CNPC boss in Caracas to discuss upstream deals

China's state-owned CNPC chief executive Zhang Jianhua arrived in Caracas yesterday to discuss plans to boost its stakes in crude joint ventures to the maximum allowed under Venezuelan law.

Zhang will hold talks with Venezuela's energy ministry and its local state-owned majority partner PdV to raise the Chinese company's stake in the 130,000 b/d Sinovensa crude blending plant by 9.9pc. According to Venezuela, this increase would bring the Chinese stake to the 49.9pc limit, but the Chinese maintain that CNPC only has 35.75pc of Sinovensa. Argus could not immediately clarify the discrepancy, but in spirit Venezuela wants its foreign partners to hold as much equity as its oil legislation permits.

According to the energy ministry, the Chinese executive will also discuss raising CNPC's equity in the 15,000 b/d PetroZumano upstream venture in eastern Venezuela and 400,000 b/d PetroUrica in the Orinoco oil belt's Junin 4 block. CNPC holds 40pc stakes in both joint ventures.

PdV is legally bound to hold a majority stake in oil joint ventures. Caracas is hoping PdV's foreign partners will pick up additional equity to bring them up to the legal limit of 49.9pc in return for desperately needed cash.

During his visit, Zhang and PdV chief executive and energy minister Manuel Quevedo are also expected to discuss creating a new PdV-CNPC venture in the Orinoco oil belt's Ayacucho section to develop up to 400,000 b/d of extra-heavy crude production in stages, starting with 200,000 b/d in three to five years, an energy ministry official said.

Zhang expects to "share details" with the Venezuelan energy and finance ministries of how CNPC plans to manage a $5bn line of credit from China Development Bank (CDB) that is earmarked exclusively to raise production at the Chinese company's existing upstream joint ventures with PdV, a local Chinese diplomat told Argus.

One of Beijing's longheld concerns is Venezuelan mismanagement of the Chinese funds.

CNPC and CDB officials will be posted permanently in Caracas to ensure "full transparency of all transactions financed through the credit line," the diplomat added.

A senior energy ministry official said the loan agreement signed on 14 September in Beijing stipulates that CNPC will have "exclusive oversight and final decision-making authority relating to all procurement contracts funded through the credit line."

CNPC's priority is to raise production and blending volumes at its joint ventures with PdV, and also ensure that export volumes to China increase to up to 1mn b/d over three to five years.

Chinese crude imports from Venezuela averaged 360,000 b/d so far in 2018, a year-on-year decline of 60,000 b/d, according to vessel tracking data. But PdV's internal data show China took just over 176,000 b/d of Venezuelan exports in July 2018, accounting for just 13pc of the total. More than two-thirds went to the US and India that month, the data showed.

The Maduro government is hoping that Zhang's personal engagement in the negotiations will swiftly achieve a breakthrough deal raising CNPC's stake in Sinovensa, and possibly also PetroZumano and PetroUrica, a presidential palace official said.

"If we achieve a firm agreement with CNPC, it could encourage other partners in existing joint ventures to pursue similar discussions with the ministry and PdV," the official added.

The government views its longstanding proposal to boost its partners' equity as a sound strategy to reduce PdV's outstanding debts to these companies and increase capital spending in line with their higher equity positions. PdV's joint ventures have been stalled for years, mainly because PdV cannot foot its share of investment.

So far PdV's other partners are reluctant to boost their exposure to Venezuela. Indian oil company ONGC this month rejected a PdV proposal to raise its stake in joint venture Petrolera Indovenezolana, which operates the 18,000 b/d San Cristobal heavy crude field in eastern Venezuela, from 40pc to 49pc.

A local ONGC executive said it was feared that PdV would use the equity increase as a way to avoid paying over $500mn of past due revenues the Indian company is owed from 2009 to 2013. The joint venture has not declared any dividends since 2014, "a matter that also has to be settled before talks on increasing our equity position," the executive added.