Loan Management Key For PdVSA


BMI View: PdVSA has secured yet another line of credit from Gazprombank that will give the cash-tight firm some breathing room to support its operations. However, we continue to highlight that these loans alone will not help the national oil company boost its output to meet Venezuela's ambitious production targets if these loans continue to be mismanaged. However, if rules are changed such that PdVSA's joint ventures can directly use these loans, instead of accessing them only through their parent company or the state, this could ensure that funds are channelled into upstream investment and pose an upside risk to our current oil production forecasts.

Petroleos de Venezuela SA (PdVSA) has received a new lifeline from Gazprom 's banking subsidiary Gazprombank , in the form of a US$1bn loan to the Gazprom bank -PdVSA joint venture (JV) Petrozamora . The JV, established in 2012, oversees the development of Lagunillas Tierra and Bachaquero Tierra , two of the country's oldest and largest fields lying in the Orinoco heavy oil belt. The Petrozamora project aimed to revive production from these mature fields, which had been developed by US companies prior to their nationalisation in the late 2000s. It was hoped that Russian involvement could help resume output.

This continues a string of credit PdVSA had clinched in 2013 as it seeks to relieve its tight cash position even as the Venezuelan national oil company (NOC) attempts to meet its ambitious production targets. To date, it has managed to secure US$10.6bn in loans to fund several oil projects that are to contribute to the 6mn barrels per day (b/d) in output Venezuela wishes to achieve by 2019 - more than double its 2012 output of 2.47mnb/d.

New/Extended Loans Secured By PdVSA In Year-To-Date
Firm Amount (US$bn) Project Applicable Peak Output (b/d)
Source: Reuters, PdVSA, CNPC, Chevron, Rosneft, Gazprombank, BMI
Gazprombank 1.0 Petrozamora (Lagunillas Tierra and Bachaquero Tierra) N.A. Currently at 65,100
Chevron 2.0 Petroboscan (Boscan field) 127,000
Rosneft 2.6 Petrovictoria (Carabobo-2 North, Carabobo-4 West) 120,000
Schlumberger 1.0 Schlumberger projects N.A.
China Development Bank 4.0 Sinovensa (Carabobo-2) 330,000
Total 10.6

While such loans are much welcomed to allow the cash-tight NOC to continue its operations, we continue to highlight that they do not address the fundamental problem that have given rise to PdVSA's spiralling debt - the misuse of PdVSA as the government's bank. The NOC contributes to more than 50% of the state's federal budget. Loans have been given to PdVSA in the past, but they have been mismanaged. Instead of being channelled into upstream investment, some of this money has instead been used to fund the country's populist social spending programmes.

Venezuela: Holder Of World's Largest Oil Reserves
Countries With The World's Largest Oil Reserves At Start Of 2013 (bn bbl)

Despite our expectations for Venezuelan oil production to trend upwards through our forecast period to 2022, the extent of this rise is more modest than the country's oil reserves - the world's largest - are capable of. We forecast that oil production will only rise to 3.02mn b/d - well short of its 6mn b/d target - in 2019. Continued mismanagement of PdVSA, which controls the country's oil assets, will limit growth and investment opportunities in the Venezuelan oil sector.

Modest Rise Well-Short Of Output Potential
Venezuela Oil Production & Consumption, 2008-2022 ('000b/d)

However, this new tranche of loans could pose an upside risk to our current production forecasts. A PdVSA official hinted in May 2013 that the NOC could allow JVs to directly handle these loans, instead of processing them through the government or parent company PdVSA. This has not been confirmed. If implemented, it could ensure that these funds will indeed be spent on project development. Better management could help ongoing projects hit their targeted peak production levels and push output beyond our current projections.

In addition, these terms could also make other foreign companies more inclined to offer or extend their loans to PdVSA. According to Reuters, the NOC has also engaged Repsol and Royal Dutch Shell in talks in hope to secure lending from these major oil firms. Although both firms have declined to respond to these reports, more liberal lending terms that allow loan management to bypass PdVSA and the state could see the foreign companies more ready to make an offer. More financial support for upstream development in PdVSA would also raise its long-term output prospects.

This article is tagged to:
Sector: Oil & Gas
Geography: Venezuela