The small print

Smiling all the way to the bank
Smiling all the way to the bank

You know the story that ran a few days ago about the Maduro government signing agreements with Chevron and the CNPC to develop some oil fields?

Well, according to Caracas Capital Markets, the fine print says that PDVSA is getting the funding from both companies, but it won’t manage the funds. Instead, both the Chevron funds and the CNPC deal will be managed by Chevron and the Chinese, respectively.

It’s you and me who have to pay the bill though.

Think of the incentives. Chevron gets to spend billions of dollars, with barely any oversight, and as long as they increase oil production everything is dandy … and your grandson foots the bill!

Now, I sort-of understand where both companies are coming from. If I were to lend a thousand bucks to my drug-addict brother-in-law (hypothetical here, all my brothers-in-law are great), I would also take over his finances to make sure he spends the money on food and medicine.

But still, this reaks. PDVSA can’t even be trusted to spend its own money soundly because it has become a cash cow, not an oil company. We lost the world’s trust, so now that we’re bankrupt we must give up remaining control.

Sovereignty? That’s so 1999.

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  1. Turns out if you just scream “anti-imperialism!” loud enough often enough you get to pimp out the country’s resources like they’re a ten-buck crack whore while the international left cheers…

    • All those cheap/free apartments aren’t going to pay for themselves. Or the overtime for patrolling urban areas late at night. Or the increased imports of food. Or the investment in power generation.

      China is our number one partner. They share technology and expertise. Mobile phones, cars, buses, trains, satellites, etc etc. They deserve a good deal on our oil…

      • Surely not. But why, when all Chavez could talk about was how we were becoming so sovereign with food, (I seem to remember a particularly vehement commercial in October before the elections where they would blab about how much food we’re producing) how independent we’re becoming, how the media is exaggerating the violence, how the oil is now for the people, why are they now taking this approach to finance all those things?
        And Chevron as you will have undoubtedly noticed, is not a Chinese company, yet they’re in on the same deal. What do you make of that, I wonder?
        You either have to admit that this is something that goes against the supposed revolution, or that the revolution itself has been a failure.

        • As you know, previous capitalist government left the country impotent in terms of food production. So not only do we have to start from zero, the fast-growing population has lots of money and is has increased their per capita consumption of milk, meat etc. massively.

          • “has lots of money”so much that the government has to grow debts asking chevron to lend us money….

          • Yes, I’m sure every university professor out there agrees with that statement…
            And how exactly is that true when the price of the canasta basica is still higher? Or when there is scarcity of food? With the devaluations and the high inflation rate?
            It seems that 14 years later it is still the predecessor’s fault, despite the fact that our economic situation is inexcusable when you consider the amount of petrodollars we received during this time. Or do you mean to imply that Hugo Chavez was entirely incompetent to undo the damage those pesky capitalists did? Either way, I notice you still haven’t answered anything from my previous comment, so I don’t expect a concrete, logical answer this time around..

          • “We” had 500 years. They have only 14 years. These ladies and gentlemen say so.
            The true descendants of Guaicaipuro, revolutionaries like Roy Chaderton, Cabello, Flores and Ramírez, need 486 more years after what people like Andrés Velázquez, Carlos Ramos and my little niece have done to Venezuela.

          • But there was plenty food available in stores back then… And a significant part of it was produced in Venezuela.

      • That’s what the waikeri said about Columbus in 1498: they deserve a good deal of our pearls and gold. They share technology and expertise. Trinckeats, beads of different colours: red, blue, yellow, pieces of shiny hard material also of many colours and so on.

        Cómo era la cuestión, Yoyo, sobre eso de que ahora producimos “Androids”?

        • afaik we just assamble them, I wouldn’t be proud of that. Also, ain’t android from google, that evil business from the empire?

          • I know, sianhulo. and Android is just an OS.
            Some time ago a couple of my relatives, young guys finishing secondary school, went to some INCE course…sorry, INCES…now it’s “socialist”. They thought they could learn a little bit about some software packages. Then they realised half the course was actually indoctrination. The young guys to go through a lot of rubbish about how now we are “producing” lorries and cars thanks to Iranian, Chinese technology and so on…never before had we done that…and computers!

            In reality, there was more of a “technology” transfer when Ford and General Motors were producing more stuff in Valencia 25, 30 years ago.
            As for the computers: small entrepreneurs were doing that silly assembling of computers the Chinese are doing now with the support of the Venezuelan state…with our money.

            The kind of brain washing that these kids were receiving is enormous.

            Thanks God people are realising what’s happening.

            I think Yoyo doesn’t yet because…why, Yoyo? Can you tell us if your dad or mother are in a state job? And what would it be?

      • “They share technology and expertise. Mobile phones, cars, buses, trains, satellites, etc etc. They deserve a good deal on our oil…”

        They are not ‘sharing’ for free. They are getting a great deal on massive amounts of Venezuela’s greatest (ecnomic) and finite resource, among other things. They are not ‘sharing’ anymore than other Imperial powers have ‘shared’ stuff the corrupt, dysfunctional regimes they ‘partner’ with need to stay in power while they rob the country of its mineral wealth.

        They don’t ‘deserve’ a good deal on anything, they are getting a great deal because PDSVA has become a bloated wreck, and the government has become ever more dependent on more petrol dollars to import everything needed to keep the country afloat and the masses content despite sky high crime, shortages of basic goods on a regular basis, rationing of toilet paper (!), and massive corruption. China is only too happy to provide the regime what it needs to function while it sucks the nation’s natural wealth dry at cut rate prices.

    • No le pidas “peras al horno” como diría el filósofo zuliano Manuel Rosales. Sus gríngolas ideológicas, o peor aun, sus gríngolas monetarias, no les permitirán ver el desastre que nos dejaron Chávez y sus enchufados. Venezuela va cuesta abajo de forma acelerada. Cuándo tocaremos fondo? Tocaremos fondo? Nos importa tocar fondo? Todo se resume a un bozal de arepa? Cuán grande será el bozal? Habrá bozal para todas las bocas?

    • Chavez being a CIA agent would explain a lot, if you posit the CIA is evil and dastardly as some suppose. He massively increased imports of food from the US while crippling Venezuela’s national oil company, leaving future governments no choice but to hand over Venezuela’s oil supplies to global corporate giants. All the while, he makes a lot of noise against the US, leading most of the world to think the US has ended trying to dictate what sort of governments S.American countries may have.

      The 2002 coup was Venezuela’s attempt to stop this dastardly plan, but was allowed to fail by the evil Empire. Not much of a stretch for Alex Jones or George Lucas.

      • The point is, chavistas have no idea of what Patria entitles; for the past 14 years we have lived in the most absolute denial of what our home country is, what it means and what we should care for. Chavismo threw Venezuela not only to Cuba,to anyone who would care very little to suck anything worth here, with the cheering of their many followers. That‘s what many of them believe is the meaning of Patria… So I guess that‘s what we have.

  2. The most horrific part of the article is where it suggests something which is factually true, not merely a throw away line , but really true : people in Pdvsa no longer believe themselves capable of running an oil production operation of the kind which 12 years ago was simply routine, We have to do these awful deals not just because of the money but because Pdvsa cannot undertake these operations with its own people or resources . After 14 years of Chavismo we have retrogated where we are wholly dependent on foreign expertise to exploit our own oil deposits . 60 years of growth in developing a national capacity for management of oil operations have simply been destroyed by crazed decisions and policies . AND PDVSA KNOWS IT.!!

    • I think that there is a more horrific implication. What is worse is that the income from oil is dependent on the very people who no longer believe themselves capable of getting the highest income from oil. I say, don’t try to change the people, change the system so that the system works well even with the people as they are.

      • Ex torres the sad truth is that organizations ultimately are people , but people who are in turn the creatures of a system which has made them into what they are , people who have a culture of habits and values and competence on which the organization depends to perform its job. The Venezuelan model is always to parachute people, gifted or glitzy improvisers , who know nothing about a job on top of a pyramid of power and let it go at that . That doesnt work , you need to develop a team of people who believe in their job and who have been trained by long years of practice to do it the best way possible. Thats what Pdvsa used to be and is no longer. The system can up to a certain level make up for the inadequacies of individuals but it cannot operate in a human vacuum of mediochrity. In Pdvsa we need to restore a system that really worked but to do that we have to develop the kind of human teams , that can work within that system and make it competent !! thats a tought long job !!

        • bill bass, you are right again, my father who passed away in 1971 was an enginer educated in England who used to complain about people that got hired as his supervisors who knew nothing about their jobs and were there because they got a good “contact” person and who will constantly ask him questions on things that were very basic. Incompetent people running managerial positions in Vzla has always been part of the problem while knowledgeable folks who do not belong to the correct political party don’t get the credit and the jobs they deserve….

        • bill bass, you missed the point. The point is that what does not work, is putting people in charge within a system that lets them mess things up so badly, even if for a while you get people who don’t mess up, especially when the system is too tempting. Think Ring of Power.

          If you think that the Ring of Power should not be destroyed, and that to properly wield its power all we need to do is “develop a team of people who believe in their job and who have been trained by long years of practice to do it the best way possible”, then you missed the crux of the Lord of the Rings.

  3. >>> .. as long as they increase oil production everything is dandy …
    and your grandson foots the bill!
    By that time, the foreign-owned oil deposits, w their foreign owned
    armed settlements, will keep my barefooted grandpersons grimly
    off limits. Bills [cops] will keep resources well away from
    the local born feet.

    • you wish!
      by then, zulia’s satrap will bow to the Colombian boot,
      and the east closest to brasil will be fluent in portuguese.

        • By that time the world will probably have completed development of new forms of energy that do away with the current need for crude oil or which turn the crude oil business into the kind of business coal is now , one with razor thin margins , which require constant innovation and intense cost cutting simply to survive. Trust our wonderful leaders to even imagine what the future really looks like !! Remember Chile’s happy days of mining wealth at the beginning of the century , or Brazils happy times when all rubber came from their amazon forests , and Peru’s happy days of guano wealth, maybe by that time all those countries we have given oil to will have repaid their debt to us !! at one percent interest !!

  4. I could not find the Caracas Capital Market mention of the “fine print” in the agreements. I don’t doubt this is the case because PDVSA is totally incapable of managing the activity.
    The objective of 6 million barrels per day by 2019 is more bullshit. This was the objective for 2013 in 2006.
    The requirements in logistics would be immense to do this and the managerial challenges out of this world. Venezuelan oil production declines about 20 percent per year, Like Humpty Dumpty PDVSA has to generate about 5-600,000 barrels per day of new production every year, just to keep level. Generating 3,5 million barrels of new production per day by 2019 would mean to generate every year another half a million barrels per day of new production, over and above the production required to keep in the same place. This roughly (it’s not such a simple linear process) means that every year PDVSA should generate about one million barrels of production. There is not enough cement, or pipe, or water, or personnel, or rigs available in the time required to do this. Not in the Venezuela of Ramirez and Maduro. The different companies involved in the effort will be competing for the limited resources.

    • I didn’t find any further information either, although I’ll happily be digging into the Q2 results for CVX when they arrive near the end of July to see if there’s any light that can be shed on the subject.

      However, from their 1stQ 10Q:
      The company has entered into a nonbinding financing term sheet with Petroboscan, a joint stock company owned 39.2 percent by Chevron, which operates the Boscan Field in Venezuela. When finalized, the financing is expected to occur in stages over a limited drawdown period and is intended to support a specific work program to maintain and increase production to an agreed-upon level. The terms are designed to support cash needs for ongoing operations and new development, as well as distributions to shareholders – including current outstanding obligations. The loan will be repaid from future Petroboscan crude sales. Definitive documents are under negotiation

      This predates the closure of the deal, but seems to indicate that they will exert quite a bit of control over the funding.

      This makes sense in another context as well, if you look at it from a strategic finance perspective.

      Petroboscan, being a JV has some payout to Chevron as a 39.2% stakeholder. However, I suspect repatriating those funds has proven excessively difficult for Chevron and what cash comes out of the operation to them is in local currency which is then nominally converted to dollars, even though oil is denominated in that currency. I couldn’t find specific details of Petroboscan, but this isn’t unusual in a field where an MNC is a limited partner with a highly authoritative government and wants to maintain a toehold.

      My gut feeling is that this deal was a hedge against a devaluation. By all indications, the “loan” was in dollars, not in bolivars. Moreover, the Libor+4.5% rate is a reasonable good return on a dollar investment which also allows for a greater return on invested capital in the long term on on the project (which sundowns around 2026). They are paying it in the dollar-value equivalent of bolivars, but the payback will be in dollars with interest. This is a logical hedge against a future devaluation, and indicates that Chevron certainly expects one.

      Despite the PR-win for PDVSA, Chevron walks away with all the goodies. Their balance sheet as a 39.2% stakeholder in the project will increase with specific investments. They are making LIBOR+4.5% in dollars on a $1billion loan. They expect to yield increased production which adds to their bottom line on the project. How do they lose in this scenario short of having everything nationalized yet again, and in which case, they’d get a slamdunk on the loan in ICSID?

      One other curiosity that arises from Ramirez via Bloomberg: “…will help boost daily output to 127,000 barrels from 107,000 barrels.”

      That’s pretty amazing that they are at 107k now considering the average for the JV was 28,000 bpd through 2012, according to Chevron, along with quite a bit of gas.

  5. Pitiyanqui is justly surprised at the discrepancy in the production numbers for Boscan. But the key to the discrepancy might (just might) be in the meaning of the two words: average and net.
    The average of the 2012 net production for Chevron is listed by Chevron at 28,000 b/d. This means that the total average production (Chevron’s 40% + PDVSA’s 60%) was somewhere around 80,000 b/d. It could be (just could) that by the end of the year, total production was closer to 100,000 b/d and that’s the figure that Ramirez uses with his typical poetic licence., + or – 10,000 b/d.
    This is the world of numbers we have to live with in today’s Venezuelan oil industry. Ramirez says whatever comes to his mind in different places at different times, because he knows that – with the exception of a handful of interested analysts – no one reads, understands, cares or gives a hoot about how PDVSA is doing. The thermometer used by the population is not oiol production or level of exports but the presence or absence of Harina pan in the markets.

    • I will take that as a reasonable explanation and thank you for your insight. I am so used to the Bureau of Made Up Numbers that I am never really sure what is or isn’t valid.

      Still, I am willing to bet a case of toilet paper and two packages of Harina pan that this is simpy a beautifully done accounting manuever by Chevron that releases some of the stress of a future devaluation.

      I noticed that, unlike several other companies, there was nary a mention of a writedown in their 10Q from the devaluation, nor did they cite it as a concern. Either they are being remunerated in dollars, which I’d put at 1/6 odds, or they had something else in mind.


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