December 27, 2018

Oil & Energy

EXXON continues drilling offshore Guyana as Venezuela lodges complaint

EXXON MOBIL Corp said on Wednesday its oil drilling and development activities offshore Guyana were unaffected by a weekend incident in which Venezuela’s navy stopped two exploration vessels the company had hired. Its 10 oil finds are at least 110 km (68 miles) away from the northwest part of the Stabroek block where the incident took place, the company said. The company has a permit from Guyana to explore the Stabroek block. “Exploration and development drilling is continuing in the southeast area of the Stabroek Block,” the company said in a statement. An EXXON spokeswoman declined to say whether the two vessels, owned by Norway’s Petroleum Geo-Services, planned to continue their survey. A notice of the survey published on Guyana’s Maritime Administration Department’s website was dated Dec. 7, and said the work was scheduled for a six-month period. Critics say socialist President Nicolas Maduro is using the dispute over the Essequibo, a sparsely populated jungle region making up two-thirds of Guyana’s land which Venezuela also claims, to distract from hyperinflation and shortages of basic goods that have prompted millions of Venezuelans to emigrate. (Reuters: https://www.reuters.com/article/us-guyana-venezuela-oil/exxon-continues-drilling-offshore-guyana-despite-venezuela-incident-idUSKCN1OP0UB)

 

HESS market cap plunges US$ 1.5 billion as major project halted

HESS Corp. tumbled the most in almost three years, wiping out US$ 1.5 billion in market valuation, after work at the oil explorer’s most promising international investment was halted by a Venezuelan blockade. The intervention threatened to derail development of a 5 billion-barrel discovery off Guyana’s coastline that is so important to HESS’s future growth plans that it receives top billing in the New York-based driller’s investor presentations. Although significant for partners EXXON MOBIL Corp. and CNOOC Ltd., HESS is particularly dependent on the Guyanese project to generate production growth and cash flow into the next decade. Venezuela, which has long disputed neighboring Guyana’s offshore claims, “aggressively” interrupted the EXXON-led effort to map the sea floor on Dec. 22, U.S. State Department Deputy Spokesman Robert Palladino said on Sunday. By early Monday, the Venezuelan vessels had withdrawn, according to Bard Stenberg, a spokesman for vessel owner Petroleum Geo-Services ASA. (Bloomberg, https://www.bloomberg.com/news/articles/2018-12-24/exxon-stymied-by-venezuelan-intervention-at-major-offshore-field)

 

Venezuela oil price falls to lowest since 2017

The price Venezuela receives for its mix of medium and heavy oil continued falling to its lowest since October of 2017. According to figures released by the Ministry of Petroleum, the average price of Venezuelan crude sold by Petroleos de Venezuela S.A. (PDVSA) during the week ending December 21 fell to US$ 51.45, down US$ 2.91 from the previous week's US$ 54.36. According to Venezuelan government figures, the average price in 2018 for Venezuela's mix of heavy and medium crude for 2018 which Caracas now prices in Chinese Yuan (423.91) is now US$ 61.49. (Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2472108&CategoryId=10717)

 

SPECIAL REPORT: Oil output goes AWOL in Venezuela as soldiers run PDVSA

President Nicolas Maduro turned heads in November 2017 when he named a National Guard general with no oil experience to lead PDVSA. Major General Manuel Quevedo’s actions since have raised even more doubts that he and the other military brass now running the company have a viable plan to rescue it from crushing debt, an exodus of workers and withering production now at its lowest in almost seven decades. Quevedo in recent months has enacted a series of controversial measures that oil industry experts, PDVSA employees and contractors, and even everyday citizens say are pushing the once-profitable and respected company towards ruin. Workers who make mistakes operating increasingly dilapidated PDVSA equipment now face the risk of arrest and charges of sabotage or corruption. Military chieftains, moonlighting in the private sector, are elbowing past other contractors for lucrative service and supply business with PDVSA. The lack of expertise among military managers is leading PDVSA to hire outsiders to keep afloat even basic operations, like drilling and pumping oil. To the dismay of many familiar with Venezuela’s oil industry, some of the contracts are going to small, little-known firms with no experience in the sector. Critics of the arrangements, and government opponents, say the transactions aren’t transparent. By keeping details from the public, they argue, the company faces little scrutiny over whom it chooses to do business with. The steps leave Venezuela’s most important company - which accounts for over 90% of export revenue - with even fewer means to rebuild the nation’s coffers, pay its many creditors and regain self-sufficiency as an oil producer. Military officials atop PDVSA have put aside any pretense of running it like a proper business, doing little to stem the fall in production or improve the company’s financial, operational and staffing problems. Operational problems under Quevedo have caused production to drop 20% to 1.46 million barrels per day, according to the latest figures Caracas reported to OPEC, the oil cartel, of which it is a member. The gross value of PDVSA’s oil exports is expected to fall to US$ 20.9 billion this year compared with US$ 24.9 billion last year. Exports a decade ago were over four times as much, reaching $89 billion, according to PDVSA’s accounts for 2008. PDVSA didn’t publish a 2017 report and hasn’t released financial results in 2018. Over the past year Quevedo has failed to reverse the slide in production. One of his first challenges was to stanch the flow of workers, many of whom deserted the company and Venezuela altogether. PDVSA hasn’t disclosed recent employment figures. But estimates by IPD Latin America, an oil and gas consultancy, indicate PDVSA has about 106,000 workers – 27% fewer than in 2016. PDVSA salaries have crumbled to the equivalent of a handful of dollars a month for most workers. With no money, and little real work to do at idle and faulty facilities, some employees only show up to eat at the few company cafeterias that remain open. Shippers told Reuters that PDVSA workers at times board vessels to ask for food. To boost manpower, Quevedo has been staffing some jobs, including posts that once required technical knowledge, with National Guard recruits. The changes are disturbing buyers here. Some tanker captains complain that young soldiers are woefully unprepared to verify technical details, like whether crude density, a crucial attribute of quality, complies with contract specifications. Crews fret a stray bullet from the soldiers’ rifles could spark fires and complain that some of the crime afflicting the country is making its way on board. Although Quevedo has tasked the soldiers to help spot graft, some of the low-paid recruits ask for bribes themselves, shippers said, for signing off on paperwork or completing inspections. Even with soldiers as substitutes, PDVSA can’t find the workers it needs to man many posts. From the processing of crude at refineries to contract negotiations with buyers, the shortage of skilled staffers is hobbling the company. (Reuters: https://www.reuters.com/article/us-venezuela-pdvsa-military-specialrepor/special-report-oil-output-goes-awol-in-venezuela-as-soldiers-run-pdvsa-idUSKCN1OP0RZ)

 

Commodities

Russian companies get green light to mine gold in Venezuela

Venezuelan authorities have offered Russian companies to take part in gold exploration and gold mining in the country, according to Russian Ambassador to Venezuela Vladimir Zaemsky. The official added that Caracas is deeply interested in cooperating with Russia in the sector of exploration of the country’s solid extractable resources, including gold, diamonds and coltan, which is used for the extraction of elements such as niobium and tantalum. According to Zaemsky, the parties are also discussing possibility of cooperating on Russia’s Global Navigation Satellite System (GLONASS), which is run by the Russian Aerospace Defense Forces and is currently the second alternative navigational system in operation. (RT: https://www.rt.com/business/447438-venezuela-russia-gold-exploration/)

 

Venezuela cocoa growers fear new pest: the government

Venezuela cocoa trader Freddy Galindo has battled highway robberies, kidnappings of family members and declining quality in his 19 years exporting the nation’s legendary beans. This year’s harvest brought a new worry: meddling by the socialist government. He said trucks filled with beans leaving his warehouse in central Venezuela were stopped by soldiers at checkpoints and held for days; drivers were forced to unload some cargos at government warehouses. Galindo claims that some 87 tons of his cocoa, worth about US$ 130,000, were missing when the trucks were finally released. Other traders here in Miranda state, Venezuela’s No. 2 producing region, have reported similar delays and confiscations in recent months. Government officials say the checkpoints are meant to nab cocoa thieves, and that some beans have been seized by the state to settle owners’ delinquent tax bills. But the confrontations have unnerved growers and traders who fear their industry is being targeted for a government takeover. The private sector still controls most of the cocoa trade. But with crude output collapsing amid an economic crisis, the government has increased its emphasis on alternative export industries such as cocoa and gold. Delays in export permits have stalled shipments, forcing buyers to go elsewhere. Quality has suffered too. Venezuela’s strict currency controls have prevented many farmers from getting imported chemicals they need to fight disease. (Reuters: https://www.reuters.com/article/us-venezuela-cocoa/venezuela-cocoa-growers-fear-new-pest-the-government-idUSKCN1OQ09G)

 

Venezuela regime seizes control of starving country's meat

Twenty-one public and private slaughterhouses are under a “temporary occupation,” announced Tareck El Aissami, Venezuela’s Vice President for the Economic Area. The seizure — which is for “180 days renewable” — will guarantee the “correct distribution of meat products,” according to El Aissami. Aissami claimed “irregular activities" by “mafias” prevented “access to meat at fair prices." The Public Prosecutor's Office will investigate the owners of the “intervened slaughterhouses,” he said. The move follows President Nicolas Maduro’s call for a complete seizure of Venezuela’s meat industry. “The government has to assume 100% of the production, distribution and marketing of meat,” Maduro declared early in November. (Latin American Herald Tribune, http://www.laht.com/article.asp?ArticleId=2472039&CategoryId=10717)

 

Economy & Finance

Venezuela bondholders are gearing up for battle after futile year

For the better part of the past year, Venezuela’s debt market has been dead. The bonds are in default and there are no restructuring talks, almost no trading and little action from creditors beyond grumbling in private. But that appears about to change. In the past few weeks, one group of investors banded together to demand immediate payment on the notes they hold, another cohort hired a law firm to review their options and a separate creditor sued in U.S. federal court. Their impetus to act seems to stem from both fleeting patience and the realization that if they don’t move now, they may fall behind other creditors in the line to lay claim to Venezuelan assets. Venezuelan debt has been hovering around 25 cents on the dollar since President Nicolas Maduro announced in November 2017 that he was suspending payments and seeking talks with creditors. Those discussions never took place, due to U.S. sanctions that make doing business with the country difficult, and for the most part not much else was happening as the arrears piled up. Now the urgency to act has increased after Houston-based CONOCO PHILLIPS and Canadian gold miner CRYSTALLEX International Corp. managed to wring payments worth a total of US$ 1 billion out of Venezuela to partially satisfy claims over appropriated assets. If those entities were able to get paid, bondholders’ thinking goes, then debt investors should be able to get a piece. The prize that creditors have their eyes on is the country’s largest U.S. asset, the refining company CITGO Holding Inc., which has been valued at US$ 11 billion. Unsecured bondholders are likely to find themselves fighting with a long line of claimants. In addition to having to compete with businesses armed with international arbitration awards, state oil company bonds due in 2020 are explicitly backed by a stake in the refiner, giving those holders a strong claim on the asset. In the meantime, bonds are barely moving. Aggressive legal actions from bondholders could also hinder PDVSA’s operations. Maduro has said that he’s holding talks with bondholders and predicted this month that a deal will be struck next year. There are zero signs of any such discussions. And analysts say there’s likely to be a lot more drama before anything is resolved. (Bloomberg: https://www.bloomberg.com/news/articles/2018-12-26/venezuela-bondholders-gearing-up-for-battle-after-futile-year)

 

In Venezuela, Russia pockets key energy assets in exchange for cash bailouts

As allies go, Venezuela is a relatively cheap one for Russia. But the potential returns on Moscow’s investment there could be priceless. In exchange for modest loans and bailouts over the past decade, Russia now owns significant parts of at least five oil fields in Venezuela, which holds the world’s largest reserves, along with 30 years’ worth of future output from two Caribbean natural-gas fields. Venezuela also has signed over 49.9% of CITGO; it’s wholly owned company in the United States — including three Gulf Coast refineries and a countrywide web of pipelines — as collateral to Russia’s state-owned ROSNEFT oil behemoth for a reported US$ 1.5 billion in desperately needed cash. Russian advisers are inside the Venezuelan government, helping direct the course of President Nicolás Maduro’s attempts to bring his failing government back from bankruptcy. They helped orchestrate this year’s introduction of a new digital currency, the “Petro,” to keep oil payments flowing while avoiding U.S. sanctions on the country’s dollar transactions. Venezuela’s still-formidable defense force, once an exclusively U.S. client, is now equipped with Russian guns, tanks and planes, financed with prepaid oil deliveries to Russian clients. Maduro scoffed last year at President Trump’s public threat to use the U.S. military to bring him down, saying Venezuela, with Russian help, had turned itself into a defensive “fortress.” For Russia, the establishment of a political outpost in the Western Hemisphere is “a strategic win,” said Eric Farnsworth, vice president of the Council of the Americas and the Americas Society. “I don’t think Russia cares two bits about the survival of the Maduro regime,” Farnsworth said. “He is a means to an end. The end is to project power, bust out of sanctions the West has imposed and cause difficulties for the United States. If at the end of the day, they’ve got an unreliable partner, if they lose a few billion dollars, maybe that’s okay.” China has shown little interest in accumulating Venezuelan assets or strengthening political ties with Maduro’s failing regime. For the most part, it has concentrated on trying to get its loans repaid. Russia, in contrast, has repeatedly restructured, refinanced or taken in-kind payments from Venezuela. Maduro claims Russia has agreed to invest an additional US$ 5 billion to improve Venezuelan oil production — much of which goes to Russia’s export customers — and US$ 1 billion in gold mining. During his recent trip to Moscow, separate contracts were signed to supply Venezuela with 600,000 tons of Russian wheat and to modernize and maintain its Russian-made weaponry. Venezuela may well turn out to be a money-loser for Russia. Should the Maduro government fall, debt owed to Moscow, and Russian claims of Venezuelan oil and gas ownership, could end up in years of litigation as other creditors line up for repayment. Many are already in court, including claims demanding the sale of CITGO. But for now, Moscow clearly believes Venezuela is well worth the effort. (The Washington Post: https://www.washingtonpost.com/world/national-security/in-venezuela-russia-pockets-key-energy-assets-in-exchange-for-cash-bailouts/2018/12/20/da458db6-f403-11e8-80d0-f7e1948d55f4_story.html?noredirect=on&utm_term=.7a8fe4869463)

 

Politics and International Affairs

Venezuela calls U.S. comments on Guyana dispute 'interventionist'; CARICOM backs Guyana

Venezuela’s foreign ministry on Tuesday described as “interventionist and disrespectful” U.S. comments on a weekend incident in which the country’s navy stopped two ships exploring for oil for Exxon Mobil off Guyana’s coast. Each of the neighboring countries says the incident on Saturday occurred within its territorial waters. In response to the event, the U.S. State Department said Venezuela had behaved “aggressively” and called on the country to “respect international law and the rights of its neighbors.” Two vessels owned by Norway’s Petroleum Geo-Services (PGS.OL) and under contract by Exxon Mobil were conducting seismic survey work in the area. The ships stopped their work and turned east after the Venezuelan navy told them Guyana did not have jurisdiction there. When asked on Monday if there were plans for the vessels to resume their activities, Guyana Foreign Affairs Minister Carl Greenidge said the government was “in discussion” with EXXON. Neither Exxon nor PGS immediately responded to requests for comment on Tuesday, and the U.S. On Monday, the CARICOM group of 15 Caribbean nations including Guyana - many of which have historically received subsidized oil from Venezuela under Caracas’ PETROCARIBE program - said it viewed the “interception” by Venezuela’s navy “with grave concern.” “Such acts violate the sovereign rights of Guyana under international law,” the group said in a statement. (Reuters: https://www.reuters.com/article/us-guyana-venezuela-oil/venezuela-calls-us-comments-on-guyana-dispute-interventionist-idUSKCN1OO0NM)

 

Colombia expels Venezuelan “non-diplomat”, and Venezuela expels Colombia official

On Thursday, Colombia expelled Venezuelan national Carlos Pino, a man who was working in Caracas’ embassy in Bogota even though he was not a diplomat. Pino was not formally charged with any offenses, but Colombia said it was acting in “protecting national sovereignty.” A blue-blazer clad Pino was forced to cross, on foot, the bridge between Colombia and Venezuela by Colombian migration authorities Thursday. Pino, who worked at the embassy but had no work permission nor diplomatic immunity, has also been barred from entering Colombia for the next 10 years and will in the future require a visa to do so. Colombian media has described Pino as a man close to FARC, a trusted advisor of President Nicolas Maduro in issues dealing with Colombia and as a man involved in spying on Venezuelan refugee camps inside Colombia.  Pino had deep roots in Colombia: he is married to Gloria Florez Schneider, a former Colombian congresswoman close to left-wing leader Gustavo Petro, and had been living in Colombia for the last 18 years, meaning shortly after Chavez first took over in 1999. Petro is a former guerrilla who favored normalizing the FARC, the oldest left-wing guerrilla group in Latin America, but one who always failed in attaining power, either by force of through elections. Hours after Pino's expulsion, Venezuela quickly sided with the man it termed "an official, member of the personnel" of Maduro's legation in Bogota, claimed the treatment given to Pino was "a kidnapping" and in turn expelled Juan Carlos Perez Villamizar. The Maduro Regime described Perez as "a consular, non-accredited official" in the Colombian consulate in Caracas. In a communique, Venezuela's foreign office gave Perez -- whom it said was carrying out consular functions without due accreditation -- 48 hours to leave Venezuelan soil. Venezuelan media identified Perez as the acting consul of Colombia in Venezuela. (Latin American Herald Tribune: http://www.laht.com/article.asp?ArticleId=2471876&CategoryId=10717)

 

Brazil's Bolsonaro says he will target Venezuela, Cuba

Brazil’s President-elect Jair Bolsonaro said on Tuesday that he would take all action “within the rule of law and democracy” to oppose the governments of Venezuela and Cuba. He frequently targets Venezuela and Cuba for verbal attacks, a drastic change from Brazil’s governments under the leftist Workers Party that ruled from 2003 to 2016 and had warm relations with those regimes. The United States is counting on Brazil under Bolsonaro to be a strategic ally. (Reuters: https://www.reuters.com/article/us-brazil-politics-bolsonaro/brazils-bolsonaro-says-he-will-target-venezuela-cuba-idUSKBN1OH2F8)

 

Countless youngsters now live on the streets of Caracas

The streets of Caracas are full of children and teenagers who run, laugh, bathe in dirty rivers, hunt for food in garbage cans and also take drugs - these abandoned youngsters are yet another aspect of the severe social and economic crisis gripping the oil-producing nation that is Venezuela. The children who, in their majority, live in public areas of eastern Caracas, where besides begging they have created an elaborate survival system. No institution, public or private, has figures or even an estimate of how many children and teens now live on the streets of Venezuela, but the situation is evident at first sight. There has been a dramatic increase in the abandonment of children in the country, above all by mothers, though many report a total absence of the father. The youngsters on the streets are happy when they are given food but their greatest joy is when they receive money, because then they run off to buy the drugs that give them a reprieve from this world. Barefoot and unprotected, many have injured hands and feet from nails and glass, while others have been hit by cars and lived to tell the tale. Children and teens are often seen sleeping so soundly on park benches or just on sidewalks that horns honking, dogs barking and passers-by talking don't wake them up. (News4Europe: http://www.news4europe.eu/6350_world/5863769_countless-youngsters-now-live-on-the-streets-of-caracas.html)

 

Magnitude 5.5 earthquake hits Venezuela

A magnitude 5.5 earthquake shook Venezuela on Thursday, according to the United States Geological Survey. The quake was recorded shortly before 5 a.m. about 2 miles northeast of San Diego, Venezuela, and had a depth of about 6 miles, according to the USGS. The agency first reported the magnitude of the quake as 5.6, but later adjusted the magnitude to 5.5. Another quake, of magnitude 5.0, was recorded about 25 minutes later in the same area, the USGS reported. There have so far been no reports or injuries or damages from the earthquakes. (Channel3000: https://www.channel3000.com/weather/magnitude-56-earthquake-hits-venezuela/953146175)

 

The following brief is a synthesis of the news as reported by a variety of media sources. As such, the views and opinions expressed do not necessarily reflect those of Duarte Vivas & Asociados and The Selinger Group.