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PDVSA's dispute with Exxon Mobil isn't the only problem for the company. Falling profits and production are posing even greater challenges.

BY CHRONICLE STAFF

Venezuelas PDVSA, once considered one of the most efficient state oil companies in the world, is now facing serious financial problems, experts say.

The company - Latin Americas largest - last week announced results for the first half of 2007, showing profits falling by 69 percent to $896 million, while revenue fell by 15.6 to $42.9 billion in the period, according to a Latin Business Chronicle analysis of PDVSAs earnings statement. That followed 2006 results when the companys net income fell by 26.4 percent to $4.8 billion on revenues of $101.8 billion (an increase of 18. 8 percent).

"PDVSA’s challenge is cash flow," says Jorge Piñón, a former president of Amocos Latin American operations who currently serves as an energy fellow at the University of Miamis Center for Hemispheric Policy.  "The government sees PDVSA as its cash cow to manage whatever domestic social problems they have."

Gustavo Coronel, a former PDVSA board member, goes even further. "PDVSA is now a company in imminent danger of financial collapse," he says. "It has a very fragile cash flow, it has been acquiring new debt of up to $12 billion during 2007, mostly on behalf of the government, not for their own operations. The outlook is bleak."

Should oil prices continue at todays levels - or rise - PDVSA will get some relief. But if they fall, the company will face a significant negative impact, points out Thomas Coleman, senior vice president of the corporate finance group at Moodys Investors Service.

"Oil prices near record levels will help them, but also...



Keywords: Conoco Philips, Exxon Mobil, Statoil, Total

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