Rosneft shifts Venezuela burden to Russian state

Russia's state-controlled Rosneft is selling its Venezuelan oil assets to an unnamed Russian state entity, a move that effectively insulates the company from further financial losses and potential US sanctions while preserving Moscow's longer-term interests on the ground.

Russia has been a steadfast ally of the Venezuelan government led by President Nicolas Maduro, and Rosneft is one of Venezuelan state-owned PdV's closest joint venture partners.

The sale, which Rosneft announced today, encompasses minority stakes in the PetroMonagas integrated heavy-crude upgrading project based in the Orinoco oil belt, the mature PetroPerija and Boqueron fields, undeveloped Orinoco joint ventures PetroMiranda and PetroVictoria, oil-field services companies, and commercial and trading operations, Rosneft said.

PetroMonagas, which was formally known as Cerro Negro and led by ExxonMobil before Venezuela nationalized four upgrading projects in 2007, has been off line for at least a year.

Notably, Rosneft did not mention the status of its preliminary agreements with PdV to develop the Patao and Mejillones offshore natural gas fields in eastern Venezuela.

"As a result of the concluded agreement all assets and trading operations of Rosneft in Venezuela and/or connected with Venezuela will be disposed of, terminated or liquidated," Rosneft said, adding that it will receive 9.6pc of its equity capital as a settlement payment "that will be held by a 100% subsidiary of Rosneft and accounted for as treasury stock."

Rosneft is now challenging the US to lift sanctions on its subsidiaries. "We took this decision in the interests of our shareholders, as a publicly traded international company," Rosneft spokesman Mikhail Leontyev said, replying to a question from Russian state-owned Tass news agency. "And we have a right to expect, indeed, that the US regulators fulfill their public promises."

In the months after the US imposed oil sanctions on Venezuela in January 2019, Rosneft emerged as the top lifter of Venezuelan crude, once a mainstay of many US refineries. As part of a "maximum pressure" campaign, the US Treasury Department imposed sanctions on Rosneft Trading in February and fellow Rosneft unit TNK a few weeks later. Venezuelan crude production and exports have fallen sharply since then, although PdV has been able to sustain some exports.

The value of the transaction was not disclosed, but the company's partially floating stock on the Moscow Stock Exchange gives it a market capitalization of 3.2 trillion rubles ($40.6bn) as of yesterday — potentially valuing the transaction at $3.9bn. The Russian government holds a controlling stake in Rosneft of just over 50pc, with BP holding a 19.75pc stake and Qatar's sovereign fund QIA another 18.93pc.

A Russian diplomat in Caracas tells Argus that all of the Venezuelan assets have been losing money, prompting Rosneft to explore exit options since early 2019. Current operating conditions have only worsened since then, raising the risk of broad social unrest.

"PdV has not been pulling its weight for years, and Rosneft cannot keep losing money there," the diplomatic official said.

The US is escalating sanctions in a protracted effort to push out Maduro — who is the main target of US indictments of Venezuelan government and military officials unsealed on 26 March. Under the US-led strategy, Maduro's ouster would usher in a transition government led by opposition leader Juan Guaido — who is already recognized by more than 50 Western countries as interim president — and lay the groundwork for new elections.

There was no immediate comment from PdV or Venezuela's government in Caracas regarding Rosneft's pullout.

Russia as well as China, Turkey, Cuba and other countries continue to recognize Maduro as Venezuela's president, and have decried US policy as interfering in the country's internal affairs. The UN and most other multilateral organizations have not cut ties to Maduro's administration. The UN is urging the US to ease sanctions on Venezuela, Iran and other countries to help tackle the coronavirus.

By Patricia Garip, Anastasia Krasinskaya and Haik Gugarats