Conoco collecting $2 billion by the barrel
A decade-old legal war with Venezuela began paying off this week as the embattled Latin American country started making good on a $2-billion arbitration settlement one barrel of crude at a time to Houston-based ConocoPhillips which received an initial payment of $345 million in the form of “cash and commodities” from PDVSA. The remittance helped allay fears the cash-strapped OPEC founder would be unable to pay off the award in a long-running dispute over asset seizures.
Conoco loaded about 1.5 MMbbl of Venezuelan crude from terminals in the Caribbean run by Petroleos de Venezuela SA. Conoco resold the cargoes to refineries in the U.S. and Asia.
The PDVSA payment helped Conoco trounce profit expectations for the quarter. The company’s performance also was boosted by higher commodity prices and production from U.S. shale fields that grew 48 percent year-over-year. The company remains focused on fiscal discipline and shareholder returns, CEO Ryan Lance said in the statement. “This is what the market can expect from us again in 2019.”
The remainder of an initial $500-million payment from PDVSA is due by the end of the year. The rest of the settlement is to be paid out over 4.5 years. The explorer, which pumps oil and gas on six continents, raised its full-year capital budget projection by almost 2% to $6.1 billion, a figure that could draw scrutiny from investors, who are pressuring oil companies to control spending. Seeking to stay in their good graces, Conoco has repurchased $2.1 billion in shares this year, part of a plan for as much as $9 billion in buybacks. The report led a strong run of third-quarter earnings results from the industry, fueled by rising prices. Norwegian oil major Equinor ASA reported its best quarterly profit in four years.
Financial Times. In the building where PDVSA union leader Iván Freites works, the Venezuelan flag emblazoned across a photograph of an oil rig bears a quote from former president Chávez. “We want Venezuelan oil to bring peace and love.”
Freites would like that too but no longer thinks that outcome is possible, having seen the Chávez and Maduro regimes plunder the oil producer, strip it of investment, sack experienced managers and replace them with military officers. “I’ve worked at PDVSA for 35 years and I’ve never seen anything like this. What we need above all is to get our democracy back.”
El Rey Dorado (The Golden King)
Government and PdV have combined debt of over$3bn due before the end of 2018, equivalent to over a third of the central bank’s hard currency reserves of $8.44bn.
Both are already in default on $6.4bn in sovereign and corporate debt accumulated over the past year. Financial sector executives say the government will accumulate more arrears during the rest of the year as PdV’s production continues to decline, although part of the payments could be made.
The government could tap the bank´s reserves to cover its fourth quarter debt maturities. With the bank’s liquid cash reserves at a little over $1bn, gold holdings must be sold to secure the cash to pay all bond debt and other liabilities due over the next 90 days. Gold accounts officially for almost three-quarters of the bank’s reported hard currency reserves. It is unclear if all of the reported gold assets are under central bank control. Former bank economists believe the government secretly shipped up to 200 tons of the bank’s gold out of Venezuela since 2016. Oil exports account for over 95pc of annual hard currency revenues and international oil prices have strengthened recently but tumbling production s cancelled out any gains from rising prices.
PdV’s weekly average export price rose to just over $73/bl as of 28 September 2018 compared with an average of $50/bl a year earlier. In the same period, crude output declined to about 1.2mn b/d in September 2018, from 1.95mn b/d in September 2017.
The financial crisis drove the government to plead for more financial support from Russia and PRC which recently committed to joint ventures in Venezuelan oil and minerals, but resisted petitions to reschedule oil-backed debt. The government launched a redesigned version of its petro, a controversial financial instrument seen as a hollow and a fraudulent way to get around its predicament.The value of the “digital currency” will be set by a weighted basket of Venezuelan commodities including oil, gold, iron ore and diamonds.
The country is exposed by looming debt obligations including $500mn that PdV pledged to pay US independent ConocoPhillips before the end of November, the first installment on a $2bn settlement of an arbitration claim from the 2007 takeover of the US company´s Venezuelan assets. If PdV does not meet the payment, it risks the restoration of judicial seizures of its Dutch Caribbean oil assets that ConocoPhillips lifted after the settlement in late August.
Combined sovereign and PdV bond maturities totaling $1.598bn are due in October, including an $842mm amortization payment and an associated $107mn interest payment on a PdV 2020 bond, both due on 27 October. The principal payment has no grace period, but the interest payment has a 30-day window.
The PdV 2020 bond is backed by 50.1pc of the shares in PdV Holding, the indirect parent of PdV´s US refining subsidiary Citgo. This is the only bond that PdV and the government honored since falling behind on the payments a year ago.
The other 49.9pc of PdV Holding is pledged to Russia´s state-controlled Rosneft for a 2016 oil-backed loan of $1.5bn.
Combined sovereign and PdV debt maturities in November total a further $1.22bn, followed in December by over $242mn more. US financial sanctions, first imposed in August 2017 and tightened to close loopholes and block access to capital, were extended in March 2018 by the US Treasury to include the petro in all its variations
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