PdV taps Citgo credit line for oil imports

OREANDA-NEWS. February 08, 2016. Cash-strapped Venezuelan state-owned PdV is tapping the credit line of its US downstream subsidiary Citgo to finance imports of light crude and refined products that it needs to sustain and expand production in the Orinoco extra-heavy oil belt, Venezuelan officials say.

The Citgo credit line is one of several alternatives that PdV is pursuing to get around suppliers? requirements for up-front cash payment. Pdv has also asked its foreign joint venture partners in the Orinoco oil belt to finance the required crude and naphtha imports, and has sought to recruit African state-owned oil companies from which it buys light crude to partner with the firm in the oil belt. None of these latter options has materialized so far.

PdV blends light crude with 8.5°API Orinoco crude to yield 16°API Merey, much of which is exported to China and India. The company started to import light crude in late 2014 to compensate for its own declining light and medium crude production in Venezuela.

PdV also imports naphtha for use as a diluent to transport the Orinoco crude via pipeline to four upgraders and a blender located in Jose on the Caribbean coast.

Orinoco crude accounts for at least half of Venezuelan crude production, which Argus estimates at around 2.3mn b/d.

The vast Orinoco oil belt is Venezuela?s source of planned future production growth, but development of the viscous grade is more costly and technologically demanding than conventional crude because it cannot be transported or marketed without diluent and upgrading or blending. Ambitious plans to build more upgraders and blending facilities that would substantially expand production remain stalled because Venezuela has not been able to foot its majority share of the required investment.

Up until this year, most of the light crude that PdV imported came from Africa, in addition to some Russian Urals. Through Citgo, PdV last month purchased 550,000 bl of US light crude following the lifting of a 40-year US government ban on crude exports. The deal was the first export of US crude to Latin America since restrictions on exports were lifted in December.

More US crude could head to Venezuela in 2016, as a less expensive, shorter-haul alternative to African grades.

The Citgo credit option is not without risks for Caracas, financial sector executives tell Argus.

Citgo has a revolving \\$900mn credit line that expires in 2019, but PdV is subject to stiff restrictions on accessing capital through its subsidiary after it issued a \\$2.8bn debt package through the US subsidiary in early 2015. The borrowing package followed an aborted plan by Caracas to sell Citgo for up to \\$10bn.

As a result of PdV?s financial maneuvers, perceptions of Citgo?s own credit profile could deteriorate, diminishing future borrowing and credit opportunities for the Venezuelan government. Nonetheless, Fitch Ratings says the covenants governing Citgo Petroleum and Citgo Holding would largely insulate them from any future potential claim by PdV creditors. The credit rating agency today affirmed Citgo Petroleum?s B rating with a stable outlook.

PdV declined to comment. Citgo did not return calls seeking comment.

Low oil prices have forced PdV to slash projected oil export revenues in 2016, but Venezuelan energy ministry officials deny that PdV is facing financial problems as a result.

Oil exports account for nearly all of the Venezuelan government?s revenue.