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Venezuelan State-Oil Firm Poised For Default

Maduro Venezuela

Venezuelan state-run oil company PDVSA’s default is probable, according to rating’s agency Fitch, as the country struggles with the long-running drop in oil prices—its only source of export revenue.

The drop in the oil prices has deepened Venezuela’s already debilitating, multi-year economic crisis, while compounding debt and severe issues of scarcity spell disaster.

Fitch cited the oil giant’s weak liquidity position and high amortization scheduled for 2017 as the causes of the default problem.

"Should oil prices remain around current levels, average recovery may lead to additional future defaults to further reduce obligations and allow for necessary transfers to the government," said Fitch’s senior director Lucas Aristizabal.

The state-own entity's EBITDA after royalties and social expenditures for the last 12 months ending June 2016 was negative, the rating agency calculated.

So far, OPEC’s historical output cut agreement has had no impact on Venezuela, as experts note that the small because small increase in oil prices would not be enough to begin to chip away at PDVSA’s debt problem.

The company has projected its oil production will maintain its 23-year-low this year.

Prior to the OPEC deal, most OPEC countries had increased oil output mid-2016, while Venezuela dragged behind significantly.

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The country must also repay its debt to China with oil. That, combined with domestic consumption, leaves Venezuela with only 900,000 barrels per day for export, according to Russ Dallen of Caracas Capital Markets, cited by Bloomberg in the fourth quarter of last year.

At the same time, crude shipments to China are set to increase 55 percent in 2017 from 2016 to reach 550,000 barrels per day. China has lent Venezuela more than $50 billion through a decade-long oil-for-loans program.

Venezuela is now facing another problem as well. Shipping operations at one of three docks from its main crude exporting port were disabled by what PDVSA has called a “minor” oil spill.

According to a nine-year strategic plan presented in December, PDVSA is expecting production to be 2.501 million barrels per day in 2017—an increase of just 5,000 barrels per day from the 2.496 million barrels per day for the first 11 months of 2016.

By Damir Kaletovic for Oilprice.com

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