignty over managing our oil."
(Additional reporting by Mayela Armas and Corina Pons in Caracas; Editing by Susan Thomas)