Venezuela to elude default, defying oil price rout
Venezuela will avert a default by paying more than $4.56bn of dollar-denominated bond maturities due in first-half 2016, but its ability to meet greater total obligations later this year is less certain, finance ministry and central bank officials tell Argus.
President Nicolas Maduro has vowed that the government including state-owned oil company PdV will not miss any debt payments in 2016.
Finance ministry and bank officials dismiss widespread concerns that record-low oil prices have raised the odds that Venezuela could default on its foreign debt as soon as next month.
But the officials acknowledged a bleak outlook for second-half 2016 when a further $6bn of bond maturities come due, if weak oil prices persist.
PdV's average export price closed below $22/bl on 22 January, compared with the government´s 2016 budget assumption of $40/bl.
Energy minister and PdV chief executive Eulogio del Pino says the market´s "equilibrium price" is $60/bl, but Venezuela´s calls for Opec action have gone unheeded.
The government has sufficient cash reserves to cover this year´s first large debt payment totaling over $2bn of bond principal and interest due next month, including a $1.5bn sovereign bond that matures on 26 February, the finance ministry said.
Maduro is under growing pressure from radical elements of the ruling PSUV party to declare a foreign debt moratorium and redirect the money to social and infrastructure programs to bolster flagging popular support, a presidential palace official told Argus.
New economy minister Luis Salas is among the radicals advocating measures such as nationalizing banks and importers, and halting foreign debt payments until the price of oil rebounds, the official added.
But Maduro "must weigh the risk that not paying the foreign debt would immediately disrupt PdV's oil exports, alienate PdV's foreign partners and key lenders like China, and foster social and political turmoil in Venezuela that could force his resignation," the official said.
The government is taking steps to boost its cash holdings by negotiating more central bank gold swaps with potential investors in Switzerland.
Hard currency reserves at end-November 2015 totaled $14.75bn, of which gold bullion assets were valued at $10.97bn or 74.3pc of the total.
In an apparent reflection of reduced imports of food and other goods in chronic short supply, hard currency reserves bumped up to $15.5bn as of 22 January 2016. The bank has not updated the valuation of its gold bullion holdings since last November.
The central bank confirmed to Argus that about 27 tons of gold were flown from Caracas to Switzerland earlier this month, but declined further comment.
Venezuela's government swapped about 43 tons of gold reserves for $1.5bn in cash in April 2015.
The government is looking at other cash-raising options, include restructuring debts linked to preferential oil supply agreements, selling non-financial assets, and securing at least $4bn in fresh oil-backed loans from China, finance ministry officials said.
PdV separately is seeking to refinance over $13bn of bond debt that matures in 2016-17 and slash its operating costs in 2016 by over 28pc from $13.50/bl to under $10/bl, del Pino said yesterday.
Sales of some PdV assets such as US downstream unit Citgo, which was on the block last year, have apparently been ruled out for now because of legal implications related to Venezuela´s international arbitration obligations, but they could resurface later in 2016.
Venezuela's lowest oil export prices since 2003 already have disrupted PdV's ambitious plans to double crude production to almost 6mn b/d by 2020.
Dozens of tankers accumulated around PdV's Caribbean terminals in fourth quarter 2015 waiting for payment before discharging their import cargoes of light crude and naphtha used as diluent to produce exportable crude grades.
Executives with three oil companies holding minority stakes in PdV's Orinoco ventures confirmed they have been asked to cover the naphtha imports in 2016, declining further comment.
An official with the Venezuelan oil industry association (AVHI) that represents foreign oil companies said PdV's partners will likely balk unless the government cuts taxes and royalties, and starts to release over $5bn of profits and dividends trapped in Venezuela.
Del Pino is also pressing to raise local gasoline and diesel prices, while glossing over potential layoffs and non-oil divestitures.
The company recently approved a new collective labor contract raising average wages for over 85,000 unionized workers by 143pc over 24 months.
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Shell's 1Q profit supported by LNG and refining
Shell's 1Q profit supported by LNG and refining
London, 2 May (Argus) — Shell delivered a better-than-expected profit for the first quarter of 2024, helped by a strong performance from its LNG and oil product businesses. The company reported profit of $7.4bn for January-March, up sharply from an impairment-hit $474mn in the previous three months but down from $8.7bn in the first quarter of 2023. Adjusted for inventory valuation effects and one-off items, Shell's profit came in at $7.7bn, 6pc ahead of the preceding three months and above analysts' estimates of $6.3bn-$6.5bn, although it was 20pc lower than the first quarter of 2023 when gas prices were higher. Shell's oil and gas production increased by 3pc on the quarter in January-March and was broadly flat compared with a year earlier at 2.91mn b/d of oil equivalent (boe/d). For the current quarter, Shell expects production in a range of 2.55mn-2.81mn boe/d, reflecting the effect of scheduled maintenance across its portfolio. The company's Integrated Gas segment delivered a profit of $2.76bn in the first quarter, up from $1.73bn in the previous three months and $2.41bn a year earlier. The segment benefited from increased LNG volumes — 7.58mn t compared to 7.06mn t in the previous quarter and 7.19mn t a year earlier — as well as favourable deferred tax movements and lower operating expenses. For the current quarter, Shell expects to produce 6.8mn-7.4mn t of LNG. In the downstream, the company's Chemicals and Products segment swung to a profit of $1.16bn during the quarter from an impairment-driven loss of $1.83bn in the previous three months, supported by a strong contribution from oil trading operations and higher refining margins driven by greater utilisation of its refineries and global supply disruptions. Shell's refinery throughput increased to 1.43mn b/d in the first quarter from 1.32mn b/d in fourth quarter of last year and 1.41mn b/d in January-March 2023. Shell has maintained its quarterly dividend at $0.344/share. It also said it has completed the $3.5bn programme of share repurchases that it announced at its previous set of results and plans to buy back another $3.5bn of its shares before the company's next quarterly results announcement. The company said it expects its capital spending for the year to be within a $22bn-$25bn range. By Jon Mainwaring Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
US Fed signals rates likely to stay high for longer
US Fed signals rates likely to stay high for longer
Houston, 1 May (Argus) — Federal Reserve policymakers signaled they are likely to hold rates higher for longer until they are confident inflation is slowing "sustainably" towards the 2pc target. The Federal Open Market Committee (FOMC) held the federal funds target rate unchanged at a 23-year high of 5.25-5.5pc, for the sixth consecutive meeting. This followed 11 rate increases from March 2022 through July 2023 that amounted to the most aggressive hiking campaign in four decades. "We don't think it would be appropriate to dial back our restrictive policy stance until we've gained greater confidence that inflation is moving down sustainably," Fed chair Jerome Powell told a press conference after the meeting. "It appears it'll take longer to reach the point of confidence that rate cuts will be in scope." In a statement the FOMC cited a lack of further progress towards the committee's 2pc inflation objective in recent months as part of the decision to hold the rate steady. Despite this, the FOMC said the risks to achieving its employment and inflation goals "have moved toward better balance over the past year," shifting prior language that said the goals "are moving into better balance." The decision to keep rates steady was widely expected. CME's FedWatch tool, which tracks fed funds futures trading, had assigned a 99pc probability to the Fed holding rates steady today while giving 58pc odds of rate declines beginning at the 7 November meeting. In March, Fed policymakers had signaled they believed three quarter points cuts were likely this year. Inflation has ticked up lately after falling from four-decade highs in mid-2022. The consumer price index inched back up to an annual 3.5pc in March after reaching a recent low of 3pc in June 2023. The employment cost index edged up in the first quarter to the highest in a year. At the same time, job growth, wages and demand have remained resilient. The Fed also said it would begin slowing the pace of reducing its balance sheet of Treasuries and other notes in June, partly to avoid stress in money markets. By Bob Willis Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Cenovus boosts oil sands output by 4pc in 1Q
Cenovus boosts oil sands output by 4pc in 1Q
Calgary, 1 May (Argus) — Canadian integrated Cenovus Energy increased its oil sands production by 4pc in the first quarter, led by gains at Lloydminster Thermal and Foster Creek heavy crude assets, and the company plans to boost output further to supply the newly opened Trans Mountain Expansion (TMX) pipeline. Cenovus pumped out 613,000 b/d of crude from its oil sands projects in Alberta, up from 588,000 b/d in the same quarter last year, the Calgary-based company reported on Wednesday. This was one of the highest producing quarters for Cenovus' oil sands assets since acquiring Husky in early 2021, second only to the 625,000 b/d produced in the fourth quarter that year. Cenovus has a commitment of about 144,000 b/d on the newly completed 590,000 b/d TMX pipeline, which was placed into service on Wednesday , and the company has plans to push upstream output higher over the next several years across its portfolio to meet its commitment. The pipeline nearly triples the amount of Canadian crude that can reach the Pacific coast without first having to go through the US. First-quarter production from the Lloydminster Thermal segment rose to 114,000 b/d, up from 99,000 b/d a year earlier, because of higher reliability, according to Cenovus. Cenovus' Foster Creek production rose to 196,000 b/d of bitumen, up from 190,000 b/d in first quarter 2023. The company plans to bring another 30,000 b/d online at the steam-assisted gravity drainage (SAGD) asset by the end of 2027 through optimization projects. To the north, Christina Lake's first-quarter bitumen output of 237,000 b/d was steady with previous quarters. The asset is expected to get a significant boost by the end of 2025 when a pipeline connecting the project to output from the neighbouring Narrows Lake asset is completed. The 17 kilometer (11 mile) Narrows Lake tie-back will add 20,000-30,000 b/d of bitumen to Christina Lake, which already ranks as the industry's largest SAGD project. The pipeline is 67pc complete and should be placed into service in early 2025, Cenovus executives said Wednesday on an earnings call. Northeast of Fort McMurray, Alberta, new well pads are planned at Sunrise in 2025, where Cenovus also plans to push production higher by 20,000 b/d. Sunrise produced an average of 49,000 b/d in the first quarter this year, up from 45,000 b/d in the same quarter 2023. Cenovus' output company-wide rose to 801,000 b/d of oil equivalent (boe/d) in the first quarter, up from 779,000 boe/d a year earlier. This includes oil sands, natural gas liquids, natural gas, conventional and offshore assets. Cenovus posted a profit of C$1.2bn ($871mn) in the quarter, up from a C$636mn profit during the same quarter of 2023. By Brett Holmes Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Tankers can take TMX crude mid-May: Trans Mountain
Tankers can take TMX crude mid-May: Trans Mountain
Calgary, 1 May (Argus) — Commercial operations for the 590,000 b/d Trans Mountain Expansion (TMX) crude pipeline in western Canada have officially started today, but tankers will not be able to load crude from the line until later this month. Line fill activities, which began on 16 April, are still ongoing for the C$34bn ($25bn) project that stretches from Edmonton, Alberta, to the docks in Burnaby, British Columbia. About 70pc of the volumes needed are in the 1,181 kilometre (733 mile) line, Trans Mountain said on Wednesday. "As of today, all deliveries for shippers will be subject to the Expanded System tariff and tolls, and tankers will be able to receive oil from Line 2 by mid-May," Trans Mountain said. Aframax-size crude tankers started to take position on the west coast last month in anticipation of the new line. But the inability to deliver crude at Burnaby, while still having to pay full tolls, was a concern raised by several shippers on 23 April. "Trans Mountain must be able to receive, transport and deliver a shipper's contract volume," the shippers said in a letter to the CER. The ability to deliver the crude is "clearly central and fundamental qualities of firm service." The CER in November approved interim tolls for the system that will further connect Albertan oil sands producers to Pacific Rim markets. Shippers will, at least initially, pay C$11.46/bl to move crude from Edmonton, Alberta, to the Westridge terminal in Burnaby, British Columbia. The fixed portion accounts for C$10.88/bl of this and has nearly doubled from a C$5.76/bl estimate in 2017. The Canada Energy Regulator (CER) on 30 April gave Trans Mountain a green light to put TMX into service , ending years of uncertainty that the project would ever be completed. The expansion project, or Line 2, nearly triples the capacity of Canadian crude that can flow to the Pacific coast, complementing the original 300,000 b/d line, or Line 1, that has been operating since 1953. By Brett Holmes Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
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