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Venezuela Orders PDVSA Offices Relocate To Moscow; Putin Affirms Support To “Friend” Maduro

Venezuela Orders PDVSA Offices Relocate To Moscow; Putin Affirms Support To “Friend” Maduro

A top Venezuelan official has announced that President Nicolas Maduro has ordered national oil and gas company PDVSA to close its current European headquarters in Lisbon, Portugal and move it to Moscow. The announcement came from Venezuelan Vice President Delcy Rodriguez during a press conference standing alongside Russian Foreign Minister Sergey Lavrov in Moscow on Friday. 

“President Nicolas Maduro instructed the Lisbon branch of PDVSA to close this office and relocate the office to Moscow,”Rodriguez said, according to Russia’s TASS news agency. It appears the relocation is already underway, and is part of the framework of “broadening cooperation” with Russian energy giants Rosneft and Gazprom, according to the statement.

Petróleos de Venezuela, S.A., PDVSA offices, via AFP

The Venezuelan vice president said, “This is done in line with our plans to expand technical cooperation in the oil production area with Rosneft, with Gazprom. The moment now is the most suitable to do so. We are changing the format of our relations.” And she added, “It’s the perfect time, as we are reshaping our relations.”

As part of the press briefing, Russian FM Lavrov conveyed President Putin’s words of support and solidarity to his “friend” President Maduro in a further clear sign that Moscow has dedicated itself to helping Venezuela’s state oil company weather the storm of US economic war and sanctions. 

Lavrov explained in the press conference, “Russia will further help the Venezuelan government to solve social and economic problems, which includes lending support via legitimate humanitarian aid.”

This after what’s been widely acknowledged as failed US-led coup efforts over the past weeks in support of opposition leader Juan Gaido, who has tried to rally support for greater external “pro-democracy” intervention against the Caracas government. As part of her remarks Rodriguez slammed what she called a US “operation” of “sabotage” against a “legal government” spearheaded by White House envoy to Venezuela Elliott Abrams.

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Moscow Will Do “Whatever It Takes” To Defend Its Interests In Venezuela

Moscow Will Do “Whatever It Takes” To Defend Its Interests In Venezuela

After decrying US sanctions against Venezuela’s state-run oil company PDVSA as “illegal” and enforcing “unfair competition”, a Kremlin spokesman has reiterated that Russia is prepared to use “all mechanisms available to us” to defend its economic interests in Venezuela – interests that are closely tied to the Maduro regime.

Russia

According to RT, Russia has extended billions of dollars of loans to PDVSA, mostly via oil firm Rosneft. The company has extended $6 billion of loans which must be repaid in crude by the end of the year. Data from S&P Global Platts shows that as of November 2018, Venezuela had a $3.1 billion outstanding loan to repay to Rosneft.

Rosneft also has five joint upstream projects with PDVSA in Venezuela. Peskov said that Russia is still assessing the potential impact of the PDVSA sanctions for Moscow.

According to analysts briefed by Platts, whatever becomes of Maduro, Rosneft likely won’t be cut off from Venezuelan oil because the country has abundant reserves, and oil is practically the only ‘hard currency’ it can access. An analyst at a Western bank estimated that Rosneft assets in Venezuela are equivalent to some $2.5 billion, plus another $2.5 billion in crude supplies owed for the loans.

“The worst-case scenario – which is unlikely to materialize – under which Rosneft loses all the money it invested in Venezuela, would be biting but not critical for the company, with quarterly free cash flow at over $4 billion,” the analyst told Platts.

Meanwhile, the US has warned that the “path to relief” for PDVSA is via the “expeditious transfer of control” to opposition leader Juan Guaido, which the US insists should be followed by Democratic elections.

Though the Kremlin has denied the reports, rumors about the presence of 400 Kremlin affiliated mercenaries in Venezuela make more sense given how much money is at stake.

Venezuela’s Glaring Gasoline Crisis

Venezuela’s Glaring Gasoline Crisis

gas pump

Iran has dominated the headlines over the last few weeks, but Venezuela’s oil sector continues to meltdown.

Venezuela’s oil production fell to just 1.197 million barrels per day in September, down 42,000 bpd from a month earlier. However, because things are moving so quickly, that figure is now woefully out of date. With a few weeks left in 2018, many analysts believe production could fall below 1 mb/d.

Venezuela’s oil exports to the United States declined by 19 percent in October, compared to a month earlier. The decline came as a result of maintenance from the country’s upgraders, which turn heavy oil from the Orinoco Belt into exportable forms of oil. Without the ability to process, exports plunged.

But Venezuela is replete with operational and financial problems that are also contributing to the sharp decline in output and exports. Another issue has been the damaged port of Jose, the main conduit for oil exports. A tanker collision in August disrupted shipments from the port for weeks, and it remains only partly operational.

Nobody is hurting more than the Venezuelan people. At least 2.3 million people have fled Venezuela since 2015, according to a new estimate from the United Nations. The country’s inflation rate topped 833,997 percent in October, according to a report from Venezuela’s opposition-controlled Congress. The number is so astronomical that it is virtually meaningless, just as the currency itself is completely worthless.

Fuel shortages are growing worse. State-owned PDVSA has seen its refineries run into the ground, and many are not operational or operating at very low levels. On paper, the refineries can process about 1.3 million barrels per day, but in reality, many have ceased operations due to a combination of factors, including a breakdown in parts, a lack of oil supply to work with, and no financial resources. According to Bloomberg, refinery utilization is down to around 17 percent, down from 50 percent as recently as 2016.

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Ex-Venezuela Oil Boss: PDVSA Is Collapsing

Ex-Venezuela Oil Boss: PDVSA Is Collapsing

Venezuela

The man who ran Venezuela’s state oil company PDVSA for a decade after 2004 says that the country’s oil firm is on the cusp of total collapse and expects oil production to drop by 600,000 bpd each year amid lack of investment.

Rafael Ramirez, who has long been a rival of Venezuela’s incumbent leader Nicolas Maduro within Hugo Chavez’s inner circle, told Bloomberg in a phone interview that “PDVSA may fall into an accelerated spiral downward.”

According to OPEC’s secondary sources, Venezuela’s oil production averaged 2.154 million bpd in 2016 and 1.916 million bpd in 2017. In March 2018, its production plunged to 1.488 million bpd.

Ramirez became oil minister in 2002 and then head of PDVSA in 2004. During his ten-year tenure at the company, Venezuela’s production dropped by 10 percent. Since Ramirez left PDVSA, oil production has lost another 30 percent, with the steepest drops occurring over the past two years amid total economic collapse and lack of investment.

At the end of last year, Venezuela said that it would launch a criminal investigation into Ramirez over alleged corruption in a wider graft probe that ended with dozens of oil executives arrested.

Ramirez is currently in a self-imposed exile in a European city.

Some analysts saw the corruption purge at the end of 2017 as politically motivated with Maduro getting rid of opponents and tightening his grip over the oil industry—Venezuela’s only foreign exchange income source. Maduro also named a National Guard major general—Manuel Quevedo—as the new head of PDVSA and the country’s oil ministry. Quevedo’s lack of any oil industry experience further worried analysts that mismanagement would continue and even increase.

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Analysis: Venezuela’s oil production plummets amid chaos and industry defections

Analysis: Venezuela’s oil production plummets amid chaos and industry defections

Staggering debt, crumbling equipment and infrastructure, and mass worker resignations, have set back Venezuela’s oil industry decades, with experts saying they see scant prospects of any turnaround.

  • Crude output of 1.70 million b/d lowest since strike in 2003: Platts survey
  • Lack of safety protocols could cause ‘catastrophic’ refinery accident: analyst
  • Traders say PDVSA’s moves in the market signal company distress

Venezuelan crude output plummeted in December to 1.70 million b/d, according to the latest S&P Global Platts OPEC survey released Monday.

The output level represented a decline of 100,000 b/d from November and a low not seen for more than 15 years, when a major strike from December 2002 to February 2003 hobbled production.

Not counting strike-affected months, Venezuela’s production was last this low in August 1989, more than 28 years ago.

Sources in the country say new PDVSA President Manuel Quevedo, a brigadier general in the National Guard who was also named the country’s oil minister in November, sacked several high-level company officials in a so-called corruption purge at the end of the year and these people have yet to be replaced.

PDVSA is also facing internal protests and widespread resignations of refinery personnel who fear a serious accident, since security protocols are not being followed, added the sources, who spoke on condition of anonymity.

Several market watchers have put Venezuela top of their geopolitical risk lists, with the economic crisis and PDVSA woes seen likely to continue, if not accelerate, amid threats of further US sanctions.

“The Venezuelan economy could collapse at any moment,” said Torbjorn Kjus, oil market analyst with Norway’s DNB Bank. “We could envisage scenarios spanning from outright civil war to a state coup, to a general strike or even just one more year of strangulating slow death for the economy. Neither of these outcomes bodes well for Venezuelan oil production.”
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Venezuela Could Lose A Lot More Oil Production

Venezuela Could Lose A Lot More Oil Production

Venezuela

After defaulting on debt, Venezuela’s crisis continues to unfold, threatening to worsen the state-owned oil company’s production.

PDVSA reportedly told employees that they needed to carry out an austerity campaign, looking for ways to cut costs by 50 percent. The internal memo said that savings needed to be found amid the “national economic emergency” while avoiding any hit to the company’s oil production. Profits at PDVSA fell by 90 percent in 2016 compared to the year before.

But it is hard to see how the company can prevent a deeper slide in output after slashing spending to such a degree. Bloomberg reported that PDVSA is demanding financing plans from its joint venture partners, and that any projects will be halted if they do not receive financing. The memo included a long list of other cost saving measures: credit card use for employees will be limited, employees should use video conferencing instead of traveling; company vehicle use should be curtailed; and the use of electricity, water, cell phones, internet cards, computing gear and PR will all see reductions.

Venezuela’s oil production has been sliding for years, but the descent accelerated in 2015 amid low oil prices and a deteriorating cash position for PDVSA and the government. Production dipped below 1.9 million barrels in recent weeks, the lowest level in more than three decades.

The problems will only grow worse, especially because they tend to snowball. Without cash, PDVSA will struggle to import diluent to blend with its heavy oil – the result could be steeper production losses. Again, without cash, existing facilities cannot be maintained, likely leading to an accelerating pace of decline. An array of refineries are “completely paralyzed,” the head of an oil workers union told Bloomberg. Defaults on more debt payments could spark retaliation from creditors, which could eventually put oil exports in jeopardy.

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Next up for Venezuela: PDVSA’s inevitable default — #SaxoStrats

Next up for Venezuela: PDVSA’s inevitable default — #SaxoStrats

    • Venezuelan default a near-certainty
    • National oil firm key to country’s financial future
    • Production rise will require private sector involvement
Caracas, Venezuela

Caracas, Venezuela: As Venezuela’s finances teeter on the brink, its national oil firm looks to boost production. Photo: Shutterstock
A Venezuelan default is only a matter of time. While debt servicing has been a government priority, declining external liquidity and a deteriorating domestic situation (three-digit hyperinflation, shortages, and a political crisis between the government and the National Assembly) make it a daunting task.
By 2020, the country must repay 30% of the external debt due to expire in the next 23 years.
Venezuela can get access to liquidity via three main ways. The first option is to borrow directly on the financial market which implies that the country must pay an increasingly prohibitive risk premium due to investors’ fear of sovereign default. The second option, used intensively in recent years, is to borrow from allies, and especially China.
Since 2009, Venezuela has borrowed at least $60 billion from China (through the Venezuelan-China fund) in exchange for selling oil at a discounted price. Loans were used to pay foreign manufacturers and repay external debt, such as in 2015. This exchange of good practices persisted as long as oil prices were quite high and Venezuela’s political situation was fairly stable. Since 2016, China has made a strategic move to reduce exposure to Venezuela which resulted in the repatriation of Chinese oil engineers (who filled local labour shortages), the end of financial aid, and reduced oil imports.
In this context, it is quite unlikely that Venezuela will be able to count on China for repayment of its loans, which increases the probability of sovereign default in the medium term. The last option is through the national oil company, PDVSA (Petróleos de Venezuela SA).

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