S&P
released its assessment of PDVSA yesterday, Monday July 30, 2012.
PDVSA’s
rating by S&P is B+, somewhere between B and BB. The definitions for these
ratings are:
‘BB’— Less vulnerable in the near-term but faces
major ongoing uncertainties to adverse business, financial and economic
conditions.
‘B’—
More vulnerable to adverse business, financial and economic conditions
but currently has the capacity to meet financial commitments.
I
believe the rating of S&P is extremely generous since it ignores some of the operational and financial difficulties the company has.
I have made some comments to the report, which is partly transcribed below (see link at the end of this note, if you wish to read the entire report by S&P) :
Overview
-- Venezuelan state-owned oil company
PDVSA's business and financial
performance
remain aligned with our expectation.
-- We are affirming our 'B+' rating on
PDVSA.
-- The stable outlook reflects our view
that PDVSA's relationship with
the
government will not change significantly over the next few years.
My Comment: PDVSA’s
relationship with the government could change dramatically in the next few
months. S&P is predicting a Chavez’s victory but this prediction could be
very wrong. A more professional appraisal would have at least considered
another scenario to the one linearly predicted by S&P.
Rating
Action
On
July 30, 2012, Standard & Poor's Ratings Services affirmed its 'B+'
long-term
corporate credit and senior unsecured ratings on Petroleos de
Venezuela
S.A. (PDVSA). The outlook is stable. This affirmation follows our
regular
annual review.
Rationale
The
'B+' rating on PDVSA, which is at the same level as that on its owner, the Bolivarian
Republic of Venezuela (B+/Stable/B), reflects our opinion that
there
is an "almost certain" likelihood that the government would provide
timely
and sufficient extraordinary support to PDVSA in the event of a
financial
distress.
My Comment: I find
this opinion extremely fragile. It says the Venezuelan government would
provide timely and extraordinary support to PDVSA in the event of a financial
distress. But the reality is different. It is PDVSA that is supporting the government
and, in fact, being mercilessly used by the central government as a vehicle for
progressive national debt. The Venezuelan government does not have the
financial capability to rescue PDVSA in a crisis.
We
assess PDVSA's stand-alone credit profile (SACP) at
'b+',
which reflects our assessment of a fair business risk profile and an
aggressive
financial profile. It also incorporates continued delays in
releasing
its financial information, as well as our view that the company
could
prioritize transfers to the government before debt payments in a
distressed
scenario.
My comments: PDVSA has
been diverting the money required for its investments and maintenance to the
central government. Not only are they late in presenting their financial information,
they are also late in paying debtors. No mention is made by S&P of the avalanche
of legal actions against PDVSA in international organizations. No mention is
made of the increasing debt profile of the company and of the diminishing
export levels due to domestic consumption. They are now resorting to asking
foreign partners for money.
In
accordance with our criteria for government-related entities, our view of
an
"almost certain" likelihood of extraordinary support is based on our
assessment
of the following factors:
-- "Critical" role in
contributing about 50% of the government's revenues
and
90% of the country's exports, and playing a key position in meeting the
sovereign's
political and economic objectives; and
-- "Integral" link with the
government, given its full and stable
ownership
of the company. We also believe that the government will provide
considerable
and timely credit support to the company in all circumstances.
My comments: Again, it
is not so much a matter of wishing to do it but, rather, a matter of being able
to do it. PDVSA’s credit rating is much higher than the government’s. PDVSA can
probably bail the government out, not the other way around.
PDVSA's
fair business risk profile is based on its position as a leading
integrated
oil company with a considerable proven reserve base, low discovery
and
development costs, and its ownership of CITGO Petroleum Corp.
(BB-/Stable/--),one
of the leading refiners in the U.S. We expect PDVSA's
business
strategy to continue focusing on developing Venezuela's hydrocarbon
resources
and improving its refineries. The company adjusted its projected
capital
expenditures to $142 billion for the next five years to achieve a
sustainable
crude oil production of 4.5 million barrels per day (mbpd) by 2015.
My comments:S&P
says that PDVSA will “continue developing hydrocarbon resources and improving
its refineries”. This is a wrong statement. They have not been doing this at
all. The production has fallen off significantly as compared to the one before
Chavez and has remained, at best, stagnant during the last two to three years. A
projected capital expenditure of $28 billion per year is totally unrealistic,
as the average investment of PDVSA in the petroleum sector during the last
years has been around $10 billion A production of 4.5 million barrels per day
by 2015 is science fiction. At least S&P should have seen these numbers
with a more critical eye. They swallowed them whole, hook, line and sinker.
During
2011, PDVSA's crude oil production averaged 2.991 mbpd, up 1% from
2.975
mbpd in 2010 to meet OPEC production quota for that year. Current OPEC
quota
for Venezuela is 3.2 mbpd. We believe that oil production will slightly
increase
further and reach 3.5 mbpd for the next few years, although the
company's
expectation is to increase its total production to 4.5 mbpd in 2015.
My comments: PDVSA’s oil production (different from national total production, which includes foreign partners prouction) is much lower than the
figure readily accepted by S&P. The president of the company, Rafael Ramirez,
in a memo to Chavez leaked to the public admitted that it was in the order of
2.6 million barrels per day. Independent observers put it at even less.
