Venezuela to swap defaulted bonds for oil

Venezuelan state-owned PdV's new 120,000 b/d Orinoco oil joint venture with former Repsol executives appears to be a vehicle to swap defaulted bonds for oil reserves and future sales revenue.

The joint venture called Petrosur would develop the Orinoco oil belt's Junin 10 block, which holds estimated extra-heavy crude reserves of 1.03bn bl, according to PdV.

In a departure from the terms of PdV's existing Orinoco ventures, Petrosur has been granted "sole and exclusive rights" to directly market all extra-heavy crude production, synthetic crude and refined products derived from Junin 10, according to the venture's articles of incorporation and related Venezuelan, Spanish and Dutch legal documents obtained by Argus.

PdV subsidiary CVP holds a 60pc stake in Petrosur. The remaining 40pc is held by Dutch-Spanish Inversiones Petroleras Iberoamericanas (IPI), according to a presidential decree published on 24 August.

A $400mn upfront payment from PdV's partner IPI will be paid mainly through Venezuelan sovereign and PdV bonds held by the parties behind IPI, according to three Venezuelan officials. All but a PdV 2020 bond are currently in default.

IPI originally was registered in Madrid in 2013 as a company primarily engaged in real estate. IPI's partnership with CVP is structured through a Dutch shell company registered in the Netherlands on 19 April 2017 called Stichting Administratiekantoor Inversiones Petroleras Iberoamericanas (SAIPI).

Stichtings are Dutch entities that make it possible to legally separate ownership and control, so that the identities of the actual owners or beneficiaries can remain hidden from public scrutiny.

SAIPI has an address in The Hague, but is headquartered in Madrid.

The principal owners of SAIPI and IPI are former Repsol chief executive Alfonso Cortina and former Repsol vice president Ramon Blanco Balin.

Blanco is a former Spanish government finances inspector before he joined Repsol in 1996 initially as chief counsel to the board's audit committee. He was later promoted to vice president during Cortina's term as chief executive in 1996-2004. Blanco is a longtime "close personal friend of former Spanish prime minister Jose Maria Aznar", according to Spanish legal documents.

Cortina and Blanco have been financial advisers to several European banks, including Banco Rothschild, Barclays and Societe Generale.

Blanco is a target of multiple ongoing money-laundering investigations by Spanish judicial and tax authorities, the documents indicate. Neither he nor Cortina could be immediately reached for comment.

SAIPI's largest corporate asset appears to be a British Virgin Islands company called Arazen Investments Ltd.

The Junin 10 block that Maduro awarded to Petrosur was originally earmarked in 2010 for an upstream joint venture in which PdV and Chinese state-owned CNPC would be 60:40 partners.

CNPC withdrew in 2014 after PdV acknowledged it lacked the capital needed to develop its share of production infrastructure including pipelines, an energy ministry official said. But the Chinese company remains a partner in the Orinoco joint ventures Sinovensa and PetroUrica.

One observer noted that Junin 10 will be challenging to develop because of its remote location far from existing infrastructure. But IPI could later try to sell its rights to the acreage.

President Nicolas Maduro's decree authorized Petrosur's creation based on a July 2017 supreme court ruling granting itself the authority to approve oil joint ventures and loans after the court previously stripped the elected national assembly of its exclusive constitutional powers in March 2017.

Venezuela's opposition says the decree ignores Article 187 of the 1999 constitution that states explicitly that only the elected national assembly has the constitutional authority to approve such joint ventures with foreign entities.

Three national assembly legislators told Argus separately today that the Petrosur decree is illegal and unconstitutional. They also warned IPI shareholders that the joint venture would be disavowed and canceled by a future government.