PdV paying more debts with oil

Venezuela´s financially distressed national oil company PdV is allocating a growing share of its crude exports to paying debt to foreign oil companies, further draining its cash flow.

In their third quarter results, India´s ONGC, Spain´s Repsol and US independent ConocoPhillips reported receiving Venezuelan crude in exchange for debt.

The payments in kind are not new to Caracas. PdV has secured $54bn in Chinese credit in exchange for oil over a decade, with around $23bn still outstanding. More recently the company agreed to supply oil to Russia´s state-controlled Rosneft in exchange for a 2016 loan of $1.5bn. But in recent months the firm has resorted to its oil exports to meet other commercial and legal obligations, a trend that highlights PdV´s financial straits.

Around 730,000 b/d or two-thirds of PdV´s exports in September went to paying the Chinese and Russian allocations and other debts, according to internal PdV data obtained by Argus.

India´s state-controlled ONGC said this week that PdV in October allocated a 500,000 bl cargo of 16° API Merey crude to pay part of overdue dividends of around $440mn from its Venezuelan upstream operations. The shipment was valued at around $35mn, equivalent to $70/bl.

ONGC overseas unit OVL is a minority partner in two PdV-controlled joint ventures in Venezuela: PetroIndovenezolana that operates the 12,000 b/d San Cristobal heavy oil field in eastern Venezuela, and 15,000 b/d PetroCarabobo in the Orinoco oil belt.

In its earnings report this week Repsol said it expects to receive four crude cargoes from PdV in November — on top of two cargoes received in October — to cover unpaid receivables from its upstream assets in Venezuela.

Two of the shipments to be discharged at Repsol's Spanish terminals in November will pay for the natural gas that Repsol supplies to PdV from its Cardon 4 joint venture with Italy's Eni in the Gulf of Venezuela. PdV is the sole offtaker of Cardon 4.

The other two deliveries in November will pay for arrears to Repsol from its minority share in PetroCarabobo.

The October crude shipments were payment for the PdV-led Petroquiriquire oil-producing venture. Repsol provided Petroquiriquire with a $1.2bn credit line in 2016 to develop it. The crude received in the fourth quarter will allow the Spanish firm to meet its target for its Venezuelan assets to be cash-flow neutral in 2018, the company said.

The kind of crude that ONGC and Repsol received is not clear, but a growing share of PdV´s exports is now comprised of diluted crude oil (DCO), a blend of 8°-10° API Orinoco crude and 30pc imported naphtha. Most of the balance is Merey, a blend of Orinoco and light crude.

It is not clear if PdV´s oil deliveries to ONGC and Repsol will lead to a turnaround in production at their joint ventures with the Venezuelan company. The Opec country´s output has been falling precipitously over the past year, and is now hurtling toward 1mn b/d, less than a third of its 1990s level.

In a separate payment in kind, ConocoPhillips reported last month that part of PdV´s initial payment of $345mn to settle a $2bn compensation award for the takeover of its Venezuelan assets was made in the form of oil that the US company had seized from PdV as part of its enforcement action.

The in-kind portion is comprised of about 4mn bl of crude with a notional value of about $300mn, ConocoPhillips said. The $345mn is part of the first installment of $500mn due to be fully paid by PdV in the fourth quarter, ConocoPhillips said.

The $2bn award from the International Chamber of Commerce (ICC) relates to the May 2007 expropriation of the US independent company's stakes in two Orinoco upgraders. As part of a settlement reached in August, PdV had agreed to recognize the ICC judgment and make initial payments totaling about $500mn within 90 days from the time of signing the agreement. The Venezuelan company had subsequently agreed to make quarterly payments of around $83.3mn plus interest for 4.5 years.

PdV is currently in default on all of its bond debt with the exception of a 2020 issuance backed by 50.1pc of its US refining subsidiary Citgo. The firm late last month paid $949mn in principal and interest on the bond.