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Gustavo Coronel :
PDVSA keeps losing systematically


PDVSA is in a on a slow boat to China "On a slow boat to China refers to a poker player who keeps losing systematically," Gustavo Coronel.

A July 29 report on ENI and PDVSA in the Oil and Gas Journal illustrates much of the chaotic situation related to the activities of the Venezuelan State-owned petroleum company.

The Orinoco heavy oil region, a very extensive area and still relatively little known from the viewpoint of its geology and reservoir behavior, has been divided into numerous blocks. There are no less than 25 deals of participation signed with companies from many countries, mostly state-owned and ideologically friendly with the current Venezuelan government.

Essentially many of these companies, Cuban, Iranian, Vietnamese, Russian, Chinese, Belarusian, etc, lack the technology, the managerial capacity and even the financial resources to face the challenge of developing and upgrading efficiently the heavy oils from the region.

To all these companies PDVSA has asked to finance not only their portion of the joint ventures, 40 percent, but also PDVSA's own 60%, since the company lacks money for this. According to their annual reports PDVSA reports yearly oil investments of some $8 billion, plus some $2-3 billion for social and other purposes. Obviously they cannot meet the investment requirements in the Orinoco Region, which are estimated, according to the report, at $80 billion in the short and medium term.

In this connection, Rafael Ramirez, PDVSA's president and Venezuela's Minister of Oil, mentions a $4 billion loan from the Chinese. In fact, the Chinese have already given PDVSA/ Venezuela (is difficult to know how much of this total has been kept by the company) some $36 billion in the last four years, to be paid in current and future oil production for the next 10 - 20 years. It seems clear that the country is mortgaging its oil production to pay for money being received, some of it already spent without much transparency. Many Venezuelans call this mortgage unconstitutional and there is no doubt that, under a different government, some of these deals will be subject to drastic revision and, even, repudiation. As far as I know, few true international, commercially oriented companies (ENI, Chevron, Repsol) seem to have a presence in the Orinoco Area and they might well adopt a cautious attitude. A cable from the U.S. embassy in Caracas (wikileaks) revealed that the relationship of ENI and PDVSA is not as friendly as it should be to guarantee permanency. I quote below:

Maccotta [Italian Ambassador to Venezuela] speculated that once these projects move forward, with the exception of Chevron, Eni would be the international oil company with the largest operations in Venezuela. Maccotta told Petroleum AttachC) following the meeting that Italy's OPIC-equivalent agency, SACE, is not involved in the financing of the Eni deals.

3. (C) Ambassador Maccotta shared that the XXXXXXXXXXXX trip was originally scheduled for XXXXXXXXXXXX, but then "Honduras happened" and Italy found itself on the "wrongside" of the GBRV. At Minister Ramirez's insistence, the signing ceremony was rescheduled for January 26 [2010], but XXXXXXXXXXXX changed it to January 28 to reinforce the GBRV's need for Eni. Maccotta shared that the GBRV had rejected Eni's proposed changes to the terms and conditions of the oil deals, but 30 minutes before the ceremony was supposed to begin, XXXXXXXXXXXX told Ramirez, "take it or leave it, I can get on my plane and move on." Ramirez apparently used that half an hour to convince President Chavez to accept all of Eni's proposed changes or risk losing the deal.

CARACAS 00000163 002 OF 002

Venezuelan-Italian Mixed Commission

4. (C) Maccotta also previewed Italy's agenda for the May Venezuela-Italian Mixed Commission meetings. Of the 76 oil services companies located in Zulia state that were expropriated on May 8, 2009, roughly 30 were owned by Italian citizens or descendents of Italian immigrants. (Note: No compensation has yet been paid for these expropriations. End Note) Additionally, Italy wants to discuss GBRV land seizures and approximately $1.2 billion in pending foreign exchange approvals for Italian-owned companies.

This ENI-PDVSA joint deal could be rather fragile and seems to depend on a satisfactory resolution of other issues between the two countries.

In the best of cases, if the money was available, the logistics involved in developing the Orinoco region are enormous. I would call them insurmountable in the short to medium term, given my knowledge of Venezuelan reality. Water, roads, housing, natural gas, pipelines, cement, people, food, are scarce in the region and some, such as gas supply and infrastructure, have long waiting periods to materialize. The managerial skills required to put some order in this Babel Tower are, in my opinion, beyond PDVSA's current capabilities.

As a result of these rather epileptic efforts and the growing demands for money from President Chavez PDVSA is acquiring new debt with great speed. Venezuela just issued a $4.2 billion bond emission, paying 11.95% interest, which is quite telling of their need for money. Officially PDVSA admits to a debt of some $30 billion but it could be much larger if we take into account the weight of the contingencies related to the string of about sixty expropriations they have done in the recent past, the arbitrations pending with Exxon and Conoco and other companies (Koch, H&P, Tidewater, OPIC Karimum, Williams Cos.), the $11 billion standing debt with contractors and the loss due to their negligence (or worse) of almost $1 billion of the Employees Pension Fund.

The debt with the partners in the Faja is not included in this tally. After everything is added we could be talking about a debt of $80 billion or more, a significant percentage of the net worth of the company.

08 10 2011

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Gustavo Coronel is a 28 years oil industry veteran, a member of the first board of directors (1975-1979) of Petroleos de Venezuela (PDVSA), author of several books. At the present Coronel is Petroleumworld associate editor and advisor on the opinion and editorial content of the site. All his articles can be read in Gustavo's blog. Las Armas de Coronel . Petroleumworld does not necessarily share these views.

Edito's note: All comments posted and published on Petroleumworld, do not reflect either for or against the opinion expressed in the comment as an endorsement of Petroleumworld. All comments expressed are private comments and do not necessary reflect the view of this website. All comments are posted and published without liability to Petroleumworld.

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Petroleumworld News 08/15/2011

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