Cash-poor Caracas meets with oil executives

OREANDA-NEWS. February 09, 2015. Venezuela's energy minister Asdrubal Chavez and state-owned PdV chief executive Eulogio del Pino met with foreign oil executives today to "study measures to increase oil production and investment," the ministry said.

Executives from US major Chevron, Italy?s Eni, Spain's Repsol, China's state-owned CNPC, India?s ONGC Videsh, Japan's Inpex, European independent Perenco, Shell, Brazil's state-controlled Petrobras and local independents Suelopetrol and Vinccler attended the closed-door meeting at PdV headquarters.

PdV's financial and operational problems, and options to secure more investment capital and boost crude production, were discussed, a ministry official tells Argus.

A chronic lack of investment has steadily eroded Venezuela?s oil production capacity over the past decade, a trend that has been aggravated by the sharp drop in oil prices since mid-2014. Argus estimates that the Opec country currently produces about 2.3mn b/d of crude, short of an official 2.9mn b/d.

Venezuela?s market-priced, revenue-generating oil exports have dropped even faster than its production capacity. Around 800,000 b/d is consumed domestically. An estimated 600,000 b/d is shipped to Chinese firms to honor oil-backed loans. Up to 200,000 b/d goes to members of PetroCaribe, Venezuela?s regional subsidized oil supply program, with half of the total going to close ally Cuba.

The companies represented at today?s meeting hold minority stakes in 25 upstream joint ventures that operate mature oil fields in traditional upstream areas in Zulia, Anzoategui, Monagas and Guarico states. Several of the firms also hold minority stakes in four of seven Orinoco joint ventures that PdV launched in 2010 to develop a combined 2.54mn b/d of extra-heavy oil production by 2020.

Chevron, Eni, Repsol, ONGC Videsh and CNPC have minority stakes of 11pc-40pc in the PetroIndependencia, PetroJunin, PetroCarabobo and PetroUrica Orinoco projects, respectively.

These ventures, which represent a combined \\$70bn of capital expenditures, aim to develop a total of 1.49mn b/d, part of 2.54mn b/d of new Orinoco upstream capacity that PdV plans to have on stream by 2020.

The projects are currently producing only a trickle of oil, if any, not only because PdV has not been able to foot its share of investment, but also because of a lack of basic infrastructure in the remote region.

The government is hoping PdV?s partners will inject more capital into the projects to quickly boost production, oil executives tell Argus.

But even those companies with a substantial upstream presence in Venezuela are reluctant to put more cash into their joint ventures with PdV until the Venezuelan company starts to meet its share of capex on schedule. Growing political uncertainty tied to the country?s economic crisis has further diminished the appetite for investment.

Chevron loaned \\$2bn to its PetroBoscan joint venture with PdV in 2013, earmarked exclusively for the venture's capacity growth plans, but as of 31 December 2014, the company had disbursed only \\$297mn of the loan, according to PdV's recently released externally audited consolidated financial debt report.

CNPC, which arranged a \\$4bn oil-backed loan in 2013 to triple capacity at its Sinovensa crude blending joint venture with PdV to 330,000 b/d by 2017, had disbursed only \\$291mn of the loan as of December, the report indicated.

The companies want PdV to resume joint venture-related payments that appear to have stopped completely since September 2014 when long-serving energy minister and PdV chief executive Rafael Ramirez was named foreign minister. In December he was shifted again to the low-profile post of Venezuelan ambassador to the UN.

The foreign oil companies want PdV to release about \\$6bn in blocked dividends that they are owed, and pay past-due invoices for completed work at the joint ventures.

ONGC, which holds an 11pc stake in PdV's 400,000 b/d PetroCarabobo joint venture, has over \\$500mn of dividends generated by its San Cristobal oil field in Zulia blocked from repatriation.

Beyond the joint ventures, the Maracaibo-based CPV oil services industry association estimates that PdV owes contractors and suppliers about \\$17bn.

PdV expects to raise around \\$4.4bn in cash before the end of February, including over \\$1.9bn from the Dominican Republic's 20 January bond operation that erased over \\$2.2bn of its PetroCaribe-related debt to PdV.

PdV also is exploring a deal with Jamaica, which owes over \\$3bn in PetroCaribe-related debt, the energy ministry said.

PdV?s US downstream subsidiary Citgo will shortly issue \\$2.5bn in debt, structured as a \\$1bn five-year term loan and a \\$1.5bn bond issuance, with the proceeds to be sent to Caracas as a one-time dividend to parent firm PdV.

But neither the PetroCaribe debt payments nor the planned Citgo dividend will be enough to cover PdV?s financial debt payment obligations this year, and honor debts to contractors and suppliers, as well as pay blocked dividends owed to its joint venture partners.

Venezuela?s central bank currently has an estimated \\$21.6bn in international reserves, but only around \\$2bn is in the form of cash.

The economy is expected to contract by as much as 7pc this year, and annual inflation is approaching triple digits.