Tags: oil | Venezuela | debt

Companies Seeking Oil From Venezuela to Cover Unpaid Bills

Wednesday, 07 January 2015 08:33 AM

Foreign companies working to develop some of Venezuela’s most prized oilfields are asking to be compensated with crude as a way to recover hundreds of millions of dollars in unpaid cash owed to them, a person with direct knowledge of the request said.

The money is owed by Venezuela’s state oil company to partners including Spain’s Repsol SA and India’s Oil & Natural Gas Corp., the person said, asking not to be named as the matter is private. One of the companies is owed $500 million, the person said. Output at the Carabobo and San Cristobal fields in the Orinoco heavy oil belt, meanwhile, is trailing targets.

The request to be reimbursed with oil is shining a light on the growing severity of Venezuela’s financial predicament. Boasting the world’s biggest oil reserves, the Latin American nation has seen its crude output slump since 2008 and imports of refined products surge as Petroleos de Venezuela SA revenue is diverted to social programs and fuel subsidies. Tumbling crude prices, dwindling foreign reserves and surging inflation made Venezuelan bonds the worst performers in emerging markets last year, with the implied probability of default over the next five years at 90 percent, the highest in the world.

“To the extent that PDVSA is being pulled in different directions and being used as a social financial arm, then it’s certainly an impediment to its ability to meet investment commitments,” Eurasia Group analyst Risa Grais-Targow said by telephone from Washington.

Investment Delays

President Nicolas Maduro, Hugo Chavez’s hand-picked successor, is counting on joint ventures in the Orinoco belt to offset declines elsewhere in the country. The world’s largest accumulation of heavy oil produced 1.3 million barrels a day last year with output forecast by PDVSA to reach 4 million barrels by 2019.

Producers have held back on investment amid deteriorating economic conditions and the ensuing arrears, according to Carlos Rossi, president of Caracas-based EnergyNomics. Exxon Mobil Corp. and ConocoPhillips continue to seek compensation after Chavez seized their stakes in Orinoco fields.

PDVSA dollar bonds due 2022, little changed today, have fallen 7.6 cents on the dollar this year to 45.1 cents.

At the Carabobo-1 project, output is forecast to reach 400,000 barrels a day with an upgrader converting the heavy crude into lighter oil. The field now produces about 12,000 barrels, or 3 percent of the target, with drilling and work on the plant and pipelines behind schedule, the person said.

‘Counter Offensive’

ONGC, through its overseas investment arm ONGC Videsh, and Madrid-based Repsol each own 11 percent of Carabobo, while Oil India Ltd. and Indian Oil Corp. have 3.5 percent each. Petroliam Nasional Bhd., Malaysia’s state-run oil company, announced plans in September to withdraw from Carabobo, without giving a reason. PDVSA owns 71 percent and sells the oil to Mumbai-based Reliance Industries Ltd.

Indian Oil’s director for business development Debasis Sen declined to comment. ONGC Videsh Finance Director S.P. Garg and Oil India’s director for business development N.K. Bharali weren’t available for comment. A PDVSA public relations official in Caracas declined to comment. Repsol also declined to comment.

ONGC Videsh also partnered with PDVSA at the San Cristobal field in Junin, where output is about 34,000 barrels a day compared with a targeted 40,000 barrels.

Venezuela produced 2.9 million barrels a day last year, down about 9 percent from a 2008 peak of 3.2 million barrels, according to data compiled by PDVSA.

In a televised address last week, Maduro vowed an economic “counter offensive” to steer the country out of recession, including an overhaul of the foreign exchange system. He didn’t provide details of his plans.

Cash Crunch

Harvest Natural Resources Inc. shares tumbled 49 percent on Jan. 2 after a deal to sell its remaining stake in the Petrodelta project was derailed by government conditions. Last month, OAO Lukoil signed a deal to sell its 20 percent stake in the Junin-6 venture to fellow Russian producer OAO Rosneft.

Vietnam Oil & Gas Group halted its $4 billion Orinoco project a year ago, saying the surging gap between the official and black-market exchange rates was increasing the cost of importing components and inflation was pushing up labor costs.

PDVSA’s cash crunch may lead to a scaling back of its social obligations to dedicate more resources to energy, according to Asdrubal Oliveros, the director of the Caracas- based consultancy Ecoanalitica.

© Copyright 2021 Bloomberg News. All rights reserved.

Foreign companies working to develop some of Venezuela's most prized oilfields are asking to be compensated with crude as a way to recover hundreds of millions of dollars in unpaid cash owed to them, a person with direct knowledge of the request said.
oil, Venezuela, debt
Wednesday, 07 January 2015 08:33 AM
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