New policies are pushing PDVSA into bankruptcy sooner rather than later.
The grave has been dug
Oil experts agreed on one point: a favorable outcome of the crisis Venezuela’s state-owned oil company is going through is far from certain.
It looks as though the absence of trained technical and management staff, the lack of planning and the politicization of the business, added to widespread corruption, will push PDVSA into bankruptcy sooner rather than later.
The symptoms are already apparent: PDVSA is not meeting its production expectations, the refineries are in a calamitous state, a large number of wells have been shut down, there is a deficit of some 120 drilling rigs, and production barely reaches 3,300,000 b/d (according to inflated official figures), a far cry from the production goal of 5,800,000 b/d.
Added to this is the fact that Venezuela is apparently on the threshold of an international lawsuit with ConocoPhillips and ExxonMobil, if the clear contradictions between statements by John Lowe, ConocoPhillips’ Exploration and Production Executive Vice-president, and Energy and Oil Minister Rafael Ramírez are anything to go by.
[Last week] Lowe stated that ConocoPhillips had agreed with the Venezuelan government that compensation for its shares in Petrozuata and Hamaca would be based on their “market value” and that negotiations were still being conducted to determine that “value.” ...On August 30, Minister Ramírez declared that Venezuela would only pay compensation based on the “original book value.”
According to estimates by analysts with investment banks in New York, the difference between the two values is considerable. The “original book value” of the four upgraders is around $17 billion, whereas the “fair market value” would be in the order of $33 billion.
Although ExxonMobil has not said whether it has reached an agreement similar to ConocoPhillips’, it is to be assumed that it did.
ConocoPhillips and Exxon have already declared losses for the second quarter of some $5.25 billion (ConocoPhillips $4.5 billion and Exxon (Cerro Negro) $750 million). If these losses reflect the “original book value,” then the “market value” could be in the order of $10 billion, at least. Venezuela does not have that amount available and what is most likely is that Chávez will not accept paying such a high sum to oil companies of the empire.
BRAZIL AND CHINA DEALS FALLING APART
And to complicate things still further for PDVSA, the most important of its deals with China and Brazil are apparently falling through. What is more, Chávez’ promises to build refineries all over the replace are on the way to becoming empty words owing to the lack of funds, unless he sells off other assets, Citgo for example, in order to be able to make good his promises.
Unfortunately, the only things that do seem to be functioning at PDVSA are communist proselytism led by Ramírez and corruption at the highest levels, which has been extensively reported by journalists who support the regime and revealed in the scandal of the briefcase with nearly $800,000 confiscated in Buenos Aires.
This column is based on an editorial in VenEconomy. Republished with permission.