Petroleos de Venezuela: more signs of institutional collapse

El color de la corrupción

Financial Analyst Russ Dallen has recently written a report on the latest, $4.5 billion,  PDVSA bond emission Prospectus. It comes late, says Dallen, five months after bonds were issued.  

Dallen makes several observations which illustrate the prevailing disarray within the company. Examples:

·       The bond is subject to New York Law, one more proof that all claims to independence and national sovereignty by PDVSA are unadulterated bullshit

·       The information on the company which serves to back the bond issue is old, sometimes even from 2011, according to Dallen. He says this speaks poorly of the firms doing the due diligence: Citibank, Evrofinance Mosnarbank and law firms Hogan Lovells and Davis Polk

·       PDVSA claims to be building four refineries in the Far East, three in China and one in Vietnam, with combined capacities of 980,000 barrels per day. The information I could find in Internet on the Vietnam refinery project is totally different to what the prospectus claims. The Oil and Gas Journal, 2009, reports: Eric Watkins , OGJ Oil Diplomacy Editor  LOS ANGELES, Oct. 9, 2009 -- Suddenly reversing an earlier decision, Venezuela’s Petroleos de Venezuela SA withdrew from a project for the construction of a 200,000 b/d refinery at Long Son in Vietnam.  Initially PDVSA wanted to be involved in the whole process—from supplying crude oil, to financing the transportation, and building the refinery with a total investment capital ranging from $6-7 billion, but it has changed those plans.

·       In relation to the China oil refineries there are little news. One, the Nanhai refinery, slated to be completed this year, is now pushed back to 2016, see: http://abarrelfull.wikidot.com/jieyang-refinery-project . The Shangai refinery is still in a planning stage, see: http://www.reuters.com/article/2013/11/01/us-sinopec-refinery-relocation-idUSBRE9A00CW20131101 . There is no information in the media about the Weihai refinery since 2009 and this looks like one more piece of fraudulent information  

·       PDVSA, says Dallen, still claims to be associated with the Abreu e Lima oil refinery in Brazil. This is an openly fraudulent claim, as the Brazilians are going ahead by themselves since PDVSA never supplied their share of the capital. This claim would be reason enough to fire all these “broken bats” (bates quebrados) .

·       PDVSA continues to fall in debt with Chinese companies, with Chevron and with ENI in order to be able to put their share of the financial obligations in the Orinoco region.  Dallen criticizes the confusion regarding the dates of these loans. He says: “this kind of sloppiness in legal and audited financials by KPMG's Venezuelan affiliate belies greater problems and weakens its credibility:

·       PDVSA continues to mortgage oil reserves. In 2012 it entered into a pre-payment and supply agreement with Hutong Trading B.V. for $1.5 billion. However, deliveries of oil under this agreement had not been made by end 2012. We are in 2104. What is the status of this agreement?

·       The prospectus says: "According [to] the crude oil supply agreements signed between the Bolivarian Republic of Venezuela and the People’s Republic of China, a yearly increase in the supply of crude oil and products was established, reaching approximately 526 thousand barrels per day (TBPD) and 478 TBPD, at June 30, 2013 and 2012, respectively. I doubt these volumes are correct, given the real levels of production by PDVSA.

·       Dallen comments on signs of financial stress in the company,  as illustrated by short-term credit facilities received from Banco del Tesoro and Banco de Venezuela. Of much greater concern are the significant amounts of inorganic bolivars received from the Venezuelan Central Bank.

·       Contingencies dedicated to pending arbitrations are very low, way below the potential payments they might have to make

In addition to these signs of mismanagement Guaicaipuro Lameda, former president of PDVSA, reminds us, see http://guaicalameda.blogspot.com/?spref=tw , that PDVSA has been favoring a contracting company called SUELOPETROL already for some time. They have just announced a financing agreement with that company for $625 million. (from PDVSA to SUELOPETROL or vice versa?), either way it sounds improbable, see: http://www.avn.info.ve/contenido/pdvsa-acuerda-suelopetrol-financiamiento-625-millones .

Neither one of the two companies has this kind of money available, so where is this money coming from? The money would be dedicated to increase production in the Cabimas field. Lameda reminds us that this field was improperly assigned to SUELOPETROL by Chavez, in spite of his protests and without bidding, by then Minister of Energy Alvaro Silva Calderon.

No matter where we dig, PDVSA is full of pus.