Liening in on Venezuela

Author Patricia Garip, Senior Contributing Editor

PdV’s growing dependence on its offshore logistical network has made the Venezuelan national oil company a vulnerable target for a long list of creditors.

ConocoPhillips’ barrage of liens on Venezuelan national oil company PdV’s assets in the Dutch Caribbean makes years of targeted international sanctions on senior Venezuelan officials look rather limp. Who would have thought that a clutch of tiny islands could unnerve the entrenched regime in Caracas? 
On 4 May ConocoPhillips started imposing pre-judgment attachments on PdV’s assets, such as the 10mn bl Bopec storage terminal on Bonaire, as a way to force the company to pay $2bn in compensation for the 2007 expropriation of its two heavy crude upgrading projects. The International Chamber of Commerce last month backed up the company’s claims. 
PdV’s growing dependence on its offshore logistical network has made it a vulnerable target for a long list of creditors, who are all watching the ConocoPhillips moves with keen interest, especially after earlier efforts to take PdV’s US downstream subsidiary Citgo fell flat.
The new offensive caught PdV off guard.  Last week it pulled its oil tankers back into Venezuelan waters to try to stem the wave of seizures that had already nabbed numerous cargoes and vessels in recent years. The Venezuelan-flagged Terepaima has been grounded off Bonaire for weeks. The Panamanian-flagged Proteo was released in March following an apparent settlement with other creditors. 
Now Caracas is hinting that it wants to settle with ConocoPhillips. PdV is already functioning hand-to-mouth amid US financial sanctions and cannot withstand a prolonged loss of the Caribbean assets without having to shut in some production, which has already tumbled by 500,000 b/d over the past year, wiping out any benefit from higher oil prices. PdV has limited functioning domestic storage, and floating alternatives are out of financial reach. Without a deal to settle the dispute, current output of 1.4mn b/d could spiral down much faster. 
The islanders are nervous. Aruba, Bonaire, Curacao and their smaller siblings, known collectively as the ABCs, depend on Venezuelan oil business to sustain their fragile economies. Much of that activity was already dwindling even before the liens kicked in. Besides Bopec, PdV leases the 320,000 b/d Isla refinery and Bullen Bay terminal on Curacao. The refinery alone accounts for 2,000 jobs on the island. PdV also leases storage at US company NuStar´s St Eustatius terminal and additional storage in Aruba. The facilities are critical to PdV´s import and export operations by facilitating storage, transshipment and crude blending. Now they are effectively off limits to PdV, which has told buyers that all cargoes will now be sold on an fob basis.
For ConocoPhillips, the aggressive strategy is aimed at holding Venezuela’s feet to the fire until it pays up. In the throes of a sham reelection campaign, President Nicolas Maduro might just want to make a quiet agreement with the US company before what’s left of cash flow dries up altogether. 
But if PdV reaches a settlement with ConocoPhillips and reopens its Caribbean logistical corridor, there is nothing to stop the company’s many other creditors from taking similar action. 
The standoff poses a dilemma for Venezuela, but it may not be quite the endgame that has been wrongly predicted so many times before. Caracas is adapting, and so is the oil market.