jueves, 24 de noviembre de 2011

The collapse of Petroleos de Venezuela: the turn of HOVENSA?

HOVENSA is a joint venture between subsidiaries of Hess Corporation and Petroleos de Venezuela, S.A. (PDVSA) and operates a refinery on the Caribbean island of St. Croix in the United States Virgin Islands. This refinery originally had a crude oil processing capacity of 500,000 barrels per day, although this year it has reduced this capacity by 150,000 barrels per day, in order to improve the economics of the operation. The rating agencies have downgraded HOVENSA. Fitch has gone from  from BB+ to BB-. Standard Poor Ratings Services lowered its debt ratings from BB- to B, adding that the outlook “remains negative”. These ratings could go much lower if the parent companies, Hess and PDVSA, do not continue support the operations financially.

And this is the main problem. They either do not want or cannot afford to do it. Since 2008 PDVSA and Citgo have been talking back and forth, very hush hush, on the possibilities of Citgo getting in debt in order to buy the shares of PDVSA in the refinery. This would seem logical since Citgo is the company that has been buying much of the products of the refinery. However, such an action would further weaken the financial profile of Citgo and could simply transfer the problem from point A to point B within the PDVSA system.

Sources within PDVSA tell me that HOVENSA appears to be "in extremis" financially,  since the shareholders will not inject sufficient fresh money into the company. Insufficient investment has already made the refinery vulnerable to significant environmental fines. Fitch’s published report suggests that the situation of the company might be approaching the critical stage.

Of course, PDVSA’s problems are further compounded by its frantic efforts to get rid of Citgo. The company is being offered to Russian, Arab and Chinese groups. However, the information I have is that these are not world class but, rather, second or third class groups. Offers could be coming by the end of the year but I believe they will be highly unsatisfactory and could lead to nothing.

The financial agencies report that at the end of 2011 HOVENSA had “a cash balance of $32 million (June 2011”. This was defined as “less than adequate liquidity”, requiring the parent companies to inject fresh money through, at least, 2013. The agencies warn that capital requirements, poor refining margins and lack of parental financial support could put HOVENSA against the ropes.

It seems as if one of the early jewels in PDVSA’s international crown might be going down the financial drain.


3 comentarios:

Tom O'D. dijo...

Estimado Gustavo - A very informative piece. It leaves me wondering about Hess? Why does Hess not infuse capital? I haven't heard that Hess has any particular financial problems (perhaps I'm wrong - its stock is a 'bargain' right now; but it seems long term to be a strong company: http://seekingalpha.com/article/310111-hess-walgreen-2-stocks-deep-in-bargain-territory?source=yahoo ).

The implication then is that Hess has minimal trust in their partner, PDVSA? THe other questions is, if PDVSA is willing to 'sell' it to Citgo, why not to Hess, who presumably could in time revitalize the refinery--all things being equal (reliable Venezuelan supply and US market demand). Or are they not equal? Are there any fundamental problems, where no one much wants this refinery?

I'd also be very interested to hear your wisdom/analysis about the current state of affairs with the PDVSA refinery on Curacao. It seems in a similar (worse?) state of affairs. Does PDVSA indeed want to sell? I understand Curacao would be pleased with this, no? If so, why no takers?

Gustavo Coronel dijo...

Hi Tom: very good questions. I have to investigate further on Hess but, as you say, the level of trust is not what is needed to keep a solid relationship. Remember that PDVSA has secretly been trying to unload HOVENSA's shares onto Citgo.
Curacao is something else. It has been iddle for months during 2010-2011. The government of Curacao and PDVSA are not in good terms. I have to look into this refinery but the picture is not pretty.

Anónimo dijo...