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Moody's downgraded Venezuelan heavy oil projects
Petroleumworld
CARACAS
Petroleumworld.com 06 28 07
In a statement was released by the ratings agency, Moody's Investors Service said it has downgraded the ratings of Corpoguanipa, S.A., Hamaca Holding LLC (together the Hamaca project), Petrozuata Finance Inc., and Sincrudos de Oriente SINCOR, C.A. to B2 from B1. In addition, the ratings have been placed under review for further downgrade.The downgrades follow the announcement yesterday of the impending assumption of majority ownership of the projects by Petroleos de Venezuela (PDVSA, rated B1), the Venezuelan state-owned oil company. The Hamaca, Petrozuata, and SINCOR projects are all integrated extra heavy crude oil projects located in Venezuela's Orinoco belt. Until now, all three projects have been majority-owned by foreign oil companies.
Moody said in the release, The government had given yesterday as the deadline for the foreign oil companies to agree to terms regarding compensation and the revised ownership structure. The terms of compensation offered to the foreign oil companies for the portion of their interests in the projects being acquired by PDVSA have not been resolved or made public, but it is Moody's expectation that they will be well below market value. TOTAL S.A. and Statoil ASA, part-owners in SINCOR, and Chevron, a minority owner in Hamaca, have reportedly signed memoranda of understanding with the government which would provide PDVSA with at least a 60% stake in the respective projects. However, ConocoPhillips, part-owner of Hamaca and majority-owner of Petrozuata, and ExxonMobil, part-owner of Cerro Negro (rated B3 under review for possible downgrade following a declaration of a prospective event of default by the Trustee), have refused to sign any agreements with PDVSA, apparently preferring instead to seek to bring the Venezuelan government to international arbitration subject to oversight of the World Bank. The Venezuelan government is expected to unilaterally expropriate their interests.
The statement continues saying, the government has indicated in public statements that the projects in their new form as empresas mixtas will continue to be responsible for, and will service, their respective debt obligations. The terms of the debt and the offtake agreements provide strong lender protection by requiring that all sales revenues be deposited pursuant to irrevocable payment instructions in an independently-administered off-shore account, from which debt service is paid prior to the release of any equity distributions or dividends. Distributions may also be restricted under certain circumstances and Moody's notes that substantial amounts have accumulated is some of these accounts. However, we remain concerned about scenarios that could evolve in the future as the projects operate under majority PDVSA control including circumvention of debt terms and structural protections. The government has other means of diverting cashflows from lenders as well -- for instance, it recently assessed ConocoPhillips with a bill for $465 million in unpaid taxes related to its ownership interest in Petrozuata, for which there has been no clear explanation. PDVSA's acquisition of the project notwithstanding, the government may still seek to collect these taxes from the project. These taxes could potentially be payable prior to debt service. This is just the latest in a series of tax and royalty increases the government has imposed on the projects.
The downgrade also reflects concerns that even if the projects continue to service their debt in a timely manner, there is significantly increased refinancing risk in Moody's opinion. Two of the projects face significant bullet maturities which will require refinancing as early as 2009. Under the current circumstances, it is uncertain whether and under what terms the projects will be able to successfully refinance their debt. Furthermore, while the shares of the foreign participants in the projects are pledged to lenders as collateral, those of PDVSA are not. As a result of the ownership transfer, lenders will effectively be dispossessed of a significant portion of their security. Barring a waiver from the lenders, the change-of-control and equity transfers to PDVSA are likely to be deemed technical events of default, which would give rise to acceleration rights.
The review will consider whether technical events of default are declared, how quickly they can be cured and what the likely consequences of a failure to cure are, as well as any clarifications on the intentions of the government regarding repayment of the debt and circumstances specific to each individual project.
The Hamaca, Petrozuata, and SINCOR projects produce, upgrade, and export heavy oil in the Orinoco region in southeastern Venezuela. The three projects are separately owned and operated, with current shareholdings by their ultimate owners as follows: Hamaca (ConocoPhillips 39.9%, Chevron 30.1%, PDVSA 30%); Petrozuata (ConocoPhillips 50.1%, PDVSA 49.9%); and SINCOR (Total 47%, Statoil 15%, PDVSA 38%).
Petroleumworld.com 28 06 07
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