Rosneft lifeline keeps PdV afloat
OREANDA-NEWS. Venezuelan state-owned PdV squeaked past a catastrophic debt default this year thanks to an expanding financial lifeline from Russian state-controlled Rosneft.
In April 2017, Rosneft advanced PdV just over $1.01bn that was structured as a crude purchase contract. The credit, which appears in Rosneft's second quarter financial results, allowed PdV to raise the funds it needed to pay over $3bn of bond principal and interest reaching maturity in April and May.
PdV also raised $900mn in May to close its bond maturity funding gap by selling PdV bonds held by Venezuela's central bank through an intermediary to investment banks Goldman Sachs and Nomura.
Rosneft's April cash advance to PdV came on top of some $2bn the Venezuelan company borrowed from the Russian firm in fourth quarter 2016 by pledging a 49pc stake in its US downstream unit Citgo's equity as collateral.
The $1.01bn oil purchase contract is essentially an oil-backed loan that PdV is repaying with shipments of 70,000 b/d diverted to Rosneft from Citgo, two PdV sources familiar with the deal told Argus.
"The deal was structured as an oil purchase contract paying out a cash advance because it was done directly with Rosneft, unlike the oil-backed loans with China that are issued by China Development Bank but paid with crude and product shipments to CNPC and PetroChina," a PdV official explained.
PdV was forced to divert the crude from Citgo because it does not have sufficient crude production in Venezuela, a Maracaibo-based upstream executive with the company's western division said.
Venezuela is currently producing around 1.9mn b/d of crude, more than 1mn b/d less than the Opec country registered in the 1990s.
A Venezuelan energy ministry official said PdV was obliged to divert crude from Citgo to Rosneft to ensure that Venezuela meets its supply contracts with other clients and remains in compliance with its Opec-mandated production level.
To the extent that PdV and Rosneft are proxies for Caracas and Moscow, the loans suggest that Venezuela is increasingly reliant on the Russian government, partially eclipsing Venezuela's traditional patron, China. The Chinese have extended some $60bn in oil-backed loans to Venezuela in the past 10 years, but the pipeline of fresh credit from Beijing has dried up in recent years. At the same time, the political and economic ties between Venezuela and Russia bind a founding member of Opec with the leading non-Opec crude producer.
There are signs that Russia is further deepening its exposure to Venezuela, even as the increasingly authoritarian Venezuelan government grows isolated on the international stage. Washington recently expanded targeted sanctions to include president Nicolas Maduro, and Venezuela was ejected from the South American customs union Mercosur.
PdV and Rosneft have reached agreement in principle on the payment of over 4mn bl of past-due shipments of crude and products owed as payment on Russian loans that Caracas has used to finance purchases of Russian land and air weapons systems, the energy ministry official said.
And Rosneft is leveraging its growing financial support for PdV to expand its upstream crude and gas presence in Venezuela. The companies are currently negotiating terms of a new financial agreement that would exchange Rosneft's 49pc guarantee in Citgo's equity for upstream crude and gas concessions.
Energy ministry officials familiar with the talks said Rosneft has offered to grant PdV a further $5bn in financing, and also to exchange the Citgo equity collateral valued at over $1.5bn, in return for concessions to operate three legacy oil fields on the east coast of Lake Maracaibo.
In addition, Rosneft is prepared to take a "very significant" stake in the second-stage development of PdV's 1.2bn cf/d Mariscal Sucre shallow-water gas project.
The official said PdV's contracts with Rosneft should be signed during the second half of 2017.
Russia's expanding ties with Venezuela run counter to widespread condemnation of the Venezuelan regime by the US, Europe and most South American countries. Opponents say a controversial national constituent assembly that started deliberations on 5 August is a sham institution meant to perpetuate the regime by force. Among the assembly's first moves was the ouster of attorney general Luisa Ortega Diaz, a former regime loyalist who has become an outspoken dissident.
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