Venezuela Set To Share Economic Data With IMF

(OilPrice.com, Tsvetana Paraskova, 15.Nov.2018) — OPEC’s member Venezuela—which is sitting on the world’s largest crude oil reserves but which is suffering the worst loss of oil production in history outside of war-induced outages—is getting ready to share macroeconomic data with the International Monetary Fund to avoid penalties including possible exclusion from the IMF.

The central bank of Venezuela is preparing to hand over crucial economic statistics to the IMF to meet a November 30 deadline to provide the information or risk exclusion, two people with direct knowledge of the issue told Bloomberg on Thursday.

Venezuela hasn’t provided economic data to the IMF since 2016, when its crisis started to become severe. The IMF issued a declaration of censure against Venezuela in May this year because Venezuela failed to provide adequate data and implement remedial measures. In May, IMF’s Executive Board said that it would meet again within six months to consider Venezuela’s progress in providing data.

Just like its economy, oil production in the world’s largest holder of crude reserves is also in free fall. In October, Venezuela’s crude oil production plunged by another 40,000 bpd compared to September, to stand at just 1.171 million bpd, as per OPEC’s secondary sources. To compare, Venezuela’s oil production averaged 2.154 million bpd for 2016 and 1.911 million bpd for 2017.

Venezuela’s crude production could soon sink to below 1 million bpd, Fatih Birol, Executive Director of the International Energy Agency (IEA), warned last week, and it looks like it would be sooner rather than later.

The economic collapse adds to years of mismanagement and under-investment in the oil industry to further complicate attempts in Venezuela, one of OPEC’s five founding members, to stop the steep decline of its oil production. Venezuelan people are fleeing the country en masse amid an aggravating humanitarian crisis and an extreme poverty rate of 40 percent.

According to the IMF, Venezuela’s economy will collapse by 18 percent this year, while inflation is expected to be at 1,370,000 percent.

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Venezuela Pushing For Dragon Gas In 18 Months

(Trinidad Express, 15.Nov.2018) — Venezuela’s minister of energy, Manuel Quevedo, said yesterday that his country’s state-owned oil giant PDVSA expects to start sending natural gas to Trinidad from the Dragon field, off this country’s north-west coast, within two years.

Speaking at a news conference following the 20th ministerial meeting of the Gas Exporting Countries Forum (GECF), which was held at the Hyatt yesterday, Quevedo described the Dragon agreements as an important example of cooperation between neighbouring countries.

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Fuel Shortages The New Norm In Venezuela As Oil Industry Unravels

(Reuters, Tibisay Romero, Deisy Buitrago, 13.Nov.2018) — With chronic shortages of basic goods afflicting her native Venezuela, Veronica Perez used to drive from supermarket to supermarket in her grey Chevrolet Aveo searching for food.

But the 54-year-old engineer has abandoned the practice because of shortages of something that should be abundant in a country with the world’s largest oil reserves: gasoline.

“I only do what is absolutely necessary, nothing else,” said Perez, who lives in the industrial city of Valencia. She said she had stopped going to Venezuela’s Caribbean coast, just 20 miles (32 km) away.

Snaking, hours-long lines and gas station closures have long afflicted Venezuela’s border regions. Fuel smuggling to neighboring countries is common, the result of generous subsidies from state-run oil company PDVSA that allow Venezuelans to fill their tank 20,000 times for the price of one kilo (2.2 pounds) of cheese.

But in late October and early November, cities in the populous central region of the country like Valencia and the capital Caracas were hit by a rare wave of shortages, due to plunging crude production and a dramatic drop in refineries’ fuel output as the socialist-run economy suffers its fifth year of recession.

Venezuela produced more than 2 million barrels per day (bpd) of crude last year but by September output had fallen to just 1.4 million bpd. So far in 2018, Venezuela produced an average of 1.53 million bpd, the lowest in nearly seven decades, according to figures reported to OPEC.

Bottlenecks for transporting fuel from refineries, distribution centers and ports to gas stations have also worsened, exacerbating the shortages.

PDVSA did not respond to a request for comment. Neither did Venezuela’s oil and communications ministries.

Relatively normal supply has since been restored in Caracas and Valencia after unusually long outages but the episode has forced Venezuelans to alter their daily habits.

That could hit an economy seen shrinking by double digits in 2018. For Venezuelans coping with a lack of food and medicine, blackouts and hyperinflation, the gasoline shortages could also increase frustration with already-unpopular President Nicolas Maduro.

“My new headache is fearing I might run out of gasoline,” said Elena Bustamante, a 34-year-old English teacher in Valencia. “It has changed my life enormously.”

PRODUCTION SHORTFALL

Venezuela’s economy has shrunk by more than half since Maduro took office in 2013. The contraction has been driven by a collapse in the price of crude and falling oil sales, which account for more than 90 percent of Venezuelan exports.

Three million Venezuelans have emigrated – or around one-tenth of the population – mostly in the past three years, according to the United Nations.

Despite a sharp drop in domestic demand due to the recession, Venezuela’s collapsing oil industry is struggling to produce enough gasoline.

Fuel demand was expected to fall to 325,000 bpd in October, half the volume of a decade ago, but PDVSA expected to be able to supply only 270,000 bpd, according to a company planning document seen by Reuters.

A gasoline price hike – promised by Maduro in August under a reform package – could further reduce demand but it has yet to take effect.

Venezuela’s declining oil production has its roots in years of underinvestment. U.S. sanctions have complicated financing.

The refining sector, designed to produce 1.3 million bpd of fuel, is severely hobbled. It is operating at just one-third of capacity, according to experts and union sources.

Its largest refinery, Amuay, is delivering just 70,000 bpd of gasoline despite having the capacity to produce 645,000 bpd of fuel, according to union leader Ivan Freites and another person close to PDVSA who spoke on the condition of anonymity.

PDVSA has tried to make up for this by boosting fuel imports, buying about half of the gasoline the country needs, according to internal company figures.

In the first eight months of 2018, Venezuela imported an average of 125,000 bpd from the United States, up 76 percent from the same period a year earlier, data from the U.S. Energy Information Administration show.

But delays in unloading fuel cargoes have contributed to shortages, since Venezuelan oil ports are more oriented toward exports than imports, according to traders, shippers, PDVSA sources and Refinitiv Eikon data.

One tanker bringing imported gasoline mixed with ethanol was contaminated with high levels of water, forcing PDVSA to withdraw the product from distribution centers, a company source said, directly contributing to the shortages in Caracas.

The incident was the result of PDVSA seeking fuel from “unreliable suppliers,” in part because the U.S. sanctions have left many companies unwilling to do business with Venezuela, said the source, who spoke on the condition of anonymity.

The shortages last week prevented Andres Merida, a 29-year-old freelance publicist in Valencia, from attending client meetings.

“I had someone who used to take me from place to place but in light of the gasoline issue he would not give me a lift even when I offered to pay him,” he said. “He said he would prefer to save the gasoline and guarantee it for himself.”

(Additional reporting by Anggy Polanco in San Cristobal, Mircely Guanipa in Punto Fijo, Vivian Sequera in Carcas and Marianna Parraga in Mexico City; Writing by Luc Cohen; Editing by Daniel Flynn and Chris Reese)

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Venezuela Hoping To Steeply Raise Oil Output Next Year

(Reuters, 11.Nov.2018) — Venezuela is hoping to steeply raise oil output next year but will respect any new deal if OPEC agrees to reduce output from December, Oil Minister Manuel Quevedo said on Sunday.

The south American OPEC nation’s current oil output is 1.5 million barrels per day and it aims to increase that by 1 million bpd “soon”, he told reporters in Abu Dhabi.

Quevedo was speaking in Abu Dhabi where an oil market monitoring committee was held on Sunday, attended by top exporters Saudi Arabia and Russia.

A majority of OPEC and allied oil exporters support a cut in the global supply of crude, Oman Oil Minister Mohammed bin Hamad al-Rumhi said earlier in the Emirati capital.

“Many of us share this view,” the minister said when asked about the need for a cut. Asked if it could amount to 500,000 or one million barrels per day, he replied: “I think it is unfair for me to throw numbers now.”

Saudi Arabia is discussing a proposal to cut oil output by up to 1 million barrels per day by OPEC and its allies, two sources close to the discussions told Reuters on Sunday.

Venezuela will comply with its debt obligations and considers itself a partner with Chevron Corp. and other companies, Quevedo said, adding the problem is with the American government.

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Venezuela Gov’t Says Sabotage To Blame For Electric Outages In Margarita

(Energy Analytics Institute, Piero Stewart, 10.Nov.2018) — An explosion that occurred along a segment of the Northeast Gas Pipeline José Francisco Bermúdez, and which caused interruptions in electricity service in Nueva Esparta state, was an act of terrorism and sabotage, announced Venezuela’s Electricity Minister Luis Motta Domínguez.

“The interruption of electric services late this week was an act of terrorism carried out against a segment of PDVSA’s natural gas pipeline. Due to the gas leakage, the state oil company was forced to close the valves along the pipeline,” said Domínguez in a telephone call from Margarita Island, broadcast by Venezolana de Televisión (VTV).

Domínguez didn’t present any reliable or believable evidence related to the claim.

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Chevron Stayed In Venezuela Long After Rivals Quit

(Wall Street Journal, Kejal Vyas and Bradley Olson, 8.Nov.2018) — For nearly a century, Chevron Corp. has weathered dictatorships, coups and nationalization drives to keep pumping oil in Venezuela.

But recently, executives at the last U.S. oil major in the country have debated whether it may be time to get out, according to people familiar with their deliberations.

For now, Chevron hopes to hang on and outlast President Nicolás Maduro, as it did with his late mentor Hugo Chávez and other rulers.

“We’re committed to our position in Venezuela,” Clay Neff, Chevron’s president of exploration and production in Africa and Latin America, said in an interview Thursday following initial online publication of this story.

Chevron’s dilemma is both moral and commercial. The California-based giant long enjoyed close relations with the socialist regime that controls the world’s largest oil reserves, and has earned big money in Venezuela—about $2.8 billion between 2004 and 2014, according to cash-flow estimates by analytics firmGlobalData .

The company is aware a pullout could trigger a collapse of the government’s finances, because a significant chunk of its scarce hard currency comes from joint operations with Chevron.

Yet by staying in the country as its economic and humanitarian crises deepen, the company risks damage to its reputation by being seen as supporting an authoritarian regime sanctioned by the U.S. government. It also isn’t making much money here anymore.

Chevron has had to put up with many provocations in Venezuela, including late payments, requests for employees to attend political rallies and bickering over loans Venezuela sought because it couldn’t afford oil-field maintenance. Chevron’s joint ventures with the state oil company are regularly subjected to what Venezuelan prosecutors have labeled corrupt overcharging by vendors. Graft and the risk it will worsen have weighed on executives as they consider Chevron’s position in the country.

It has become harder to stomach since the big money disappeared from the Venezuela operations, say people familiar with the company. Chevron operations in Venezuela lost money from 2015 to 2017, according to GlobalData, then eked out a modest profit this year thanks to higher oil prices. Oil fields are aging, and unless more reserves are opened up, Chevron’s work in Venezuela will run out of steam in less than five years, GlobalData estimates.

A turning point for foreign companies operating in Venezuela came in 2006, when Mr. Chávez began nationalizing oil fields managed by foreign operators and sharply raising taxes.

Rewritten contracts made Petroleos de Venezuela SA, known as PdVSA, the operator and majority owner of most projects. Chevron’s top U.S. competitors, Exxon Mobil Corp. and ConocoPhillips ,balked at the changes, left, and filed suit. Exxon has yet to recover the full value of the billions in equipment and other assets it left behind. ConocoPhillips recently reached a $2 billion settlement.

Some European oil companies, such as Total SA and Equinor AS A (then called Statoil), remained but reduced their holdings.

Chevron decided to stay, and—led by a charismatic Iranian-American executive named Ali Moshiri—formed an array of partnerships with PdVSA. Mr. Moshiri, who was head of Chevron’s business in Latin America and Africa, sometimes appeared in public with Mr. Chávez, who called him a “dear friend” on one occasion.

Joint ventures Mr. Moshiri pioneered became a model for foreign companies doing business in Venezuela. A venture called Petropiar between Chevron and PdVSA is one of four so-called upgrader ventures between the state oil company and foreign operators to blend Venezuela’s tar-like heavy crude with lighter oil or other substances and make it transportable.

Though Chevron’s bet paid off financially for years, an oil-price crash beginning in late 2014 triggered a vicious cycle in which government revenue fell and then oil production did, too, as the country placed priority on debt payments over the heavy reinvestment oil fields need to stay healthy.

Since the end of 2017, Venezuela has defaulted on more than $6 billion in debt payments, according to Fitch Ratings, while its crude-oil industry has been reduced close to ruins by neglect and the departure of experienced engineers.

Oil production has fallen to 1.2 million barrels a day from 3.2 million daily in 2006, according to the Organization of the Petroleum Exporting Countries. A country with vast reserves now produces roughly as much oil as the U.S. state of North Dakota. As output has declined, and thus revenue, the country’s economic crisis has worsened.

With supermarket shelves nearly bare and prices soaring, two-thirds of Venezuelans reported losing 25 pounds of weight in 2017, according to a survey. Violence is rampant, including atrocities by police and soldiers. Hospitals lack medicine and clean water, yet the government rejects most humanitarian aid as a Trojan horse for foreign intervention. More than three million Venezuelans have fled, leaving those who remain to face crushing rates of murder, malnutrition and hyperinflation.

Venezuela’s energy enterprises are under pressure from expanding corruption probes in the U.S. and Europe. A U.S. investigation, centering on allegations that PdVSA officials solicited vendors for bribes, has netted 15 guilty pleas, including from a number of PdVSA honchos.

An investigation in the tiny European nation of Andorra has led to money-laundering charges against 28 people, including former Venezuelan deputy ministers, who allegedly took $2 billion through kickbacks-for-contracts schemes from 2007 through 2012.

Zair Mundaray, a former Venezuelan prosecutor now in exile, said his team uncovered an alleged scheme at the Petropiar joint venture in which PdVSA executives skipped formal contract bidding and handpicked the vendors of a wide range of supplies, from oil equipment to cafeteria coffee, at exorbitant prices. The profits were distributed among certain Petropiar managers, PdVSA higher-ups and the suppliers, the charging documents said.

PdVSA and Venezuela’s Information Ministry didn’t respond to calls and detailed emails seeking comment.

Venezuelan charging documents and purchasing invoices reviewed by The Wall Street Journal allege that contractors pilfered more than $200 million in two years from the joint venture through markups such as $156,000 for printer/copiers and $9,000 for ink-jet cartridges.

Among the accused was Manuel Sosa, a former soap-opera actor who once dated a daughter of Mr. Chávez, whose company supplied the costly printer/copiers. Mr. Sosa pleaded guilty in December and was sentenced to four years’ house arrest in return for his cooperation. He couldn’t be reached for comment.

“Where were the checks? Where was the accounting?” asked Mr. Mundaray. “There’s absolutely no way that [Chevron] did not know what was happening.” He said he has given the evidence he collected to the U.S. Justice Department, which declined to comment.

Pedro Burelli, a former PdVSA board member and a Maduro critic, said Chevron “turned a blind eye to what was going on.”

“When you’ve agreed to work with a majority partner that is derelict, you’re just setting yourself up for a huge risk. You get deeper and deeper, when you should be hitting the red button, to get yourself out,” said Mr. Burelli.

Chevron said it complies with all applicable laws wherever it operates and expects its partners to do so as well. It said it doesn’t control the procurement process in the joint venture, in which Chevron has a 30% nonoperating stake. In oil and gas joint ventures, the operator typically has primary authority over costs, though minority partners are generally consulted and sign off on certain expenses. Chevron said nothing in documents it was shown suggested any wrongdoing by the U.S. company.

Oversight of the investigation changed hands just as it was picking up steam. Mr. Mundaray and his team left Venezuela in August 2017 after their boss, former Attorney General Luisa Ortega, criticized Mr. Maduro for alleged human-rights abuses. The president called the prosecutors traitors.

A new attorney general, Tarek William Saab, provided a list of people accused that lacked some names on Mr. Mundaray’s list.

One missing name was that of former Petropiar chief Francisco Velasquez, who the former prosecutors said splurged on a pink Ferrari and a villa at the exclusive Casa de Campo resort in the Dominican Republic while the oil project suffered backlogs and delays. He couldn’t be reached for comment. Mr. Saab didn’t respond to comment requests.

In April, two Chevron employees working at the Petropiar joint venture were jailed by Venezuelan military intelligence when they refused to sign a contract for oil-processing equipment priced at what they considered well above market value. The employees were released after six weeks of tense negotiations, but not before a thinly veiled threat from Chevron: free them or we will leave, people familiar with the confrontation say.

Chevron confirmed two employees were arrested in April and released in June but said, “We have no further information to share on this matter.”

A dwindling number of foreign companies are still doing business with the Maduro administration, which is facing threats of tougher sanctions by Washington. The U.S. has sanctioned dozens of Venezuelans, including Mr. Maduro, for allegations varying from corruption to human-rights abuses to drug trafficking. The sanctions bar American citizens and companies from doing business with them.

Mr. Maduro has said he wants foreign oil partners to use a cryptocurrency called the petro his government designed to evade U.S. sanctions on Venezuelan debt. The U.S. in March barred Americans from using the petro.

By staying in Venezuela, Chevron risks exposing itself to legal penalties under U.S. anti-corruption laws, some analysts say. Chevron said it “abides by a strict code of business ethics under which the company complies with all applicable international, U.S. and Venezuelan laws.”

Its managers’ meetings with government and PdVSA officials “comply with all applicable laws and regulations, including the U.S. sanctions directed towards Venezuela,” Chevron said.

About 700,000 daily barrels of the country’s oil production comes from joint ventures between PdVSA and foreign companies, consultants say. That includes about 200,000 to 250,000 barrels a day from Chevron ventures.

Joint-venture output has generated far more cash for the government in recent years than oil pumped by PdVSA alone, because the state company’s production has gone to repay debts to allies such as China and Russia or to be processed into gasoline the government provides almost free. That means a Chevron withdrawal would take a big bite out of government’s revenue.

Another foreign company, Royal Dutch Shell PLC, is weighing an exit from most of its remaining operations in Venezuela through a sale of its stake in a joint venture, according to people familiar with its plans. A spokeswoman for Shell said such a deal wouldn’t amount to a total exit, as the company is working to develop Venezuelan gas assets offshore that would supply nearby Trinidad and Tobago.

Some analysts believe other Western companies operating in Venezuela, such as France’s Total or Norway’s Equinor, might feel pressure to follow a departure or partial exit by either Shell or Chevron. At the same time, according to GlobalData, those that stay might be able to gain access to new fields or renegotiate contracts for better terms. Chinese or Russian companies such as PAO Rosneftcould be beneficiaries of any such departures in the long run, analysts say.

Total, Equinor and Rosneft officials either declined to comment or didn’t respond to questions.

Signs of a troubled relationship between Chevron and the Venezuelan government emerged a year ago when Mr. Moshiri’s successor as head of Chevron’s Latin American and African operations, Mr. Neff, sat down for a meeting with Mr. Maduro and other Venezuelan officials.

Venezuelan officials snapped a photo without Chevron’s consent and publicized it. At Chevron headquarters in San Ramon, Calif., concerns grew that the company was being duped into making an appearance in Venezuelan propaganda, people familiar with the matter said.

While such photo ops had occurred before, the country’s worsening economic collapse, plus U.S. sanctions, are making them harder to tolerate, the people said. Chevron declined to discuss the Caracas meeting.

The company’s closeness with the government is generating rancor among PdVSA’s workers, who have been quitting in droves amid hyperinflation that has pummeled their salaries to the equivalent of less than $10 a month.

Jose Bodas, a union leader in eastern Venezuela where Petropiar is located, said photos of sports cars and European vacations posted on social media by managers angers workers who sometimes lack boots and hardhats.

“I’m not opposed to people having Ferraris and mansions, but this is all corruption,” Mr. Bodas said. “I don’t mind saying it—if you’re a multinational working with this government, you’re an accomplice to what’s going on.”

—Ginette Gonzalez and Samuel Rubenfeld contributed to this article.

Write to Kejal Vyas at kejal.vyas@wsj.com and Bradley Olson at Bradley.Olson@wsj.com

Appeared in the November 9, 2018, print edition as ‘Venezuela Tests Chevron Staying Power.’

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Rosneft Says Venezuela’s Bill Falls To $3.1 Billion

(Reuters, 6.Nov.2018) — Rosneft was owed $3.1 billion by Venezuela as of September 30, down from $3.6 billion on June 30, Russia’s largest oil producer said on Tuesday.

It also said it owes $26.8 billion to traders under prepayment deals for its oil as of Sept. 30, down from $29.3 billion as of June 30.

(Reporting by Vladimir Soldatkin; editing by Jason Neely)

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Ex-Venezuela Oil Official Pleads Guilty In Graft Probe

(AP, 2.Nov.2018) The former finance chief of Venezuela’s state oil company pleaded guilty on Wednesday to participating in an alleged US$1.2-billion embezzlement scheme, a major breakthrough for US prosecutors targeting corruption by people close to President Nicolas Maduro, including his stepsons.

Appearing in a Miami federal court, Abraham Ortega promised to fully cooperate with prosecutors, making him the highest-ranking Venezuelan official ever to do so.

As part of his plea, Ortega admitted that in his position with PDVSA, he accepted US$5 million in bribes to give priority loan status to a French company and a Russian bank, which were both minority shareholders in joint ventures with the oil company.

He also said he accepted US$12 million in bribes for his role in an embezzlement scheme that involved cooking up fake loans to PDVSA and repaying them at a preferential, government-set exchange rate, turning huge profits for alleged co-conspirators among the “boliburgues” elites that amassed fortunes under the Bolivarian Revolution started by the late Hugo Chávez.

Ortega’s guilty plea came just two days after a former Swiss banker, also involved in the conspiracy, was sentenced to 10 years in prison.

A third man, Colombian national Gustavo Hernandez, has been detained in Italy pending extradition. Ortega said Hernandez helped him launder his cut through a sophisticated network of brokerage firms, banks and real estate investment firms in the United States and elsewhere.

Ortega, 51, arrived at court looking calm, telling Judge Kathleen Williams that he drank a beer at lunch.

“Guilty” he said in Spanish with a strong voice, upon entering his plea to one count of conspiracy to commit money laundering.

He also agreed to forfeit US$12 million held in banks in New Jersey, The Bahamas and Switzerland. Sentencing was scheduled for January 9.

Ortega held a number of senior finance roles at PDVSA between 2004 and 2016, including the last two years as the company’s chief financial officer.

His lawyer, Lilly Ann Sanchez, said he had been living outside Venezuela the past year, but decided to come to the United States and voluntarily cooperate with authorities once charges against him and others were announced over the summer.

“The US government has amassed a tremendous amount of evidence and witnesses wherein Mr Ortega really had no choice but to come and face those charges,” Sanchez said.

Two US officials familiar with the probe have said the Swiss banker sentenced earlier this week, Matthias Krull, told prosecutors that the money-laundering plot included Maduro’s three stepsons – identified in court papers as “The Kids” – and the owner of Venezuela’s largest private TV network, businessman Raul Gorrin.

The two officials agreed to give those details only if granted anonymity, because they were not authorised to discuss the case publicly.

None of them have been charged and they are not named in the complaint. A 10-page factual statement, entered as part of the plea, also refers to the same men but does not provide additional details about their alleged involvement in the conspiracy.

The US Justice Department said authorities in Italy, Spain, Britain and Malta assisted in the investigation.

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Gazprombank Says No Role In Venezuela Graft Case

(Reuters, Alexandra Ulmer, 2.Nov.2018) — Russian bank Gazprombank on Friday said it had no role in a Venezuelan corruption case at state energy company PDVSA.

Abraham Ortega, a former financial executive at PDVSA, accepted $5 million in bribes to favor a French oil company and a Russian bank, U.S. prosecutors in Florida said on Wednesday in a statement, which did not name either company.

A source with knowledge of the matter on Thursday told Reuters that French oil company Perenco and Gazprombank were the two companies.

“Gazprombank denies information of any connection between the bank and/or any of the bank’s group of companies to alleged $1.2 billion money laundering, as well as alleged corruption cases at PDVSA. Gazprombank did not receive any official requests or notifications from U.S. justice authorities,” the company said in a statement.

Prosecutors said that in exchange for the bribes, Ortega helped companies gain “priority status” to loan money to oil joint ventures in which they were partners with PDVSA.

Gazprombank said it had structured a loan financing of capital investments and operational costs of its Petrozamora joint venture with PDVSA in 2013, “on the market conditions, without any preferences from Venezuelan side.”

“Such financing structure does not differ from usual financing practice by foreign investors,” Gazprombank said in a statement.

PDVSA in 2013 said it signed a deal with Gazprombank for $1 billion in financing for the Petrozamora joint venture.

Perenco on Thursday declined to comment. PDVSA has not responded to requests for comment.

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In Guyana, Exxon Oil Project Stirs International Tensions

(Houston Chronicle, James Osborne, 2.Nov.2018) — Almost 4,000 feet beneath the surface of the Atlantic Ocean, off the northern coastline of South America, Exxon Mobil is drilling one of the biggest oil discoveries of the last decade, the so-called Stabroek Block with an estimated 4 billion barrels of crude.

It stands to buoy the oil giant’s fortunes at a time the company’s oil and gas production is flagging. But the discovery has come at a price.

The massive find, located in the waters of the tiny country of Guyana, has reignited a century old territory dispute with its powerful and volatile neighbor Venezuela, flaming geopolitical tension in a region where the United States, China and Russia are increasingly competing for influence.

With Venezuela claiming a portion of Exxon’s field, Guyana has taken the case to the International Court of Justice, the United Nation’s court system in the Netherlands, as U.S. diplomatic and military officials in Washington watch adversaries in Beijing and Moscow warily.

“When we look at the controversy around the territory claims [by Venezuela] it gets pretty complicated pretty quickly,” said Ret. Vice Admiral Kevin Green, who oversaw U.S. naval operations in the Caribbean, Central and South America. “The United States is engaged globally in what is becoming more and more a great power competition. Both Russia and China see opportunities for themselves in that region, to quite frankly frustrate the United States.”

Trouble began even before Exxon, which declined to comment, realized how much oil was in Guyana.

In 2013, the Venezuelan Navy seized a ship contracted by The Woodlands exploration and production company Anadarko to survey the ocean’s bottom for oil. While the boat was in waters recognized internationally as Guyana’s, Venezuela claimed crew members had violated its territory and held them and the ship for a week before releasing them as part of a diplomatic deal.

Then Exxon announced in 2015 it had successfully drilled a test well in Stabroek. Within weeks, Guyana was tossed out of Petrocaribe, the Venezuelan food for oil program, in which countries across Central and South America and the Caribbean provide Venezuela’s 32 million inhabitants with food in exchange for subsidized crude.

Then Venezuela issued a statement asserting its ownership of two-thirds of Guyana’s land and waters claimed not only by Guyana, but also Trinidad and Tobago and Barbados.

The claim dates back to the late 1800s when Venezuela and Great Britain, which then controlled Guyana, could not agree on the border between their countries. An international tribunal intervened, and the dispute fell dormant until 1949 when a memo, written by one of attorneys that represented Venezuela in the tribunal, surfaced with the claim that judges had colluded with Britain.

Ever since, the border has been a rallying cry in Venezuelan politics. Guyana’s Ambassador to the United States Riyad Insanally said for years Venezuela had pressured oil companies not to explore in Guyana, using the threat of cutting companies off from Venezuelan oil fields – among the world’s largest.

But relations between Caracas and the international oil companies began to break down during the rule of the late Hugo Chavez, who nationalized a number of oil fields, including some held by Exxon.

“It was a bit like a Robert Ludlum novel,” Insanally said of the attorney’s memo. “No one likes being bullied and we feel we’ve been bullied for far too long. But we don’t have any military might, and we don’t have any economic clout. All we can is do is rely on the resourcefulness of our people and international diplomacy.”

The Venezuelan embassy in Washington did not return a call for comment.

The presence of Russia and China in a region long dominated by the United States has escalated what might have been a disagreement among neighbors. The U.S. rivals have again and again provided financial lifelines to Venezuela, devastated by an economic crisis, in exchange for increasing claims on their energy supplies. And they are increasingly investing in Guyana.

China recently loaned Guyana $130 million to expand its airport to allow 747s to land. Earlier this year, the nation of less than 1 million people signed onto China’s Belt and Road pact, through which the Asian superpower is investing in developing countries around the globe.

Rusal, the Russian aluminum giant owned by the oligarch Oleg Deripaska, a close associate of President Vladimir Putin, has operated bauxite mines in Guyana for more than a decade.

“Nobody wants to see Russian warships sailing around the Caribbean, and they do that occasionally,” said Thomas A. Shannon, Jr., an attorney and former under secretary of state for political affairs. “The region has largely been ours since we chased out the Germans and the French. We don’t need the presence of adversities or potential adversaries. But the way we do this it by taking care of our friends.”

The hope among U.S. officials is that the discovery of oil in Guyana’s waters will not only bring prosperity to a long impoverished nation, but also bring it deeper into the American fold.

So far, that seems to be proving out. U.S., British and Norwegian officials already are advising Guyana on how to manage its newfound wealth when oil is scheduled to start flowing in 2020. The aim is to avoid the so-called resource curse through which corruption and mismanagement become endemic upon the discovery of oil.

“The U.S. is still our major trading partner. Our links with the U.S. are much stronger than Russia and China. But we enjoy good relations with all three because that is the reality of being a small country,” Insanally said.

The presence of iconic American company like Exxon Mobil is only expected to increase Guyana’s bond with the United States. And so far, the oil giant has shown no signs of wavering in its commitment to drilling there, despite rising tensions around its operations.

It’s a calculated risk. Exxon’s oil and gas production has fallen for eight of the last nine quarters. Were Guyana to develop as Exxon has forecast, the additional production could potentially raise the oil giant’s global production by close to 8 percent, said Pavel Molchanov, an energy analyst at Raymond James.

“Exxon’s legacy production has been so weak in recent years, the company can use all the help it can get,” he said. “Guyana is in some ways the exception that proves the rule. It’s one of the few exploration success stories of this entire decade.”

But developing all of Exxon’s prospects in Guyana will not be quick. And that leaves plenty of time for what is now a legal argument expected to be decided by the courts to potentially escalate into a military conflict.

Brazilian President Michel Temer has already pledged to send in troops should Venezuela invade the disputed area inside Guyana.

“There’s some reports and analysis suggesting Venezuela will start some kind of military action against Guyana,” said Lisa Viscidi, an energy analyst at the Washington think tank Inter-American Dialogue. “It’s still really unlikely they would do that.”

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Exclusive: Perenco, Gazprombank Named In Venezuela Graft Case – Source

(Reuters, Alexandra Ulmer, 1.Nov.2018) — Anglo-French oil company Perenco and Russian financial firm Gazprombank have been identified in testimony by a former Venezuelan state oil company official who said he received millions of dollars in bribes in return for giving them preferential treatment, a source with knowledge of the matter said on Thursday.

Abraham Ortega, a former financial executive at state oil company PDVSA, accepted $5 million in bribes to favor a French oil company and from a Russian bank, U.S. prosecutors in Florida said on Wednesday in a statement, which did not name either company. Ortega received $3 million to help the French company and $2 million to favor the Russian one, according to the Department of Justice announcement.

Prosecutors said that in exchange, Ortega helped the companies gain “priority status” to loan money to oil joint ventures in which they were partners with PDVSA.

The high-profile case is one of a slew of U.S. probes into corruption in Venezuela, which is reeling from hyperinflation, empty shelves and mass emigration, but the case is one of the first to link corruption in the oil sector to prominent foreign firms.

Perenco declined to comment. Gazprombank and PDVSA did not immediately respond to requests for comment.

The case stemmed from cash-strapped PDVSA’s chronic delays in paying dividends to foreign firms, a second source said.

Perenco was desperate to receive those funds and get the money out of Venezuela, according to the source. Perenco agreed to loan money to the Petrowarao joint venture it ran with PDVSA, but as part of the deal had to be paid its late dividend payments beforehand.

The company received those payments in late 2013, the source said. Former oil minister Rafael Ramirez, who is now on the run from leftist President Nicolas Maduro’s government, announced in 2014 that Perenco was loaning $420 million to Petrowarao to quintuple its oil production to 24,000 barrels per day.

However, the source said that Perenco ended up loaning a small fraction of the promised amount.

In total, Ortega said he accepted $17 million in bribes as part of a broad embezzlement scheme. The money was hidden in the United States, Switzerland and the Bahamas, according to the U.S. prosecutors.

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PDVSA’s Citgo Contributes To 8th Annual Houston Energy Day Festival

(Citgo Petroleum, 1.Nov.2018) — CITGO Petroleum Corporation recently participated in Houston’s largest free family festival, Energy Day. The event brought together families, students, energy professionals and other members of the community for a day of science, technology, engineering, and mathematics (STEM) programs, exhibits and activities. With more than 25,000 attendees filling Sam Houston Park on Saturday, Oct. 20, Energy Day was, once again, an impressive display of education and community.

The popular event was presented by the Consumer Energy Alliance (CEA) and the Consumer Energy Education Foundation (CEEF).

“Energy Day is a shining example of this city’s prospering energy industry and its dedication to giving back,” said Rafael Gomez, Vice President Strategic Shareholder Relations and Government & Public Affairs.

CITGO was a sponsor of the event and organized a station where visitors participated in hands on activities that demonstrated how petroleum is used in every day products. As an active corporate citizen of Houston, CITGO prides itself in demonstrating the benefits of a STEM education and careers in the energy industry.

“Inspiring students to be excited about STEM education is a pillar of our corporate social responsibility efforts,” said Gomez. “Energy Day is great way to achieve that goal outside the classroom setting. Giving children the chance to experience dozens of hands-on exhibits in a single day keeps them entertained and engaged.”

The five-hour event offered 61 exhibits, including bike riding to generate electricity, creating LED bracelets, learning about the physics behind sports, and studying out how infrared images, robotics and virtual reality are used in STEM industries. To cap off the day, more than 180 students and teachers were awarded nearly $2,300 as part of the Energy Day Academic Program.

“Teaching children about the incredible opportunities STEM offers in a layout that’s welcoming and accommodating was our goal, and we’ve been able to provide that for the last eight years thanks to the support of local schools, energy experts and sponsors, said CEEF’s Energy Day Director, Kathleen van Keppel.”

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Ex-Venezuelan Oil Exec Admits Bribes In $1.2 Bln Money-Laundering Scheme

(El Nuevo Herald, Jay Weaver And Antonio Maria Delgado, 31.Oct.2018) — A former top official of Venezuela’s state-owned oil company pleaded guilty Wednesday in Miami federal court to playing a pivotal role in a $1.2 billion money-laundering racket that U.S. authorities say was run by some of the country’s wealthiest people with close ties to the Venezuelan president.

Abraham Edgardo Ortega, the former executive director of financial planning at Petroleos de Venezuela, S.A. (PDVSA), admitted he accepted millions of dollars in bribes that were secretly wired to U.S. and other financial institutions, according to court records.

In exchange, Ortega allowed the ring’s members to embezzle hundreds of millions of dollars from the national oil company through loan- and currency-exchange schemes that ended up in European, Caribbean and U.S. banks as well as luxury South Florida real estate and other investments. Ortega, who worked at PDVSA for more than a decade, admitted he used his official role to give “priority” status to Venezuelan companies that did business with the government so they could tap into its vast oil income to make overnight fortunes.

Ortega, who surrendered to U.S. authorities in September after being charged this summer with eight other defendants, remains free on a $1 million bond as he assists the U.S. attorney’s office in the complex money-laundering case. He faces up to 10 years in prison at his sentencing Jan. 9 before U.S. District Judge Kathleen Williams and must forfeit at least $12 million stolen from the Venezuelan government’s oil company that was laundered to the U.S. and elsewhere.

His defense attorneys, Lilly Ann Sanchez and Luis Delgado, said they are hopeful that Ortega receives a substantial reduction in his sentence based on his assistance providing valuable information about the other defendants and suspects in the sprawling Homeland Security Investigations case.

Ortega, who served as PDVSA’s top financial officer from 2014 to 2016, admitted in a statement filed with his plea agreement that he conspired with the leader of the money-laundering ring, Venezuelan billionaire Francisco Convit Guruceaga, who has not been arrested, and a Miami-based investment broker, Gustavo Adolfo Hernandez Frieri, who was detained in Italy and awaits extradition to the United States. Others also collaborated with Ortega, including a money manager who operated between South America and Miami and who became a confidential source for Homeland Security agents two years ago.

Ortega’s guilty plea to the conspiracy charge follows Monday’s sentencing of Swiss banker Matthias Krull to 10 years in prison for the same offense. Krull was based in Panama and provided private banking services to Venezuela’s elite, including his most prominent client, media mogul Raul Gorrín. Gorrín has not been charged in the Miami federal case, but multiple sources have confirmed he is one of numerous unnamed co-conspirators in a criminal affidavit filed by Homeland Security Investigations.

Krull, who was arrested in July and became the first defendant to cooperate with the U.S. Attorney’s Office, remains free on a $5 million bond and is staying in a Brickell area condo. He pleaded guilty in August in a deal struck between his defense attorney, Oscar S. Rodriguez, and prosecutor Michael Nadler.

As required in his plea agreement, Krull started providing evidence about the Venezuela-based money laundering network — including inside information about Gorrín, owner of the Globovisión network in Caracas, according to multiple sources familiar with the investigation.

Gorrín is suspected of steering $600 million from the country’s state-owned oil company to a European bank to enrich himself, the three stepsons of President Nicolás Maduro and other members of Venezuela’s politically connected elite, according to court records and multiple sources.

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PDVSA Bewilders Bond Analysts By Making $949 Million Payment

(Bloomberg, Davide Scigliuzzo, 31.Oct.2018) — Venezuela just forked over almost $1 billion to stay current on a bond backed by shares of its U.S. refiner Citgo.

The question is why.

Yes, the payment ensures that Venezuela’s state-run oil company PDVSA gets to hold onto Citgo Holding Inc. for now, but many analysts think it’s just a matter of time before it has to forfeit the company.

“It is hard to visualize a scenario in which Venezuela does not sooner or later lose Citgo to one of its defaulted creditors,” Francisco Rodriguez, chief economist at brokerage Torino Capital, wrote in a note on Monday.

With the country starved for cash and already in default on many of its foreign bonds, the line of creditors that could lay their hands on Citgo is very, very long: Russia (from collateral for loans from state-run Rosneft); Canadian miner Crystallex International Corp. and U.S. oil giant ConocoPhillips (both of which won international arbitration cases against Venezuela); Citgo’s own bondholders (from collateral on debt); and the PDVSA bondholders who were paid Monday.

Given this backdrop, most analysts have struggled to come up with a clear-cut explanation for why the payment was made. Here are a handful of the most plausible theories that they put forward:

— Citgo’s strategic value for the Venezuelan government is so great that the payment may be worth it even if the company will be lost to creditors in coming months. Citgo is a reliable buyer of PDVSA crude abroad and also provides the company with additives that make Venezuela’s heavy crude easier to export.

— Venezuela is appealing a U.S. ruling that awarded Crystallex the right to collect on an arbitration award by taking shares of PDV Holding, the Delaware corporation through which PDVSA controls Citgo. By staying current on the collateralized PDVSA bonds, Venezuela can buy time as it awaits a verdict. Attempts by PDVSA to stop a sale of Citgo have so far failed. A key hearing is scheduled for Dec. 20.

— A default on the collateralized PDVSA bonds could complicate Venezuela’s relations with Russia. If holders of the bonds foreclose on the 50.1 stake in Citgo that represents their collateral and force a sale of the company, Rosneft, that has a claim to the remaining 49.9 percent, could be sidelined in that process.

— Citgo may have achieved symbolic value for President Nicolas Maduro even if the socialist regime has considered getting rid of the unit in the past. Losing Venezuela’s most valuable asset abroad could be seen as a defeat for a government that is already deeply unpopular at home and has made of standing up to hostile foreign powers a key part of its rhetoric.

— For now the 2020 bond is trading over 91 cents on the dollar with investors eyeing the next payment in April.

— With assistance by Patricia Laya, Fabiola Zerpa, Ben Bartenstein, and Jose Enrique Arrioja

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PDVSA Ships $35 Million Oil Cargo To Pay Dividends To ONGC – Sources

(Reuters, Alexandra Ulmer, Nidhi Verma, 31.Oct.2018) — Venezuela’s state-run PDVSA has shipped a crude cargo valued at $35 million as partial payment to Indian oil company ONGC Videsh Ltd for overdue dividends from a joint venture, according to two people familiar with the matter.

The payment is based on an agreement signed in 2016 by PDVSA and ONGC Videsh, the overseas investment arm of India’s Oil and Natural Gas Corp (ONGC.NS), to repatriate about $530 million in dividends due from their San Cristobal oil project in Venezuela.

But Caracas-based PDVSA had not transferred any money to ONGC Videsh in over a year, the sources said, due to Venezuela’s economic meltdown and sanctions that complicate payments through U.S. banks that had made it difficult to pay in cash.

That changed when some 500,000 barrels of Venezuelan crude left Venezuela’s main oil port of Jose earlier in October, according to one of the sources.

“ONGC Videsh confirms that in October 2018 PDVSA has allocated Merey 16 crude oil parcel of 500,000 barrels to ONGC Videsh towards payment of outstanding dividend,” ONGC Videsh said in an email reply to Reuters.

It was not immediately clear which tanker was carrying the crude. Very large crude carriers (VLCCs) Iwatesan and Kassab set sail from Jose several weeks ago with India’s Sikka port as their destination, according to Refinitiv Eikon vessel tracking data.

PDVSA, which faces U.S. and international court actions over pending debts, recently has begun paying some creditors, mostly in oil, to avoid further asset seizures. The company is also seeking to stimulate investment in Venezuela’s unraveling oil industry, where annual production is at its lowest in almost seven decades, by trying to meet some of its obligations to foreign partners.

The payment to ONGC was arranged through India’s Reliance Industries (RELI.NS), operator of the world’s biggest refining complex.

Reliance will receive the Venezuelan crude and will ultimately pay the $35 million to ONGC, according to one of the sources.

Venezuela depends on oil for almost all its export revenue. The combination of falling crude production and exports from a lack of investment, U.S. sanctions and hyperinflation have pushed the OPEC-member country’s economy to near-collapse.

ONGC had previously received $89 million from PDVSA as part of the 2016 payment agreement, reducing the outstanding debt to about $440 million, but no other transfers had been received in more than a year. These payments were made by Russia’s state-run Gazprombank in January 2017 and by Reliance in April 2017.

ONGC Videsh Managing Director N. K. Verma said in May that PDVSA had halted all payments to the firm for more than six months.

“Since the (payment) process has again started, we hope to receive more such parcels in India to clear outstanding dues,” one of the sources said.

Reliance and PDVSA did not respond to Reuters’ request for comment.

The Venezuelan state-run firm this week started transferring payments to holders of its 2020 bonds, which are backed by collateral in its Citgo Petroleum [PDVSAC.UL] refining arm, after shifting its export logistics during the third quarter to raise more cash. [nL2N1XA0ZE] [nL2N1X41HJ]

Since late August, PDVSA also made partial payments in cash and crude to U.S. producer ConocoPhillips (COP.N) to honor a $2-billion arbitration award.

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Texas Man Pleads Guilty In Ongoing Venezuela Bribery Probe

(The Wall Street Journal, Samuel Rubenfeld, 30.Oct.2018) — U.S. prosecutors said they secured another guilty plea in their ongoing corruption probe of Venezuela’s state-run oil company, Petroleos de Venezuela SA, or PdVSA.

Ivan Alexis Guedez, a former PdVSA procurement officer from Katy, Texas, pleaded guilty to a money-laundering conspiracy charge. He is scheduled to be sentenced Feb. 20, 2019. Mr. Guedez agreed to forfeit the proceeds of his activity, prosecutors said.

“Ivan is a good man. He looks forward to putting this matter behind him,” said Matt Hennessy, an attorney for Mr. Guedez.

Including Mr. Guedez, at least 15 people have pleaded guilty in connection with the larger, ongoing probe into bribery at PdVSA, prosecutors said Tuesday in a statement.

Mr. Guedez agreed with other PdVSA officials and businessmen employed by a Miami-based PdVSA supplier that, in exchange for bribe payments, they would direct PdVSA business toward the supplier, prosecutors said.

The payments were concealed, prosecutors said, through communications involving fictitious email addresses, the creation of false invoices to justify the payments and directing the bribes to a Swiss account in the name of a shell company before their disbursement.

Write to Samuel Rubenfeld at Samuel.Rubenfeld@wsj.com.

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Venezuela Poses Clear Threat – Comments Could Refuel Trump Military Action Talks

(Express, Ciaran McGrath, 30.Oct.2018) — Venezuela represents a “clear threat to regional stability” and a “direct challenge” to the United States, a senior US Government official has said, as the possibility of Donald Trump taking military action resurfaced after widespread speculation in the summer.

The oil-rich South American country’s economy has sunk into crisis under President Nicolas Maduro, as many as 1.9 million Venezuelans have emigrated since 2015, according to the United Nations.

Some 90 percent of recent departures, the United Nations says, remain in South America.

Latin American governments including those of Argentina, Brazil, Chile, Colombia, Mexico and Peru are due to meet tomorrow to coordinate their response.

Speaking prior to the talks, Marshall Billingslea, assistant secretary for terrorist financing at the Treasury Department, told an audience in Washington: “Venezuela poses a clear threat to regional stability and security.

“This is a hemispheric issue and the implosion of the regime there is a direct challenge for us.”

Mr Trump, who would like to see Mr Maduro removed from power, broached the idea of military action last summer, saying: “We’re all over the world and we have troops all over the world in places that are very, very far away.”

“Venezuela is not very far away and the people are suffering and dying.
“We have many options for Venezuela, including a possible military option, if necessary.”

US Secretary of State Rex Tillerson and national security adviser HR McMaster, both of whom have since left Mr Trump’s administration, are believed to have been instrumental in persuading him of the folly of the idea, according to reports in July.

A senior administration official relayed details of the conversation, suggesting aides including Mr Tillerson and Mr McMaster had take turns explaining the risks to Mr Trump.

In September, on the sidelines of the United Nations General Assembly, Mr Trump returned to the subject during a private dinner with leaders from four Latin American allies.

The US official said Mr Trump did so despite being advised not to raise the matter.

He reported Mr Trump as having said: “My staff told me not to say this” before asking each of the leaders present if they were sure they did not want a military solution.

All of them assured him they were.

At least 6,000 Venezuelans were lined up at Peru’s northern border on Tuesday in hopes of entering the country before a deadline for acquiring residency.

Another 4,000 were due to arrive in the next two days, Peru’s ombudsman’s office said.

Peru was one of the first countries to offer temporary residency cards for Venezuelans who have been fleeing their homeland and crossing Colombia and Ecuador to reach Peru.

As the number of Venezuelans in Peru has surged to nearly half a million, the government moved the deadline from the end of the year to the end of October.

The exodus has stressed social services and sparked concerns about crime and jobs in host countries, and many migrants are facing restrictive immigration laws and discrimination.

Peruvian President Martin Vizcarra said Monday that Peru could not give residency to Venezuelans indefinitely.

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Investors Begin Receiving Payment PDVSA 2020 Bond: Sources

(Reuters) — Investors have started to receive payment of interest and principal on Venezuelan state oil company PDVSA’s 2020 bond, two bondholders said on Tuesday.

(Reporting by Corina Pons, writing by Brian Ellsworth Editing by Chizu Nomiyama)

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Venezuela’s Hydrocarbon Sector Incurring Weekly Accidents

(Energy Analytics Institute, Piero Stewart, 28.Oct.2018) — Petroleum sector accidents and oil spills in Venezuela have become an almost regular occurrence.

Between two and three accidents are happening each per week in PDVSA operational areas as well as a similar number of oil spills, reported the daily newspaper El Nacional, citing comments from Federation of Oil Workers of Venezuela (FUTPV) union official José Bodas.

“Accidents are becoming more frequent at oil industry facilities because preventive maintenance is not done,” said Bodas. “And, PDVSA doesn’t report accidents to the corresponding authorities as stipulated by the Organic Law related to work environment accidents.”

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Related stories:

Mange Infested Dog Roams PDVSA’s Paraguana Refining Complex

Venezuela’s Refining Capacity Impresses But Utilization Tells Story

Venezuela: Oil Producer’s Slump Reflects Nation’s Decline

(Ft.com, Gideon Long, John Paul Rathbone, 28.Oct.2018) — Gideon Long in Caracas and John Paul Rathbone in Washington October 28, 2018 Print this page 95 In the lobby of the building where Iván Freites works, a photograph of an oil rig covers one wall. Emblazoned across it is the Venezuelan flag and a quote from former president Hugo Chávez. “We want Venezuelan oil to bring peace and love,” it reads.

Mr Freites, a union leader at PDVSA, the state oil company, would like that too. But having seen the Chávez government and subsequent regime of Nicolás Maduro plunder the oil producer, strip it of investment, sack experienced managers and replace them with military officers, he no longer thinks that outcome is possible, at least not for now.

“I’ve worked at PDVSA for 35 years and I’ve never seen anything like this,” he says. “What we need above all is to get our democracy back.”

The parlous state of PDVSA, which oversees the world’s largest energy reserves according to the US Energy Information Administration, helps to explain the depth of Venezuela’s collapse and why it finds itself in the eye of a political storm.

Corruption and mismanagement have seen Venezuelan oil output, which accounts for 90 per cent of legal export revenues, plummet to its lowest level in three quarters of a century. The economy has halved in five years, a contraction worse than those in the Great Depression or Spanish civil war. Rates of hyperinflation, meanwhile, are similar to those in Germany in 1923.

The brutal recession has sparked an exodus comparable with the flight of Syrian refugees. More than 2m of Venezuela’s 30m population have fled since 2015. With the UN estimating 5,000 departures each day, another 2m could have left by the end of 2019.

It has turned the country into a major source of regional instability. Latin American neighbours, especially Colombia, are struggling to cope. As the oil industry implodes and exacerbates the plight of Venezuelans, the international community increasingly believes something must be done. The burning question is: what?

From the start of his presidency, Donald Trump made Venezuela a US foreign policy priority, alongside North Korea and Iran. “President Trump started on day one — literally on day one — asking about Venezuela,” says Fernando Cutz, a former Trump White House adviser, at a recent seminar at the Wilson Center in Washington. “It was a priority of his from the very start.”

The US, alongside Canada and Europe, has since levied sanctions on officials accused of corruption and human rights abuses. Last month, Mr Trump hinted again at the possibility of invasion. “All options are on the table,” he said. “The strong ones, and the less than strong ones. Every option — and you know what I mean by strong.”

Regional leaders and diplomats are usually the last to support such belligerence. But Luis Almagro, head of the Organisation of American States, believes no option should be discarded. “The entire premise of ideas such as ‘responsibility to protect’ is that we must act before we are counting the dead,” he has said.

Amnesty International has called Venezuela’s human rights crisis “unprecedented” and five Latin American countries, alongside Canada and France, have asked the International Criminal Court to investigate Mr Maduro for crimes against humanity.

All the while, Mr Maduro repeats his mantra that the US is subjecting Venezuela to “economic war”, and wants to get its hands on the nation’s oil. Few believe him. And given PDVSA’S shrinkage, there is currently not much of an oil industry to seize.

“Leave Maduro be for the next year and you’ll see where that level of production goes to. The US really doesn’t have to do much,” says Raul Gallegos, a Venezuela analyst at Control Risks.

Ever since it was discovered in Lake Maracaibo in the 1920s, oil — or “the devil’s shit” as one energy minister called it — has dominated the country’s economy. Venezuela was a founding member of Opec and when President Carlos Andrés Pérez nationalised the industry and founded PDVSA in 1976, it pumped over 3m barrels a day.

Today, the figures speak for themselves. Production has halved in six years and dropped by a third in the past year alone. Rig counts, an indicator of future production, are at historic lows, pointing to further declines. In September, Venezuela pumped just 1.2m b/d, its lowest output since the 1940s. Although most analysts consider 1m b/d to be a floor given its joint ventures with foreign producers, some believe output could drop as low as 700,000 b/d by the end of 2019.

“It is one of the worst collapses in history,” says Francisco Monaldi, a fellow in Latin American energy policy at the Baker Institute.

PDVSA’s demise has rippled through the country. The biggest refinery, Amuay, is running at 20 per cent capacity, Mr Freites says. The smaller Cardón, El Palito and Puerto La Cruz refineries barely function as PDVSA struggles to deliver mixing chemicals and crude to these sites.

With less oil being refined, blackouts are common. “There are towns and villages that go five or six days without electricity,” Mr Freites says. Gasoline is also in short supply. “I’ve just been to fill up my car and I waited in line for an hour,” he says. “That’s quite normal.”

PDVSA itself is on the brink of financial collapse. It has defaulted on all its bonds except a 2020 issue because, if it fails to pay that, PDVSA risks losing Citgo, its US refining asset, which has been pledged as collateral.

The scale of the theft and mismanagement that lie behind PDVSA’s collapse has been prodigious.

In 2015, Jorge Giordani, a former planning minister, estimated that of the $1tn that Venezuela received from the windfall of the commodities boom, two-thirds was spent on social programmes. The rest, around $300bn, was stolen or misappropriated.

In one recent case, a judge in Andorra charged 29 people, including two Venezuelan former deputy energy ministers, with a scheme to launder $2.3bn allegedly stolen as kickbacks from company contracts with PDVSA.

This August, US investigators revealed another scheme to launder $1.2bn of PDVSA funds. According to court documents seen by the FT, the plan involved companies in Spain and Malta, money launderers from Portugal and Uruguay, a German financier, unnamed US and British banks, fake mutual funds, Miami real estate, Russia’s state-owned Gazprombank and a shell company in Hong Kong.

Some elements of the swindle, recorded by a whistleblower wearing a wiretap, read like a Quentin Tarantino movie. On one occasion, a Venezuelan businessman opened proceedings in Caracas by placing his handgun on the table and pointing to a German Shepherd dog at his feet with an electronic “shock collar” around its neck. The businessman held the remote control.

The effects on the broader economy of such thuggery have been disastrous. As oil exports have collapsed, imports have crashed 80 per cent in six years to $11.1bn from $66bn in 2012, levels not seen since the 1940s. Scarcities of basic goods have prompted anger, spontaneous demonstrations and flows of refugees in ever greater numbers.

On the face of it, the situation cannot continue. Economic reforms announced by Mr Maduro in August have done nothing to tame hyperinflation, still running at nearly 500,000 per cent a year. The International Monetary Fund forecasts that gross domestic product will shrink by 18 per cent this year, 5 per cent next, and continue to shrink steadily after that.

Allies such as China, which has loaned Venezuela $60bn in return for oil over the past decade, seem reluctant to lend more. When Mr Maduro travelled to Beijing in September, his finance minister claimed China had agreed to lend a further $5bn. But Beijing has never mentioned the loan.

Nonetheless Mr Maduro, who survived an assassination attempt in August, faces no immediate political crisis at home. With the help of Cuban advisers, he appears to control the military and is set to win what will certainly be rigged municipal elections in December. The following month he will formally begin another presidential term — the consequence of a sham election victory in May.

There is increasing talk in Europe and around the Americas that any eventual solution to Venezuela’s quagmire lies with Havana — long the main counsel to Caracas. But diplomatic attempts to pry Cuba away from Venezuela have failed so far. Spain has also suggested re-opening dialogue between the government and the opposition. But the prospect of fresh talks having any success are dim.

That puts more drastic options on the table.

One US plan involves ending its purchases of Venezuelan oil. Such a ban would push up US pump prices — something Mr Trump will want to avoid before midterm elections on November 6, although Mr Cutz says the White House estimates it would add just 5-7 cents to the gallon.

Yet the impact on Venezuela would be devastating. That is because after it has sent oil to China and Russia to pay debts, shipped oil to Cuba and fed its domestic fuel market, the country earns cash on only about 450,000 b/d of its exports, a third of production. As much of 80 per cent of those sales are to the US.

PDVSA’s collapse has since made such action moot. “The guy who’s doing the best job at sanctioning himself is Maduro. He’s essentially destroyed the oil sector,” says Mr Gallegos.

That leaves the even more extreme idea of invasion. As Francisco Rodríguez, a Venezuelan economist at New York-based Torino Capital, says: “The idea of a military intervention has gained support . . . evolving from its previous status as a fringe position.”

But China and Russia would oppose any attempt by the UN Security Council to authorise intervention. Nor does the idea cut much ice in the region, which has opposed it.

Moreover, Venezuela is not Panama, which the US invaded in 1989 aided by US troops stationed in a local army base. Venezuela is twice the size of Iraq and has 100,000 civilians organised into heavily-armed local pro-government militias. The Pentagon opposes the idea.

“Intervention faces legal challenges in the UN and elsewhere, but more importantly it is unrealistic given the scope and scale that would be necessary,” says Shannon O’Neil, a senior fellow at the Council on Foreign Relations.

The key question in Venezuela comes back to: what can be done now to pre-empt an even worse situation later?

Diplomacy is not entirely dead. Bob Corker, chairman of the US Senate Foreign Relations Committee, met Mr Maduro in Caracas in October. “One option is to keep doing exactly what we’re doing,” he suggested on his return. “And there maybe is another option or two,” he added, without elaborating.

But the diplomatic track requires patience. In the interim, hopelessness leads more Venezuelans to flee, and more still to indulge the fantasy of a Trump-led invasion.

“The world has plenty of time to wait for a peaceful and democratic solution,” says Ramón Muchacho, an exiled opposition leader. “The people who do not have that time are Venezuelans . . . especially those who are dying.”

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This Venezuelan Energy Policy Will Kill The Investment We Need

Source: AFR

(The Australian Financial Review, Craig Emerson, 28.Oct.2018) — On November 22, 2017, a nation’s government legislated price controls in response to voter dissatisfaction with the rising cost of essential items. On October 23, 2018, the government of another nation announced it would require electricity suppliers to reduce their prices by the end of the year in response to voter dissatisfaction with the rising cost of electricity. The first country was Venezuela; the second was Australia.

Prime Minister Scott Morrison repeatedly told Parliament, swinging his arms as if holding a baseball bat, that if electricity retailers failed to cut their prices he would hit them with a “big stick”.

Morrison has become the Don Corleone of Australian politics. He has made retailers an offer they can’t refuse – cut your prices or else. The “or else” isn’t a horse’s head in the beds of the electricity retailers’ CEOs but it is something for them to fear. Asked at the media conference what the “big stick” might be, Morrison replied: “It’s everything from enforceable undertakings through the courts through to divestment powers of their assets.”

Last month, Morrison said he was open to setting up a royal commission into the energy sector. Consider the politics of the “big stick” of an energy royal commission. In 2013, the Liberals, in opposition, promised that, if elected, they would axe the Gillard government’s horrific carbon tax and cut electricity prices by $550 per household. Now, after five years of government, the Liberals, having presided over ongoing electricity price rises, would be promising to establish a royal commission. It would be the most spectacular admission of failure, that the Liberals had not only broken their solemn promise to slash electricity prices but also remained clueless as to what to do next.

As to the “big stick” of forced divestiture, the Liberals would be legislating to break up companies if they failed to reduce their prices ahead of an election. If forced divestiture is good for the electricity industry surely it will be judged good enough for every other business.

Consider the enormity of this threat: do as we say or we will break you up. Former deputy prime minister and aspirant, Barnaby Joyce, has already called for forced divestiture to be extended to all industries through a general amendment to the Competition and Consumer Act.

Labor in opposition and in government has consistently resisted populism and opposed forced divestiture. It is the allegedly anti-business Labor Party that is standing up for good policy. CSIRO and Energy Networks Australia have estimated Australia will need more than $200 billion in energy-sector investment by 2050. As a small, open economy, most of that investment will need to be funded from abroad. The “big stick” of forced divestiture would guarantee that funding never arrives.

Thin end of the wedge

Yet the Morrison government will not hesitate in seeking to jam Labor into supporting forced divestiture by putting up a bill that includes both a default price for electricity retailers and forced divestiture.

Labor would likely move an amendment to split the bill, voting for the default price but against forced divestiture. But the Morrison government would use its numbers – supported by several independents – to ram through the original bill.

Then the bill would go to the Senate where a coalition of the Liberals, Nationals, Greens and independents would pass it into law. Forced divestiture would become a permanent feature of Australia’s competition laws; Labor would never have a majority in the Senate to repeal it.

If that isn’t worrying enough, contemplate the precedent set by a Liberal government requiring an industry to drop its prices ahead of a federal election. What’s next? Petrol prices, gas prices, grocery prices, bank interest rates.

The Business Council of Australia’s muted response – relegating forced divestiture to the 10th paragraph of its mostly positive media release – suggests it has concluded only a few of its members would be affected. That would be a fatal misjudgment.

Imagine if Labor had announced mandating that businesses must cut their prices ahead of elections. Shrieks of “socialists!” would ring out of Australia’s boardrooms, and multimillion-dollar advertising campaigns would be hastily organised. Business organisations would rightly use every available platform to argue that perceptions of sovereign risk would be elevated to the point where foreign investors judged Australia to be off limits.

Yet under Morrison’s Liberals, aided by deferential Business Council of Australia, it’s full steam ahead. Venezuela here we come!

Craig Emerson is CEO of the Craig Emerson Economics and adjunct professor at Victoria University’s College Business. He is a former competition policy minister and has advised various energy companies.

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Venezuela, Mexico Divert Crude To U.S. As Canadian Barrels Get Stuck

(Reuters, Marianna Parraga, Collin Eaton, 26.Oct.2018) — Cash-strapped state-run oil companies in Mexico and Venezuela have begun diverting crude historically processed for domestic use and sending it to U.S. refiners now facing transportation constraints to secure similar grades from Canada, data shows.

The situation reflects an unusual set of events, including urgent needs by Venezuela and Mexico for cash for debt payments and investment, and demand for heavy crude in the United States due to less availability of Canadian oil, said traders and analysts.

The United States imported 1.675 million barrels per day (bpd) of Latin American crude in August, the highest level since May 2017, according to Refinitiv Eikon data.

That gain occurred even though the preferred Latin American grade, Mexican Maya, fetches an about $50 a barrel premium to Western Canadian Select (WCS), because of transportation costs. Moving a barrel of Maya via tanker to the U.S. Gulf Coast costs about $1.50, compared to $35 for WCS via pipeline and rail.

“Those who are arriving late to the (Canadian oil) party will have to pay more for a Latin American heavy crude or Iraqi Basrah Heavy,” said a trader who regularly buys Canadian and Latin American grades.

CASH NEEDS RISE

Latin America’s recent export drive has come mostly from Mexico, Brazil and Venezuela, despite a long-standing regional oil output drop. In the last decade, suppliers with the exception of Brazil have reduced crude shipments overall, especially to the United States.

In the case of Venezuela, state-run PDVSA “needs cash both for paying holders of the 2020 bond this month and for paying (an arbitration award to) ConocoPhillips,” said Robert Campbell, oil products research chief at consultancy Energy Aspects, referring to two huge bills due in coming days.

Petroleos Mexicanos is raising cash mainly for refinancing its heavy corporate debt. Selling more of its coveted Maya crude could help refurbish refineries working at historically low rates.

Pemex and PDVSA did not respond to requests for comments.

Before the shale boom, many U.S. Gulf Coast refiners configured their plants to run Latin American and Middle Eastern crudes, with Venezuela and Mexico as top suppliers. As those shipments dwindled, refiners turned to shale and Canadian oil.

But pipeline constraints in Canada are shifting imports again, at least in the short term.

U.S. refiners want more Canadian crude “because it’s cheap,” one trader said, but “unless someone builds a new pipeline,” it will be difficult boost imports further.

U.S. imports of Canadian crude by pipeline rose to 3.6 million bpd in the week ending Oct. 12, hitting 98 percent of capacity. Crude-by-rail shipments also are up, to a record 284,000 bpd in the week ended Oct. 12 from 85,000 bpd in October 2017, according to data provider Genscape.

“These pipelines are absolutely full,” said Dylan White, an oil markets analyst at Genscape. “There’s no room for growth.”

IMBALANCES

The strategy of boosting crude exports while importing more fuel could backfire for Latin sellers. Pemex would have to boost fuel purchases if its refineries do not restart in coming months after outages and unplanned maintenance work, and PDVSA has few options to stop imports from growing.

Latin America has increased U.S. fuel purchases by 7 percent to 2.87 million bpd so far in 2018, lifted by purchases by Mexico, Venezuela, Chile and Peru, according to the U.S. Energy Information Administration.

“Mexico has chosen to import more gasoline. It makes a lot of sense, but it could go out of control,” Campbell said, referring to relatively cheap gasoline prices compared to Latin American heavy crudes.

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Venezuela To Make $949M Bond Payment To Keep Citgo Assets

(OilPrice.com. Tsvetana Paraskova, 26.Oct.2018) — Although Venezuela is regularly delaying or avoiding bond payments and is behind on billions of U.S. dollars in such payments, it is preparing to make a rare US$949-million payment on one bond, because that bond is backed by a stake in its key U.S. asset, Citgo, Bloomberg reports, quoting a person with direct knowledge of the plans.

Venezuela’s state oil firm PDVSA is getting ready to pay the coupon and partial principal repayment due on October 29 on 2020 notes, which are backed by a stake in Citgo.

Analysts say that Venezuela continues to consider Citgo as a very important asset and doesn’t want to open the door to investors who would lay claims on it if it doesn’t make the bond payment.

Although it’s not clear how much longer PDVSA will be able to continue servicing the payments on this particular bond, analysts at JP Morgan, Torino Capital, and Eurasia Group told Bloomberg that the government of Nicolas Maduro would make the payment due at the end of this month because it will want to hang onto this key asset as long as possible.
“The government’s strategy with regards to various creditor obligations seems to be to avoid or delay paying wherever possible but pay or settle when valuable external assets are in jeopardy,” Bloomberg quoted a note by Risa Grais-Targow, a senior analyst at Eurasia Group, as saying this week. The analyst, however, notes that this strategy of Venezuela has its limits. The Maduro government faces declining export revenues from its only cash cow, the oil industry, where production continues to plunge.

But even if Venezuela makes the upcoming bond payment next week, it has to service other debts to keep control of its strategic U.S. asset, Bloomberg notes. Citgo itself has debts of US$3 billion, and some of it may have to be repaid. Earlier this year, Canadian gold miner Crystallex won the right to tap Citgo for compensation of US$1.4 billion for the forced nationalization of its assets by the Hugo Chavez government. Russia’s largest producer Rosneft could also claim Citgo shares, if PDVSA, which had pledged 49.9 percent in Citgo as collateral for loans from Rosneft in 2016, defaults on those loans.

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PDVSA Distillation Units At Cardón Refinery Halted

(Energy Analytics Institute, Piero Stewart, 25.Oct.2018) — Four distillations units at PDVSA’s Cardón refinery, located in Falcón state, are said halted due to a lack of oil and power failures, reported the daily newspaper El Nacional.

Cardón refinery has a processing capacity of 310,000 barrels per day.

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Bondholders Raise Hopes Venezuela Will Pay Up On Due Debt

(Ft.com, Gideon Long, 25.Oct.2018) — In a month in which emerging market government bonds have been hammered by the prospect of US rate increases, geopolitical risk and fears of a US-China trade spat, one bond — in crisis-racked Venezuela of all places — has rallied to record highs.

The 2020 bond issued by the state oil company PDVSA has rallied 14 per cent in six weeks to trade at over 91 cents, up from a year low of 80 cents in early September. By contrast, most PDVSA bonds trade at around 20 cents.

The reason for this unusual outperformance is that investors are increasingly convinced that the cash-strapped oil company will come up with an $842m principal payment due this weekend to avoid default and potentially lose a key asset, US-based refiner Citgo.

“I believe that they [Venezuela and PDVSA] are willing to pay,” said Siobhan Morden, head of Latin America fixed income strategy at Nomura. “Their track record suggests willingness to pay to protect strategic assets.”

Payment in itself would be remarkable: Venezuela and PDVSA have defaulted on all their other commitments to bondholders over the past year and are now $7bn in arrears on their combined traded debt of about $60bn.

But this bond is different. If PDVSA fails to service it, the company risks losing its prized US asset Citgo, a Houston-based group with three refineries in the Gulf of Mexico and the Midwest that process about a third of Venezuela’s oil exports to the US.

PDVSA has pledged half of Citgo as collateral on the $2.5bn 2020 bond, and the other half as security on a loan from the Russian oil company Rosneft. If it fails to pay, bondholders could in theory go after their half. There is no grace period on the amortisation payment, although the company has an additional 30 days to make an interest payment of $107m, also due this weekend.

Even so, 2020 bondholders would have a fight on their hands because everyone, it seems, wants a bit of Citgo. Having largely given up on ever being paid by Venezuela or PDVSA, creditors are increasingly going after their assets abroad, Citgo being the jewel in the crown.

The Canadian mining company Crystallex is trying to seize Citgo to compensate it for $1.4bn owed by the Venezuelan state. The US oil company ConocoPhillips is in a similar position, seeking payback for money owed by PDVSA. It has previously seized assets in the Caribbean, where PDVSA processes much of its oil exports.

As for bondholders, in what has become a complex multi-directional legal battle, the world’s largest asset manager BlackRock and New York-based Contrarian Capital Management have waded in on behalf of US and UK investment managers who hold some 60 per cent of the 2020 bonds.

For now, Rosneft is watching from the sidelines but if PDVSA were to default on its separate loan from the Russian company, it too would be eligible to claim almost half of Citgo. In theory, that could leave the Russians in the novel position of having a major holding in a US refiner, something US President Donald Trump would want to avoid.

Even if PDVSA makes this payment, Venezuela faces a daunting debt mountain. The sovereign must pay a final $1bn on its 2018 bonds in December, and alongside PDVSA must find $9.3bn for bondholders in 2019 and more than $10bn in 2020, although no one expects it to do so.

Faced with these desultory figures, Venezuela is rumoured to be considering a complete overhaul of PDVSA. This week the specialist energy reporting agency Argus said Caracas was thinking of replacing PDVSA with a new national energy company that would inherit PDVSA’S physical assets, including Citgo, but not its debts. That could pave the way for PDVSA to be formally declared bankrupt.

In addition to its traded debt, Venezuela owes billions of dollars to China and Russia. Meanwhile, oil production has plummeted to its lowest level since the 1940s, the economy has halved in size in five years and inflation is running at almost 500,000 per cent. Central bank reserves stand at $8.8bn, close to their lowest level for 30 years.

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Conoco Is Collecting $2 Billion From Venezuela—One Barrel of Oil at a Time

(Bloomberg, Alex Nussbaum, 25.Oct.2018) — ConocoPhillips’ 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.

Venezuela’s state-run oil company has made an initial $345 million payment in “cash and commodities,” Houston-based Conoco said Thursday. The remittance helped allay fears the cash-strapped nation wouldn’t be able to pay off the award in a long-running dispute over asset seizures.

The deal announced in August requires Petroleos de Venezuela SA to make an initial $500 million payment this year. That will include the sale of about $300 million in crude seized in legal actions earlier in 2018, Conoco Chief Financial Officer Don Wallette told analysts on a conference call. PDVSA has also made one $100 million cash payment, with another due in November.

“We have provisions if they miss payments to go back after some of the assets,” Chief Executive Officer Ryan Lance added on the call.

People with knowledge of the matter told Bloomberg News on Wednesday that the company has loaded about 1.5 million barrels of PDVSA crude from terminals in the Caribbean. Conoco resold the cargoes to refineries in the U.S. and Asia, the people said.

The remainder of the $2 billion is to be paid out over 4 1/2 years.

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, according to Lance.

“This is what the market can expect from us again in 2019,” the CEO said.

— With assistance by Lucia Kassai

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CITGO Expands Innovation Academy Presence In Texas

(CITGO, 25.Oct.2018) — CITGO Petroleum Company announced the West Oso Independent School District has approved the launch of a CITGO Innovation Academy in Corpus Christi, Texas. This is the fourth CITGO Innovation Academy established in the Corpus Christi region and the seventh Innovation Academy established in the CITGO operational footprint.

The CITGO Innovation Academy at West Oso school district programming will introduce and encourage students to explore career paths in Science, Technology, Engineering and Math (STEM). By inspiring and nurturing creative, ethical and scientific minds that advance the world through questioning, collaboration, personalized learning and use of technology and outreach, participants will be well-prepared for STEM college or technical programs.

The school district will utilize the Project Lead The Way Pre-K-12 Engineering and Computer Science curricula. Project Lead the Way (PLTW) provides the most comprehensive and rigorous Engineering and Computer Science programming for schools. PLTW curriculum will be used in Pre-Kindergarten through Fifth grade classrooms for the 2018-2019 academic school year. On line PLTW training will be provided for junior high teachers. The program will also include after school robotics clubs for K-12.

A donation from CITGO will also fund STEM-oriented training for two junior high school teachers and an expanded robotics program for students.

“I am excited that the CITGO Innovation Academy will spark the curiosity of our talented students, generating dynamic, positive and enriching experiences that go beyond the classroom,” added West Oso ISD Superintendent of Schools Conrado Garcia.

The first CITGO Innovation Academy was launched in 2013 at Foy H. Moody High School in Corpus Christi, Texas, which serves as the flagship campus. Since then, three more Innovation Academies have been implemented at Cunningham Middle School and Garcia Elementary School, both in Corpus Christi, and E.K. Key Elementary School in Sulphur, Louisiana. Another two were recently approved in Lemont, Illinois and Houston, Texas.

Through the CITGO STEM Talent Pipeline, the company actively supports the academic exploration of STEM education in the schools nearby its refineries in Corpus Christi, Texas; Lake Charles, Louisiana; and Lemont, Illinois. Since the initiative’s inception, CITGO has awarded more than $1.5 million toward programs that promote the importance of STEM education and provide educators with the resources they need.

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PDVSA Prepares To Make $949 Mln Payment On Citgo-Backed Bond

(Bloomberg, 24.Oct.2018) — Petroleos de Venezuela SA’s plan to make a $949 million bond payment would mark a rare exception for Nicolas Maduro’s regime as it tries to hold on to the crown jewel of its U.S. assets.

Venezuela’s state-run oil company is preparing to make the coupon and partial principal repayment that’s due Oct. 29 on the 2020 notes, according to a person with direct knowledge of the matter. The socialist state is behind on almost $7 billion in debt payments owed to investors, but this bond is backed by a majority stake in Citgo Holding Inc., meaning a non-payment would allow holders to lay claim to that asset.

The payment has been anticipated by investors. The $2.5 billion of notes traded as high as 92.75 cents on the dollar this week, far above most Venezuelan bonds, which hover near 25 cents. Analysts from JPMorgan Chase & Co (NYSE:JPM)., Torino Capital and Eurasia Group have also said the Maduro government would pay because of its desire to hold on to Citgo, although there are doubts about how much longer PDVSA can service the debt.

“The government’s strategy with regards to various creditor obligations seems to be to avoid or delay paying wherever possible but pay or settle when valuable external assets are in jeopardy,” Risa Grais-Targow, a senior analyst at Eurasia Group, wrote in a note Monday. “There are limits to this strategy, as the government still faces meaningful cashflow constraints owing to declining cash-generating oil exports.”

Calls and emails seeking comment from PDVSA’s vice president of finance, Iris Medina Fernandez, weren’t returned. A representative for Venezuela’s oil ministry declined to comment. The person with knowledge of the situation asked not to be named because the matter is private.

Even with the payment, Citgo’s fate remains in flux. The 2020 notes fell by the most in nearly two months on Wednesday amid a broader sell-off across risky assets. Here are some of the other hurdles that Venezuela needs to navigate to maintain ownership of the company:

— Citgo Petroleum and its parent Citgo Holding have more than $3 billion of their own debt outstanding. At least some of that might need to be repaid if the company changes ownership through a foreclosure or a sale.

— PDVSA pledged a 49.9 percent stake in Citgo Holding as collateral for loans it received from Rosneft in 2016. If it defaults on those loans, the Russian state-controlled oil company could seek to seize the shares.

— A small Canadian mining company, Crystallex International Corp., was awarded the right to collect on an arbitration award by taking shares of PDV Holding (the U.S. parent of Citgo Holding), a verdict Venezuela is appealing.

— PDVSA is due to pay $500 million to ConocoPhillips (NYSE:COP) in November as the first installment of a $2 billion settlement the two companies reached this summer. If it misses the payment, Conoco could seek to attach PDVSA assets, including Citgo.

— Separately, an $8 billion bondholder group advised by Guggenheim Securities has said it’s “exploring options” to ensure that the nation’s overseas assets are available to satisfy its claims.

So far, PDVSA has shown it is determined to hold on to Citgo, even as U.S. sanctions prevent the refiner from distributing dividends back to Venezuela. Citgo plays a key role in facilitating the export of Venezuelan crude — the country’s main source of foreign exchange — and also provides Venezuela with much-needed refined products.

“It is not about the value of the equity, which may not be much,” said Richard Cooper, a partner at law firm Cleary Gottlieb Steen & Hamilton LLC, who has advised holders of Venezuela’s debt. “Citgo remains an incredibly important asset for PDVSA.”

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Justice Department Demands Details From Glencore On Intermediary Firms

(Reuters, Dmitry Zhdannikov, Julia Payne, 23.Oct.2018) — The U.S. Department of Justice is seeking documents from Glencore (GLEN.L) about intermediary companies that the commodities firm has worked with in the Democratic Republic of Congo, Venezuela and Nigeria, sources familiar with the matter said.

The investigation is not directed at Glencore’s own activities or its senior executives, two sources told Reuters, giving no further detail about the type of information sought.

“The investigation focuses on intermediaries,” one source familiar with the probe said. A banker working with Glencore also said the focus was on three intermediary firms.

In mining and other extractive industries, intermediaries are firms or individuals paid a fee by producers, buyers or both for services such as brokering deals.

Glencore said on July 3 it had been subpoenaed for documents relating to its business in the three countries since 2007, sending its shares down 13 percent and leaving investors guessing about the direction of the investigation.

The Switzerland-based firm had said the subpoena related to compliance with the U.S. Foreign Corrupt Practices Act and money-laundering statutes but did not indicate the Department of Justice was focused on intermediaries or give further details.

Glencore, which said on July 11 it would cooperate with the U.S. authorities after receiving the subpoena, declined to offer additional comment for this article. The Department of Justice declined to comment.

A third source, who was familiar with the Nigerian element of the probe but not other areas, said the Department of Justice wanted Glencore to hand over documents related to associates of former Nigerian oil minister Diezani Alison-Madueke, namely the owners of Nigeria-based Atlantic Energy Holdings.

The U.S. authorities are investigating alleged bribery of the former minister and alleged money-laundering by her associates, who include Olajide Omokore and Kolawole Aluko, according to U.S. court documents seen by Reuters.

Glencore was a buyer of oil from Atlantic Energy Brass Development, a subsidiary of Atlantic Energy Holdings, which was owned by Omokore and Aluko.

Glencore declined to comment on its oil dealings with Atlantic Energy. A lawyer representing both Atlantic Energy and Omokore also declined to comment.

A lawyer for Alison-Madueke requested Reuters send questions by email, but did not respond when that email was sent.

A lawyer for Aluko could not be identified, as court documents did not name a representative and other lawyers involved in the case could not offer guidance.

Nigeria’s government referred requests for comment to the justice minister, who is also attorney general. He did not respond to requests for comment.

For Congo, the U.S. authorities were seeking documents from Glencore relating to Israeli billionaire Dan Gertler, while for Venezuela they wanted documents from Glencore relating to Miami-based trading firm Helsinge Inc, the first source and the banker said.

The sources declined to disclose any more information about the probe into these two intermediaries.

Gertler, who was a partner in Glencore’s cobalt and copper mines in Congo until 2017, could not be reached for comment. His spokesman in London declined to comment.

Congolese government spokesman Lambert Mende said Gertler had business in Congo and that any investigation into his activities had nothing to do with the government.

For Venezuela, Helsinge acted as an intermediary for Glencore’s fuel sales to state energy firm PDVSA, according to PDVSA’s internal trade documents seen by Reuters.

Helsinge did not respond to telephone or email requests for comment about the Department of Justice probe.

A spokesman for PDVSA did not immediately respond to a request for comment.

Additional reporting by Giulia Paravicini in Kinshasa, Marianna Parraga in Houston, Sarah N. Lynch in Washington and Alexis Akwagyiram in Lagos; Editing by Dale Hudson and Edmund Blair

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Guyana: The World’s Next Offshore Oil Hotspot

(Oilprice.com, Tsvetana Paraskova, 23.Oct.2018) — With population of fewer than 750,000 people, Guyana—a neighbor of Venezuela—has always depended on commodities. Sugar, gold, shrimp, timber, bauxite, and rice account for nearly 60 percent of this South American country’s gross domestic product (GDP). Now, Guyana is set to add another valuable commodity to that list.

In 2015, ExxonMobil—whose market capitalization is roughly 100 times Guyana’s GDP—made its first oil discovery offshore Guyana, adding another very precious commodity to the tiny nation’s potential product slate.

Three years and dozens of new oil discoveries later, Guyana is set to produce its own oil for the first time ever, in 2020.

Over the past couple of years, the success rate of discoveries has been phenomenal, analysts say, and some expect that Guyana could be on the road to joining the few non-OPEC nations in the world capable of producing more than 1 million bpd of oil.

Analysts warn that potential development challenges—considering that the area has never produced oil and lacks infrastructure—and the resource curse may spoil the Guyana offshore oil party.

But as things stand now, there are more optimists than pessimists that Venezuela’s small neighbor to the east could become an oil producer capable of plugging part of the conventional oil supply gap next decade. Attractive fiscal terms, scale of resource, and reservoir quality are all there in the Liza complex operated by Exxon, according to Wood Mackenzie analysts, who estimate that the complex has accounted for 15 percent of all conventional crude oil found globally since 2015.

Two months ago, Exxon announced a ninth oil discovery offshore Guyana, which adds to already estimated resource of more than 4 billion oil-equivalent barrels discovered to date.

Exxon expects Liza Phase 1 to start producing oil by early 2020, via a floating production storage and offloading (FPSO) vessel—up to 120,000 bpd.
The Guyana discoveries have the potential for up to five FPSO vessels producing more than 750,000 bpd by 2025, Exxon says.

“Guyana has hit the jackpot,” Maria Cortez, Latin America upstream senior research manager with Wood Mackenzie, said in August, commenting on Exxon’s ninth discovery.

“If this small South American nation with, a population of about 750,000, can properly manage the billions of dollars of revenue about to come its way, it may become the richest corner of the continent.”

In Orinduik Block, another block offshore Guyana, Eco (Atlantic) Oil & Gas, which is partnering with operator Tullow Oil, announced last month that an independent analysis found that there are at least ten exploration leads with close to 3 billion barrels of recoverable oil potential in the Orinduik Block. Tullow Oil and Eco plan to drill their first well in the block in early Q3 2019.
“Guyana is the jewel in the crown, the mother of dragons. That is the hottest exploration area in the world. It’s no longer frontier, it’s a sub-mature basin,” Eco’s chief executive Gil Holzman told S&P Global Platts in an interview this month.

Guyana is a “paradise” for exploring because of the enormous resource of pure, sweet, light oil that is much easier to refine than the heavy crude of its neighbor Venezuela, Holzman said.

The exploration success rate for commercial discoveries in the Stabroek block, where Exxon has been striking more and more oil in recent years, is an “astronomical” 82 percent, compared to global industry average of below 20 percent, according to WoodMac.

The size of reserves and reservoir quality underpin the economics in the block, with project break-even of below US$40 a barrel, the energy consultancy says.

Few oil producing countries pump more than 1 million bpd—there are just ten such producers outside OPEC—the U.S., Canada, Mexico, the UK, Norway, China, Brazil, Oman, Russia, and Kazakhstan.

“New admissions to the group don’t happen very often,” Simon Flowers,Chairman and Chief Analyst at Wood Mackenzie, wrote last month.

“Guyana, with no upstream oil industry four years ago, has a very good chance of joining this elite group,” Flowers noted.

The basin as a whole may hold another 8-10 billion barrels of oil equivalent of reserves, WoodMac has estimated, but warned that extrapolating success rate can be pretty unreliable.

Guyana has the resource potential, the reservoir quality, and the favorable fiscal regime to unlock its oil potential. Rystad Energy estimates that under the current tax regime, the government will have 60 percent of the profit from various projects—more favorable than many other large offshore producers, with the government take for all offshore projects around 75 percent on average.

Rystad Energy expects Guyana’s total oil production to exceed 600,000 bpd by the end of the next decade, generating annual revenue of US$15 billion from the oil and gas industry and some US$10 billion of profit that could be split between the companies and the government.

While oil companies flock to explore promising offshore Guyana waters, the country faces a difficult task going forward—will it escape the resource curse?

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Foreign Oil And Gas Firms Look To Play Crucial Role In Venezuela

(Energy Global, David Bizley, 19.Oct.2018) — The majority of foreign companies are not making any profit or losing money in their partnerships with PDVSA to develop and produce hydrocarbons due to inadequate investment, shattered infrastructure and US sanctions.

However, in the long term, having access to the vast hydrocarbon reserves of Venezuela compensates the current country risks and current negative cash flows in joint ventures (JVs), says GlobalData.

In this way, foreign companies have formally or informally also gained operatorship in key upstream fields located mainly in the Orinoco Belt. Indeed, Rosneft gained operatorship in the Mejillones and Patao blocks and exporting rights for 30 years with an in-kind 20% royalty rate.

Chinese and Russian companies have invested the most in the Venezuelan oil and gas sector during recent years. China, through its Development Bank, has provided more than US$60 billion in loans to Venezuela. In 2018, it has given an additional US$5 billion loan to support oil developments in the country, on top of the US$6.3 billion in loans since 2014 from Rosneft.

David Bautista, Oil and Gas Analyst at GlobalData, comments: “In other important basins such as Maracaibo or East Venezuela, most companies have recovered their initial investments. Thus foreign participants will likely be able to improve their JV terms and conditions in exchange for capital injection in the sector if the critical situation ends when PDVSA is finally able to boost production.”

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Trump Talks Tough On Venezuela, But Imports Ever More Venezuelan Oil

(Miami Herald, Andres Oppenheimer, 17.Oct.2018) — There is a major inconsistency in President Trump’s stand on Venezuela: He talks tough — and even makes veiled threats of a military intervention in that country. But at the same time, he steadfastly refuses to cut U.S. imports of Venezuelan oil, which are the main source of income of Venezuela’s dictatorship.

In fact, the United States has been increasing purchases of Venezuelan oil recently. While U.S. oil imports from Venezuela had decreased in recent years, they have been rising since February and increased by 28 percent in September, according to the Refinitiv Eikon data firm.

What the United States buys accounts for up to 80 percent of Venezuela’s oil income. If the Trump administration drastically cut its oil imports, President Nicolas Maduro’s dictatorship —which already faces a 1 million percent annual inflation rate and widespread food and medicine shortages —would have a hard time surviving, some critics of the Maduro regime say.

So why doesn’t Trump reduce Venezuelan oil imports?

First, because U.S. refiners in the Gulf Coast oppose it, saying that it would drive up domestic gas prices and affect pro-Trump constituencies in Louisiana, Texas, Alabama and Mississippi. Trump would lose more votes in those states than he would gain among Venezuelan Americans in Florida, some advisers are telling him.

Second, Trump’s National Security Adviser John Bolton and Secretary of State Mike Pompeo are focused on crippling Iran’s oil exports. Many in the White House think that causing a simultaneous collapse of both Iranian and Venezuelan oil exports would drive up world oil prices and hurt U.S. consumers, oil experts say.

Third, and perhaps most interesting, while Trump likes to talk tough on Venezuela to gain votes in Florida, he may fear producing a worse humanitarian crisis that would almost commit him to a military intervention there.

“If you break it, you buy it,” George David Banks, a former international energy and environment adviser to Trump, told the S&P Global Platts website. “The White House doesn’t want to own this crisis.”

Trump has stepped up Obama administration’s individual sanctions against top officials of the Maduro regime, and imposed sanctions on purchases of Venezuela’s debt. But “the Trump administration is more hesitant than ever” to impose oil sanctions, says the Platts report.

Supporters of reducing U.S. imports of Venezuelan oil reject the idea that such a move would aggravate the country’s humanitarian crisis without necessarily bringing down the Maduro regime. Accelerating the country’s collapse to force a regime change is the best option available, they argue.

And a cutback of Venezuelan oil imports would not necessarily give Maduro a propaganda victory by allowing him to play the victim of U.S. “imperialism.” Trump could simply reduce Venezuelan oil purchases, without declaring an oil embargo or saying a word about it, they say.

But perhaps the strongest argument for a gradual U.S. cutback of oil purchases is that it would lead other countries to take the Trump administration seriously when it asks for international sanctions against Venezuela.

Many foreign officials ask: How can the Trump administration ask others to impose economic sanctions when the United States is Venezuela’s biggest trading partner, in effect, bankrolling the Maduro regime?

When I asked Argentina’s President Mauricio Macri in an interview last year what the international community should do to help restore democracy in Venezuela, he responded that the first step should be taken by the United States.

“If the United States really took a measure such as suspending oil purchases from Venezuela, the Maduro regime would have a serious financing problem,” Macri told me. He added that by cutting Venezuelan oil imports, “The United States could change things (in Venezuela) definitively.”

I’m not sure that drastically cutting U.S. oil purchases from Venezuela would be the best idea; it likely would come at a huge humanitarian cost. But this much is clear: If Trump wants other countries to step up sanctions against Venezuela, he, himself, should consider a gradual slowdown in U.S. purchases of Venezuelan oil, instead of sending more cash to the Maduro regime.

***

#LatAmNRG

U.S. Eyes More Venezuelan Sanctions, But Oil On Backburner: U.S. Official

(Reuters, Roberta Rampton, 17.Oct.2018) — The United States plans to turn up sanctions pressure on Venezuela but sees less need to immediately target its energy sector, given sagging production from the OPEC member’s state-run oil company, a senior U.S. administration official said on Wednesday.

The U.S. government has imposed several rounds of sanctions on Venezuelan military and political figures close to socialist President Nicolas Maduro, who it blames for trampling on human rights and triggering the country’s economic collapse.

Earlier this year, the Trump administration had weighed escalating sanctions by targeting a Venezuelan military-run oil services company or restricting insurance coverage for oil shipments.

The actions would have built upon last year’s ban for U.S. banks from any new debt deals with Venezuelan authorities or state-run oil giant PDVSA.

Asked by reporters whether the U.S. government had slowed down on its push for sectoral sanctions, the senior official described them as some of the many “tools” it is keeping in reserve. “With regards to Venezuela, all options are on the table,” said the official, who spoke on condition of anonymity.

“The fact is that the greatest sanction on Venezuelan oil and oil production is called Nicolas Maduro, and PDVSA’s inefficiencies,” the official said.

Venezuela’s crude oil production hit a 28-year low in 2017, a slump blamed on poor management and corruption.

“At the end of the day, Nicolas Maduro has taken care of really running PDVSA to the ground, and essentially more and more making it a non-factor,” he said.

Almost 2 million Venezuelans have fled since 2015, driven out by food and medicine shortages, hyperinflation, and violent crime. The exodus has overwhelmed neighboring countries.

Maduro, who denies limiting political freedoms, has said he is the victim of an “economic war” led by U.S.-backed adversaries.

The Trump administration also plans to ramp up economic pressure on Cuba’s military and intelligence services, the official said.

In his speech last month to the United Nations, President Donald Trump linked Venezuela’s crises to “its Cuban sponsors.”

“That is a message that we will continue to put out, but frankly its a message that the region needs to talk about,” the official said, noting John Bolton, Trump’s national security adviser, is expected to elaborate on the issue publicly soon.

“The issue of Cuban involvement in Venezuela is a fact. It’s not a theory, it’s not a story,” the official said.

***

#LatAmNRG

PDVSA, Pequiven Retirees Protest Lack Of Pension Payments

(Energy Analytics Institute, Piero Stewart, 17.Oct.2018) — Retired workers with PDVSA and Pequiven spoke out in the streets in a protest aimed at calling attention to pensions unpaid by the Venezuelan government.

Unfortunately, a number of retired company workers have died waiting for pension payments, reported Venezuelan media El Carabobeño, citing José Castillo, director of the Association of Retirees and Pensioners at PDVSA and Pequiven.

In the past four years we have tried and done everything to get PDVSA to pay the pensions, but to-date these efforts have been in vain, said Castillo.

***

#LatAmNRG

PDVSA Preparing $950 Million Payment On 2020 Bond: Sources

(Reuters, 15.Oct.2018) — Venezuela’s state-owned oil company PDVSA is preparing to pay holders of its 2020 bond some $950 million this month, after failing to make interest payments on most other bonds this year, sources at the company and in the local financial sector said.

PDVSA has fallen behind on more than $7 billion in principal and interest payments since the end of 2017, according to market sources and Refinitiv data, as an economic crisis in Venezuela has worsened.

But cash-strapped PDVSA has stayed current on the 2020 issue, which is backed by 50.1 percent of shares in U.S. refining network Citgo.

“Quevedo gave his approval to arrange this payment,” said one person at PDVSA familiar with the plans, referring to Manuel Quevedo, Venezuela’s oil minister who is also president of PDVSA. “It will be paid in full.”

Another source at PDVSA and three sources in Venezuela’s financial industry confirmed that the company plans to pay. The sources spoke last week and requested anonymity because they were not authorized to speak publicly.

Neither PDVSA nor Venezuela’s oil ministry immediately responded to requests for comment.

PDVSA must pay $840 million by Oct. 27 to cover an amortization payment on the bond, and then has 30 more days to make a $107 million interest payment.

“PDVSA has been making payments on the 2020 bond and they tell us they plan to keep doing so,” said one local financial operator who has spoken with the company about the plans.

To be sure, this year PDVSA has made payments only on its 2020 and 2022 bonds, prompting ratings agencies to declare the company and Venezuela’s government in selective default. The drop in crude prices that began in 2014 and an ensuing decline in production have reduced the OPEC nation’s government revenue.

Investors believe PDVSA will prioritize the 2020 bond because of the potential implications for Citgo. The remaining shares in the refiner are already pledged to Russia’s Rosneft as collateral on a $1.5 billion loan.

And it is also under threat from Canadian miner Crystallex, which has won a judge’s authorization to seize Citgo shares to collect on a $1.4 billion award stemming from a decade-long nationalization dispute.

“PDVSA has demonstrated via its legal efforts a strong preference to maintain ownership of Citgo,” JP Morgan wrote in a note to clients last week.

***

#LatAmNRG

Venezuela Solicits Audit of Pacific Coast Refinery, Río Napo

(Energy Analytics Institute, Piero Stewart, 13.Oct.2018) — Venezuela has solicited an audit of costs related to the Pacific Coast Refinery and Río Napo JV in order to discuss potential investment plans with Ecuador, reported the daily Ecuadorian newspaper El Universo.

In May 2018, Saudi Arabia’s Aramco announced it was interested in participating in construction of the refinery. At least three consortium have announced interest in the refinery, reported El Universo.

***

Energy Analytics Institute (EAI): #LatAmNRG

Shell Seeks To Sell Venezuela JV Stake

(Reuters, 12.Oct.2018) — Royal Dutch Shell Plc is negotiating the sale of its stake in a Venezuelan oil joint venture to Paris-based Maurel & Prom , three sources said this week, a move to scale down its crude business in the ailing OPEC-member country to focus on gas. The Anglo-Dutch company is seeking to sell its 40 percent stake in Petroregional del Lago, a joint venture with Venezuela’s state-run oil company PDVSA in the western state of Zulia near Colombia.

The area has been plagued by frequent theft of equipment and near-daily power cuts as Venezuela remains mired in deep recession, hyperinflation and chronic shortages of food and medicine. Foreign companies also have complained in private that joint ventures with PDVSA are stymied by convoluted bureaucracy, dodgy contracts, and lack of resources, according to dozens of sources in the industry.

At Petroregional, Shell has grown frustrated by delays in receiving dividends from PDVSA and a ban on minority partners independently exporting production, one of the sources said. That has deprived Petroregional, which in 2016 produced about 33,000 barrels per day (bpd) of crude, of much-needed income and dented profitability, the source added. In the last few weeks a disagreement with Venezuela has emerged over a fee called an entrance bonus that Maurel & Prom would have to pay to the government, as required by Venezuelan law, to gain access to the field’s reserves, two of the sources said. Negotiations are currently on hold, they added.

***

Energy Analytics Institute (EAI): #LatAmNRG

Maurel & Prom Confirms Discussions With Shell Over Urdaneta West Field In Venezuela

(Maurel & Prom, 12.Oct.2018) — Etablissements Maurel & Prom notes recent press articles and confirms it is working on the acquisition of Shell Exploration and Production Investments B.V.’s 40% interest as “Shareholder B” in Petroregional del Lago Mixed Company, which operates the Urdaneta West field in Lake Maracaibo, Venezuela.

Maurel & Prom Venezuela, subsidiary of Maurel & Prom, has signed a Share Sale and Purchase Agreement (the “SSPA”) with Shell. Under the SSPA terms, the consideration for the acquisition of Shell’s shares in the mixed company is c.€70 million, funded from Maurel & Prom’s existing cash resources.

Petróleos de Venezuela S.A. (PDVSA), wholly owned subsidiaries Corporación Venezolana del Petróleo (CVP) and PDVSA Social (PDVSAS) collectively referred to as “Shareholder A”, jointly own the remaining 60% stake of the mixed company.

The field is currently producing around 16,000 barrels of oil per day on a 100% basis (6,400 barrels of oil per day net to Shareholder B’s 40% interest). The asset offers significant optionality through the development of additional reserves, and the possible extension of the licence duration beyond 2026 (the current licence limit).

The closing of this acquisition remains subject to a number of conditions, amongst others the obtaining of the required governmental approvals, and the finalisation of the negotiations with PDVSA and its subsidiaries (CVP and PDVSAS) on the implementation and the funding of a redevelopment plan to increase the production of the Field, which should be partly funded by operating cash flow, and partly with Maurel & Prom Venezuela’s funds up to an amount of c.€350 million over the period 2018-2023. Maurel & Prom Venezuela’s commitment to provide the project funding is subject to the fulfilment of several conditions, including the progressive reimbursement to Maurel & Prom Venezuela of the portions of project funding attributable to Shareholder A.

Maurel & Prom takes all the necessary steps and actively works on meeting all condition precedents in order to close the acquisition. A further announcement will be made in due course.

***

Energy Analytics Institute (EAI): #LatAmNRG

Venezuela Sets New Wages For Oil Workers As Protests Simmer

(Reuters, Alexandra Ulmer, 10.Oct.2018) — Venezuela on Wednesday increased wages for workers at state energy company PDVSA after employees staged small protests to decry meager salaries amid the OPEC nation’s economic meltdown.

Socialist President Nicolas Maduro in August unexpectedly ordered a 60-fold increase in the minimum wage to compensate for around 500,000 percent annual inflation and a 96 percent devaluation of the bolivar currency.

But workers at PDVSA said their wages had not been bumped up accordingly, and that the cash-starved company had instead been paying one-off bonuses.

Vice-President Delcy Rodriguez, flanked by pro-government union leaders, on Wednesday announced new wages but did not provide specific figures, instead praising PDVSA’s attitude in the face of U.S. sanctions.

“To the PDVSA workers, our gratitude, because they have been a fundamental pillar in the defense of the oil industry against attacks from imperialist centers of power,” said Rodriguez, a key Maduro ally.

A PDVSA worker and two former employees said the new wages remained inadequate and would not halt a brain drain that has the company desperate for engineers and chemists just as its production sinks to its lowest in decades.

According to an unofficial summary of the new salaries circulated by PDVSA workers, the lowest monthly salary is now 1,800 bolivars – the official minimum wage – or just $13.70 a month. The highest salary, for executives, was put at 6,400 bolivars, a whisker above $49 a month.

PDVSA did not respond to a request for information about the salaries.

Thousands of oil workers are fleeing the state-run firm under the watch of its new military management, which has quickly alienated the firm’s embattled upper echelon and its rank-and-file, sources have told Reuters.

Those who remain are increasingly unmotivated, irate over low wages, and fearful of work accidents as PDVSA’s installations deteriorate due to years of underinvestment and mismanagement.

“There is a lot of anger, and at the same time motivation, because workers have woken up and are not putting up with this anymore,” one refinery worker said this week.

Still, fears of dismissal and heavy military presence at PDVSA have kept protests in check in Venezuela, home to the world’s biggest crude reserves.

***

Energy Analytics Institute (EAI): #LatAmNRG

IEA Urges Opec to Open Taps as Oil Markets Enter ‘Red Zone’

(Bloomberg, Javier Blas, Grant Smith & Francine Lacqua, 9.Oct.2018) — Oil prices have rallied to a four-year-high due to US sanctions on Iran and the Venezuelan crisis, even as Saudi Arabia moved slow on filling any shortfall.

The International Energy Agency (IEA) made a direct appeal to Organization of the Petroleum Exporting Countries (Opec) and other major oil producers to boost output, warning that high prices are inflicting damage on the global economy.

“We should all see the risky situation, the oil markets are entering the red zone,” IEA executive director Fatih Birol said in an interview on Tuesday. “Expensive energy is back at a bad time, when the global economy is losing momentum. We really need more oil.”

Oil prices rallied to a four-year high above $85 a barrel in London earlier this month on concern that US sanctions on Iranian crude, along with chronic supply losses in Venezuela, could lead to a shortage. Traders are also worried that Saudi Arabia, the biggest member of the Opec, isn’t acting quickly enough—or may lack the capacity—to fill any shortfall.

Prices were boosted further on Tuesday by storm Michael, which shut some oil fields in the Gulf of Mexico and threatened to hit the Florida panhandle as a major hurricane. West Texas Intermediate futures advanced 0.6% to $74.71 a barrel on the New York Mercantile exchange at 8:34am local time.

Hurting demand

Emerging economies, most notably India, are bearing the brunt of the increase in energy prices, which comes when they’re already contending with currency depreciation and the fall-out from trade disputes, Birol said. With the drop in the rupee, Indian consumers are effectively paying as if oil were $100 a barrel.

“If there are no major moves from the key producers, the fourth quarter of this year is very, very challenging,” Birol said. “Demand is still very strong and we’ve been losing oil from Venezuela in big amounts, and also Iran is going down.”

Venezuela’s oil production is in “free-fall” as an economic crisis takes its toll on infrastructure and workers, and could slump below 1 million barrels a day “very soon,” Birol said. The Paris-based IEA advises most major economies on energy policy.

Iran’s exports have dropped faster than most in the industry expected, with many major buyers halting purchases even before US sanctions are enforced in November. To fill that gap and cool the price rally, Saudi Arabia has bolstered production to near record levels, pumping 10.7 million barrels of crude a day.

While the kingdom has repeatedly said it will do whatever is necessary to avert a shortage, at an Opec meeting last month it signalled it would only open the taps once it’s clear more crude is needed. As Saudi output nears unprecedented levels, it’s uncertain how much more supply the country can deliver.

The Saudis are able to increase further and reach 11 million a day, Birol said, adding that he’s fully confident the kingdom will act responsibly. The IEA isn’t currently considering the use of its emergency oil reserves, he added.

“We should try to comfort the markets all together,” Birol said. “It may be bad news for the consumers, importers today, but I believe it may well be bad news for the producers tomorrow.”

***

Citgo, Valero Drive Up U.S. Purchases of Venezuelan Oil in September

(Reuters, Marianna Parraga, 4.Oct.2018) — Venezuela’s September crude sales to the United States rose to their highest in over a year, boosted by purchases by Citgo Petroleum, the U.S. refining arm of Venezuela’s state-run PDVSA, and Valero Energy, according to Refinitiv Eikon trade flows data.

A collision in August at a dock of Venezuela’s main oil port of Jose has limited exports in large vessels to Asia, spurring loading of more medium-size tankers including those typically covering routes to the United States.

Venezuela’s overall crude exports fell 14 percent in September to 1.105 million bpd due to declining oil output and dock woes at Jose terminal. The OPEC-member country’s crude production fell for third time in a row to 1.448 million bpd in August, according to official figures.

The United States imported 601,505 barrels per day (bpd) of Venezuelan crude last month, a 28-percent increase versus August and the highest monthly average since August 2017, according to the Refinitiv Eikon data.

Valero and Citgo bought over 250,000 bpd each of Venezuelan crude last month compared with an average of 170,000 bpd earlier this year, according to the data.

A total of 38 cargoes were purchased by U.S. customers from PDVSA and its joint ventures in September. At least three of those shipments were co-loaded in different Venezuelan ports to avoid problems at Jose, where repairs are expected to take at least one more month to be completed.

PDVSA’s exports last month included more light and medium crudes, generally produced at very low levels in Venezuela and leaving less of these grades for PDVSA’s domestic refineries to produce fuels.

In September, PDVSA sold Citgo and Valero some 84,000 bpd of Santa Barbara, Mesa and Leona crudes, which are typically processed at Venezuelan refineries.

PDVSA regularly imports gasoline, diesel, liquefied petroleum gas and refining feedstock to offset low production at its refineries.

(Reporting by Marianna Parraga; Editing by Cynthia Osterman)

***

Venezuela’s Oil Exports Are Falling Even Faster Than Expected

(OilPrice.com, Irina Slav, 3.Oct.2018) — A delay in port repairs following a tanker collision is putting additional pressure on already pressured Venezuelan crude oil exports, Reuters quoted anonymous sources close to PDVSA as saying this week. It seems that Venezuela’s woes are only multiplying as time goes by, although news from official Caracas sources seems more upbeat. Oil, however, appears at the forefront of Venezuela’s plight.

A dock at Venezuela’s biggest oil port, Jose, was closed in late August after a tanker collided with it. At the time, Reuters reported that the repairs would delay the delivery of 5 million barrels of crude, destined for Rosneft, which, according to the news outlet, could put a strain on relations between the Russian company and PDVSA, which have a money-for-oil agreement. This is only the latest in PDVSA’s troubles with its oil exports.

Besides a steady decline in production, Venezuela’s state-run oil company earlier this year ran into problems with its storage capacity and export terminals in the Caribbean as U.S.-based ConocoPhillips took an aggressive approach to enforcing a court ruling that awarded it US$2 billion in compensation for the forced nationalization of two projects in Venezuela. The company this summer seized several of PDVSA’s assets on Caribbean islands, which made it difficult for the Venezuelan state company to meet its export obligations. Having few options, PDVSA eventually caved, settling with Conoco.

Dock repairs are further complicating matters. PDVSA is supposed to deliver to Rosneft some 4 million bpd of crude under the latest bilateral agreement signed this April. On top of that, it normally exports crude for U.S. Valero Energy and Chevron from the same dock, the South dock of the Jose port, which is responsible for processing processes as much as 70 percent of the country’s crude oil exports.

Not to anyone’s surprise, the delay in resuming shipments is largely a result of insufficient funds, partially thanks to U.S. sanctions, which have essentially closed nearly completely the door to foreign funding. China, not bound by these restrictions, recently agreed to a US$5-billion lifeline for the Venezuelan government and its oil industry, but these billions will take time to become available. Given the multitude of problems that PDVSA is having, it would be a tough job to allocate these funds so that there is enough for everything.

Caracas is still not giving up. Just this week the government announced the official launch of the petro on international markets in hopes of offsetting the effects of U.S. sanctions by using this oil-and gold-backed cryptocurrency. President Nicolas Maduro said at the launch that the petro would be legal tender for everything in Venezuela, including as a substitute for the dollar.

“All Venezuelans will have access to the Petro and through it to make international purchases,” Maduro said.

Venezuela also plans to boost its oil exports to China as part of plans to transform its economy and get back on its feet. To this end, it will work with Chinese oil companies to improve production. Maduro said in July that PDVSA would boost oil production by 1 million bpd from June levels by the end of the year, although he admitted that this goal would be difficult to achieve. Venezuela pumped 1.45 million bpd in August, and the year-to-date average stands at 1.544 million bpd. This is a far cry from the figure from five years ago, when its daily average was 2.9 million bpd. It’s a matter of a short time to see if the petro and Chinese money will be enough to reverse the decline in production and exports.

***

Venezuelan Oil Port Repairs Delayed, Crude Exports Fall: Sources

(Reuters, Marianna Parraga, 2.Oct.2018) — Repairs to a dock at Venezuela’s main oil export port will take at least another month to complete following a tanker collision more than a month ago, further restraining the OPEC member nation’s crude exports, according to sources and shipping data.

A minor incident in late August forced state-run oil company PDVSA to shut the Jose port’s South dock, one of three used to ship heavy and upgraded oil to customers including Russia’s Rosneft and U.S.-based Chevron Corp, and to receive diluents needed for the exports.

Jose port typically handles about 70 percent of Venezuela’s total crude exports, which in September declined 14 percent compared with the previous month to 1.105 million barrels per day (bpd), according to Refinitiv Eikon data.

Oil exports are the financial backbone of Venezuela’s economy, which is struggling to overcome hyperinflation, a long-standing recession and scarcity of basic goods.

PDVSA had estimated the berth would reopen by the end of September, but needed parts have not been obtained as PDVSA continues facing problems to pay foreign providers due to financial sanctions imposed by the United States, sources close to its operations said.

PDVSA’s crews completed the removal of the damaged fences last week, but replacements have not arrived in the country.

“The fences were bought, but funds to pay the provider were retained due to the U.S. sanctions. A new deal to buy them through a third party will take at least another month,” one of the people familiar with the matter said.

PDVSA was not immediately available for comment.

U.S. President Donald Trump’s administration last year imposed financial sanctions on Venezuela and PDVSA, affecting their ability to make transfers in dollars and complete payments through the U.S. banking system.

PDVSA has neither resumed shipments from most of its Caribbean terminals, which remain frozen after U.S. producer ConocoPhillips’ legal actions earlier this year to satisfy a $2 billion arbitration award, according to the data.

Conoco and PDVSA in August struck a payment agreement, but the Venezuelan oil firm has yet to complete a $500 million installment due by the end of November to unlock its Caribbean operations.

Venezuela’s crude output fell again in August to 1.448 million bpd according to official figures, putting its annual average at 1.544 million bpd, the lowest in over six decades.

Economic measures recently announced by President Nicolas Maduro’s government, including a steep salary increase, have fallen short for Venezuela to regain access to sufficient foreign credit and reverse the downturn.

***

Cut Venezuela’s Oil Exports, and Cut its Tyrant Down to Size

(Washington Examiner, 1.Oct.2018) — Meeting with the president of Chile at the White House on Friday, President Trump pledged to continue confronting humanitarian suffering in Venezuela.

The president deserves credit for his sustained leadership on this issue, but the time has come for more dramatic action. Specifically, the U.S. should orchestrate a global boycott of Venezuelan oil exports. Only such a boycott will exert the necessary pressure on Venezuelan President Nicolas Maduro’s despotic government to force it to change course.

Major change of some kind must come to the Latin American nation. Child starvation is skyrocketing, and prostitution is increasingly the only option for women who want to feed themselves and their children. Along Venezuela’s borders with Colombia and Peru, tens of thousands of refugees are lining up begging for relief.

For those remaining in Hugo Chavez’s dystopian socialist paradise, medicine has disappeared and store shelves are empty. But the most damning indictment of the Maduro-Chavez socialist experiment is the fact that today, in the nation with the world’s largest oil reserves, the lucky few must lug vast bundles of worthless cash and spend hours in lines outside stores to buy their basic needs. The unlucky many waste away on the streets and in the slums of Maduro’s narco-state.

This is happening as Maduro, the great revolutionary, echoes Che Guevara, the Marxist thug of old, by smoking expensive cigars and dining at the world’s finest steakhouses.

This is a regime that must go. But how?

An American military intervention would be a grave error, as would instigating a coup. The lessons of Iraq and Libya are clear on this score.

We also recognize that many Latin American nations which support tougher action against Maduro nevertheless oppose military intervention. But nations such as Argentina, Chile, Colombia, Paraguay, and Peru might support a strategy of economic pressure on Venezuela if engaged with honesty.

Maduro remains in power only because of the wealth he pockets by plundering his nation’s oil and exporting it. That’s why Washington has already restricted Maduro’s oil exports to America. That’s a good but insufficient step. President Trump could and should do far more.

Oil is a commodity sold in a global marketplace. Unilateral sanctions cannot work.

Trump should therefore replicate our policy towards Iran and announce that on a certain date in the next few months, the U.S. will introduce sanctions on foreign governments and businesses that buy Venezuelan oil or invest in the Venezuelan oil industry.

Given that China and India are Venezuela’s main oil export customers, the U.S. would have ample opportunity to drain Maduro’s wallet. After all, the U.S. is already engaged in a major trade conflict with China. By sanctioning its imports of Venezuelan oil, Trump wouldn’t simply put more pressure on Beijing, he would draw the world’s attention to the nature of President Xi Jinping’s regime, to the reality it cares nothing for the suffering of others or for international norms.

Referring to recent U.S. actions to earn favor in New Delhi, Trump could ask Indian Prime Minister Narendra Modi to wean the Indian economy off Maduro’s black gold. If necessary, Trump could offer India special access to American oil exports to offset losses. Many other Venezuelan oil export destinations are located in western Europe. Nations here make up a relatively small fraction of Venezuela’s total oil export base, but Trump should nevertheless press European governments to match their human rights rhetoric with action.

Oil export restrictions will impose extra suffering temporarily on Venezuelans. But look at the country now. Only Maduro and his cronies are benefitting from the exports.

Without oil wealth to pay off supporters, Maduro’s power is nonexistent. As the Miami Herald notes, much of Maduro’s ability to constrain his people centers on oil-bought support of the Cuban government and its highly capable intelligence services. If that oil support disappears, Cuba may find less reason to sustain Maduro’s rule.

Nevertheless, Maduro’s government is persecuting the Venezuelan people. Unless dramatic action is taken, their suffering will only increase. We can stop it, and we should do so now.

***

Oil Workers Protest Pay in Venezuela

(Bloomberg, 1.Oct.2018) — Venezuelan oil workers protested against a new minimum wage at key crude processing facilities last week, claiming the new law disregards previous pay scales and union agreements.

Several dozen workers protested outside Petropiar, the oil upgrader controlled by Petroleos de Venezuela SA and Chevron Corp. in Anzoategui state Friday morning, chanting “Fair wages, now!,” according to videos and a workers’ bulletin seen by Bloomberg. Workers at Petrocedeno, another upgrader owned by PDVSA, Total SA and Equinor ASA, organized meetings last week to arrange a protest near the state prosecutor’s office in Puerto la Cruz on Oct. 3, according to Petrocedeno worker Leonardo Ugarte.

PDVSA employees are revolting against this month’s more than 3,000 percent increase in the nation’s minimum wage to 1,800 bolivars a month — about $15 at the black-market rate — which they claim is not enough to cover their needs. Venezuela’s inflation is running at about 111,000 percent, according to Bloomberg’s Cafe con Leche Index.

PDVSA’s human resources head Robert Perez traveled to Puerto La Cruz from Caracas to meet with workers and discuss details of the new wages, but most unions opted out of the meetings, Ugarte said.

Chevron deferred questions to Petropiar. Petrocedono JV partners Equinor and Total didn’t reply to requests for comment on Friday and Monday.

The protests have stalled procedures and work flow near the Orinoco Belt and Petropiar, according to a worker who asked to remain unnamed. They have also affected work at Petrocedeno, Venezuela’s largest upgrader, Ugarte said. Workers at a PDVSA fertilizer plant in Puerto La Cruz called Fertinitro also protested on Thursday, according to Gregorio Rodriguez, one of the city’s oil union leaders.

A PDVSA official confirmed Perez’s visit but declined to offer further details on whether Petropiar’s procedures had been stalled.

PDVSA workers from Puerto La Cruz oil docks marched in one of Puerto La Cruz’s main avenues carrying banners demanding better salary and respect for contracts, Rodriguez said.

“PDVSA’s management has not given us details of new salaries or how pay scales will be distributed,” Rodriguez said.

***

India Eyes Rupee-Route, Barter for Venezuelan Crude

(The Hindu Business Line, Vishwanath Kulkarni, Richa Mishra, 30.Sep.2018) — India is considering setting up a rupee-payment mechanism for trade with Venezuela, besides exporting rice and drugs to the South American nation, all in return for crude oil.

The Ministries of Commerce, Finance and Petroleum are looking into the proposal.

“Venezuela is among the top 10 crude oil suppliers to India. Since the size of the business would run into several millions, it needs to have a proper trade balance. So, there could be the possibility of using the rupee-payment system as a trade off: Venezuela wants to sell oil, India has to look at what it can sell besides rice and pharmaceuticals, to make the mechanism more attractive,” an official said, adding that the arrangement “could work like a barter system”.

The rupee-payment mechanism is not a new concept, but there is a general agreement that the strategy for Venezuela cannot be similar to that for sanctions-hit Iran.

This mechanism is also being considered to benefit Indian exporters, particularly pharmaceutical products and non-basmati rice. “Rice is well-consumed in Venezuela and we see a huge potential, provided a proper payment mechanism is established,” said BV Krishna Rao, President of the Rice Exporters Association.

So far, the efforts of exporters to tap the Venezuelan market through the Dubai route have not been successful due to payment issues. Rao estimates that India could export up to half-a-million tonnes to Venezuela on a regular basis, if a rupee-based payment mechanism is set up.

Crude oil imports are of prime concern for India in its relations with both Venezuela and Iran. Sri Paravaikkarasu, Director – Asia, Oil at FGE, a global oil and gas consultancy, said: “In the previous round of sanctions (on Iran), India did use rupee payment and barter arrangements for its Iranian crude imports. India is no doubt considering these options to side-step the soon-to-be-imposed US sanctions against Iran. But we must remember that this US President is taking a hardline against Iran, compared to his predecessor.”

Private refiners have already decided not to import oil from Iran. “Even if the national oil companies consider other payment options with Iran and to some extent with Venezuela, they would only achieve limited success. The US intends to track tanker movements out of Iran and monitor the crude/condensate supply-chain down to recipient countries. So, energy firms with any sort of exposure to the US financial system will come under sanctions if they are caught circumventing the sanctions in any way,” she said, adding that Indian companies may well avoid creating the “high-risk scenario”.

As estimate by Vanda Insights, based on shipping information, said that India’s oil imports from Iran stood at 4.81 lakh barrels a day in September, about 4.17 lakh barrels August, and about 6.28 lakh barrels in July. In September 2017, about 3.52 lakh barrels a day came in.

***

Venezuela to Continue in Defense of Oil Market Equilibrium

(Energy Analytics Institute, Piero Stewart, 29.Sep.2018) — Venezuela’s Oil Minister Manuel Quevedo announced the South American country would continue to seek equilibrium in the petroleum market.

“Under the leadership of President Nicolás Maduro, we will continue to defend a policy of equilibrium and stabilization in the world oil market, having as a fundamental basis a sustained cooperation with OPEC producing countries for the benefit of consumers, producers and investors,” reported PDVSA in an official statement, citing Quevedo.

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Brazil Says to Suspend Energy Imports from Venezuela

(Energy Analytics Institute, Ian Silverman, 28.Sep.2018) — The Brazilian government announced it would suspend, until further notice, the importation of Venezuelan energy to supply Roraima, a state in northern Brazil on the border with Venezuela.

The decision was taken after the Brazilian government announced it considered it more reliable to meet regional demand with electricity produced by four national thermoelectric plants, , reported the Venezuelan daily La Patilla.

Suspension of electricity imports from Venezuela was decided on by members of the Electricity Sector Surveillance Committee, a sector body coordinated by the Ministry of Mines and Energy, the ministry confirmed in a statement.

Venezuelan energy imports had already been temporarily suspended on September 16, 2018 as the Brazilian government further analyzed whether it had the capacity to adequately supply Roraima with its thermoelectric plants in the region.

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Uruguay Judge Orders ANCAP to Pay $5.6 Mln to Exor Internacional Ltda.

(Energy Analytics Institute, Ian Silverman, 28.Sep.2018) — Uruguayan Judge Carlos Aguirre ordered ANCAP to pay a fine of $5.6 million plus interest to Exor Internacional Ltda. as a result of a “patrimonial trial related to administrative responsibility,” reported the daily LaRed21.

The Exor payment relates to a debt maintained with Venezuela’s state oil company PDVSA, according to the daily.

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Oil Spill Reported at Venezuela’s Anzoátegui Petrochemical Complex

Source: Ultimas Noticias

(Energy Analytics Institute, Piero Stewart, 27.Sep.2018) — Venezuela’s José Antonio Anzoátegui Petrochemical Complex was the site of a crude oil spill that affected the beaches of the Peñalver municipality in Anzoátegui state.

The presence of oil was detected on September 26, 2018 along the beaches of Puerto Píritu, La Cerca and El Hatillo, located in the western region of the state, by fishermen and tourism promoters, reported the daily Venezuelan newspaper Ultimas Noticias.

“A few months ago fishermen recovered oil from their nets and not fish,” reported the daily citing Peñalver municipality tourism promoter Humberto Guerra. He added that at least five such occurrences have occurred in the region, without stating a specific time frame.

Venezuela’s Ministry for Ecosocialism (Minec) Director Katiuska Homsi announced contingency efforts to collect the detected oil involved 120 persons onshore and another 20 offshore, according to the daily.

Venezuela’s state oil PDVSA did not respond to emails requesting details about the oil spill or clean-up efforts.

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Venezuela Faces Fresh Blow With Ship-Fuel Rules Threatening Exports

(Bloomberg, 27.Sep.2018) — New rules forcing ships to use cleaner marine fuels may deal yet another blow to cash-strapped Petroleos de Venezuela SA, an exporter of high-sulfur fuel oil.

From Jan. 1, 2020, vessels will have to switch to less-polluting bunker fuel or be fitted with equipment to curb emissions, under new International Maritime Organization rules. That’s expected to weaken demand for the high-sulfur residual fuel oil produced by PDVSA, pushing prices lower at the same time that the cost of importing clean fuels rises, said Mel Larson, a consultant at KBC Advanced Technologies Inc.

As refiners prepare to produce IMO-compliant fuels that rely on low-sulfur crude oils, sour crude produced by Venezuela and Mexico may be sold at deeper discounts. Meanwhile, demand for lighter distillates, including diesel, is expected to increase. That ultimately will take a toll on the economies of Venezuela, Mexico and Ecuador that rely on imported diesel and gasoline.

“IMO 2020 has the potential to hurt GDP growth in most Latin American economies, especially the ones that subsidize fuel prices,” Larson said by email. “As the cost of imported fuels rise, subsidizing gasoline and diesel will only serve to expand a country’s or company’s debt load.”

Most refiners in Latin America haven’t invested in units that can remove sulfur or crack residuals into more valuable molecules. That puts them at a disadvantage ahead of the rule, which is expected to slash global demand for high-sulfur bunker fuel to as low as 1 million barrels daily from 4 million barrels currently.

By this measure, Petroleos Mexicanos and PDVSA, respectively Latin America’s largest and second-largest exporters of fuel oil, are the ones who have most to lose.

Petroleo Brasileiro SA, on the other hand, is set to take advantage of the fuel shift, according to Guilherme Franca, executive manager of commercialization. Petrobras already exports IMO-compliant fuels and is exploring the re-opening of fuel oil storage tanks in Singapore to better supply bunker fuel markets in Asia.

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PetroMonagas, PetroVictoria Rumored to Have Changed President

(Energy Analytics Institute, Ian Silverman, 26.Sep.2018) — The president of the two Venezuelan joint venture companies is rumored to have been changed, according to reports in the daily Noticias Venezuela.

The executive, Edgar Sifontes, is said to have left his position at the helms of both companies, reported the daily, citing Tweets from supposed workers at the companies.

Neither officials at PetroMonagas nor PetroVictoria returned calls seeking to confirm the reports.

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Venezuela Doubles Down on Chinese Money to Reverse Crisis

(AP, 20.Sep.2018) — Venezuelan President Nicolas Maduro said Tuesday that new investments from China will help his country dramatically boost its oil production, doubling down on financing from the Asian nation to turn around its crashing economy.

Already a major economic partner, China has agreed to invest US$5 billion more in Venezuela, Maduro said following a recent trip to Beijing, adding that the money would help it nearly double its oil exports to China.

“We are taking the first steps into a new economic era,” he said. “We are on track to have a new economy, and the agreements with China will strengthen it.”

A once-wealthy oil nation, Venezuela is gripped by a historic crisis deeper than the Great Depression in the United States. Venezuelans struggle to afford scarce food and medicine, many going abroad in search of a better life.

Venezuela’s inflation this year could top one million per cent, economists predict.

After two decades of socialist rule and mismanagement, Venezuela’s oil production of 1.2 million barrels a day is a third of what it was two decades ago before the late President Hugo Chavez launched the socialist revolution.

Maduro says that under the deal, Venezuela will increase production and the daily export of oil to China to one million barrels a day.

However, China is taking a strong role in its new agreements. Over the last decade, China has given Venezuela US$65 billion in loans, cash and investment. Venezuela owes more than US$20 billion.

FINALISING OIL PLANS

The head of the National Petroleum Corporation of China will soon travel to Venezuela to finalise plans on increasing oil exports.

Russ Dallen, a Miami-based partner at brokerage Caracas Capital Markets, said the influx of money appears to be investments China will control.

“The Chinese are reluctant to throw good money after bad,” Dallen said. “They do want to get paid back. The only way they can get paid back is to get Venezuela’s production back up.”

Venezuela also agreed to sell 9.9 per cent of shares of the joint venture Sinovensa, giving a Chinese oil company a 49 per cent stake. The sale will expand exploitation of gas in Venezuela, the president said.

Maduro also recently launched sweeping economic reforms aimed at rescuing the economy that include a creating new currency, boosting the minimum wage more than 3,000 per cent, and raising taxes.

Economist Asdrubal Oliveros of Caracas-based firm Econalitica said he doubts that Venezuela can reach the aggressive goal to boost oil exports to China to one million barrels a day, given problems faced by the state corporation PDVSA.

“Increased production I see as quite limited,” Oliveros said. “The Chinese companies alone have neither the muscle nor the size to prop up production.”

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OPEC’s Decade of Turmoil Leaves Cartel Seeking a New Way Forward

(Bloomberg, Christopher Sell, 20.Sep.2018) — A global recession, both $140 and $30 oil, the U.S. shale revolution, a market-share war, and output cuts. OPEC’s 60-year history has rarely confronted a more challenging period than the past decade.

Now, instead of enjoying the higher prices resulting from 18 months of joint production cuts with a coalition of other major producers, the cartel faces new problems. A tweet-happy American president is ramping up geopolitical risk, renewed sanctions are hammering Iran’s exports, Venezuelan production is tanking as its economy collapses, and a political attack from Washington in the form of the NOPEC bill.

The alliance of exporters, spearheaded by Saudi Arabia and Russia, meets on Sunday in Algeria to consider its response to these challenges, while also taking the next steps to cement their alliance into 2019 and beyond. The Organization of Petroleum Exporting Countries response to crises over the past decade offer clues to the path it might take forward.

Global Crisis

Ten years ago, a banking crisis triggered a global economic downturn and a crash in oil prices as demand was obliterated. After peaking at a record $147.50 a barrel in July 2008, Brent crude fell as low $36.20 by year-end. Facing catastrophe, OPEC members put aside internal squabbles and agreed production cuts that were historic in their speed and scale — output fell 16 percent in just eight months. It worked, and prices began to recover in 2009 even as the world was mired in recession. After Chinese consumption came roaring back in 2010, the group was able to open its taps again as the cost of crude surged back toward $100.

Shale Boom

From 2011 onward, OPEC enjoyed years of riches and relative stability as oil traded near $100 a barrel, but a threat was emerging. A new generation of wildcatters from North Dakota to Texas was deploying innovative fracking technology to tap previously inaccessible shale oil deposits. OPEC was blind to the danger at first, then downplayed the risk even as some members raised the alarm — reasoning that shale was an expensive business and the cartel simply had to bide its time. By mid-2014, U.S. production had jumped more than 50 percent, crude prices were teetering on the brink and it was clear this new industry was reshaping the global market as OPEC stood by and watched.

Price War

By late 2014, there was a global oil glut, prices were collapsing and U.S. shale was showing no sign of slowing. Pressure increased on OPEC to respond as it had done in 2008 and cut output, but Saudi Arabia had a different plan. Driven by a combination of hubris and grievance — the kingdom thought it could easily vanquish high-cost shale and was sick of shouldering the burden of stabilizing prices alone — energy minister Ali Al-Naimi rejected requests from fellow members and opened the taps in a war for market share. At first it seemed to work — the price slump worsened and put immense financial pressure on OPEC, but also triggered a collapse in U.S. drilling and forced producers to close the taps.

Alliance with Russia

By mid-2016, Al-Naimi’s gambit looked like a failure. Crude still languished near $40 a barrel, putting some OPEC members on the brink of economic collapse. However, U.S. production was rising again after drillers made huge cost cuts and bloated crude stockpiles threatened to depress prices for years to come. A new Saudi minister, Khalid Al-Falih, was appointed and set about engineering a historic agreement including major producers from outside the group. By late 2016, he had secured the cooperation of 10 other nations, most importantly Russia, who agreed to remove 1.8 million barrels a day of supply from the market. Thanks to this deal, crude has staged a spectacular recovery from its bruising slump. In April, OPEC and its allies concluded they had achieved their goal of re-balancing the market and even higher prices beckoned.

U-Turn

If only it was that simple. OPEC’s moment of celebration faded fast as U.S. President Donald Trump threw a spanner in the oil market. Accusations on Twitter that the cartel was artificially inflating prices were followed by his renewal of sanctions on Iran’s exports and additional penalties that worsened the decline of Venezuela. Within a month, Saudi Arabia and Russia were signaling their intention to roll back the cuts, and in June they successfully pressured the rest of the group to agree. After 18 months of fairly harmonious supply restraint, some OPEC members were hastily reopening the taps, while others howled in protest from the sidelines.

What Next?

Where does OPEC turn now? Lessons from the group’s history point eastwards, toward a permanent partnership with Russia, said Harry Tchilinguirian, head of commodity strategy at BNP Paribas SA. It’s the most effective counterbalance to the shale revolution, which continues to reshape the market, he said.

“U.S. shale oil will be reaching the Atlantic Basin, and Asian markets alike, more regularly and in greater volumes as pipeline connections to the Gulf Coast and oil terminals are built or expanded,” Tchilinguirian said. This competitive challenge, along with demand dynamics that accompany the transition to cleaner energy, give OPEC an incentive to establish a permanent relationship with Russia and a growing number of non-members, he said.

Whether such an alliance would actually prove effective at managing the market in the long term is another matter, said Bob McNally, president of Rapidan Energy Group.

“The jury remains out as to whether this new Saudi-Russia led entity will succeed longer term at preventing future booms and busts or, like a number of other temporary ad-hoc cartels since oil’s earliest days, it will succumb to greed and indiscipline,” McNally said.

To contact the reporter on this story: Christopher Sell in London at csell1@bloomberg.net To contact the editors responsible for this story: James Herron at jherron9@bloomberg.net Rakteem Katakey

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Venezuela’s Retrogressing Economy — Exhibit 1, PDVSA

(Steve Hanke, Contributor to Forbes, 19.Sep.2018) — Two hallmarks characterize capitalist economies. Firstly, property is predominately in private hands. Consequently, goods and services are allocated via market mechanisms in which prices provide signals for businesses, workers, and consumers. Secondly, capitalist economies are highly capitalized. Indeed, the stocks of physical and human capital are relatively large in relation to the capitalist economies’ income flows.

On those two counts, Venezuela is retrogressing. With Chavismo, which commenced when Hugo Chavez took power in 1999, Venezuela has beaten a hasty retreat from anything that would qualify as “capitalist.” Today, it is clearly in the throes of a socialist-interventionist system.

With the transition to a socialist system, capital consumption becomes pronounced. Socialism consumes capital (read: eats seed corn). It fails to accumulate productive capital. And, this is why socialist systems retrogress into states of poverty. After all, capital consumption means that too much is consumed in the present at the expense of the future.

In his 1945 book The Economics of Peace, my professor, the great Ken Boulding, first presented his simple, but powerful, “Bathtub Theorem.” It is actually nothing more than a simple truism. The rate of accumulation is equal to the rate of production, less the rate of consumption. As Boulding put it, “Production may be likened to the flow of water from a faucet, consumption to the flow down to the drain. The difference between these two flows is the rate at which the water in the bathtub—the total stockpile of all goods—is accumulating.”

War, of course, drains the economic bathtub, as capital is destroyed (read: consumed). A transition to socialism also results in capital consumption—a lower level of water in the capital stock bathtub.

In Venezuela, the most important part of the economy is the state-owned enterprise PDVSA, the oil giant. Since Chavismo was ushered in, capital consumption has been the order of the day. Physical capital has been consumed at a rapid rate. In short, capital expenditures have been much lower than depreciation, plus amortization (properly measured). PDVSA hasn’t even been investing enough to maintain its capital stock, let alone add to it. Accordingly, the level of water in PDVSA’s bathtub has been falling. If that wasn’t enough, the quality of PDVSA’s remaining capital stock has also been reduced due to poor maintenance practices.

On top of the reduced PDVSA capital stock and its deteriorating quality, PDVSA has witnessed a dramatic drop in the stock and quality of its human capital. After the 2002 coup attempt on President Chavez, he purged thousands of “non-loyalists” from PDVSA and replaced them with political hacks. The purges have continued under President Maduro. In consequence, the stock of quality PDVSA management and workers has been depleted.

Not surprisingly, PDVSA’s production has fallen (see the chart below). Capital consumption has reduced its ability to produce. At present, production is at levels not seen since 1947. Even though it has the world’s largest reserves, Venezuela is producing less oil than the U.S. state of North Dakota, and the rate at which PDVSA is depleting its vast reserves is so slow as to render them worthless. In contrast to the major oil companies that extract a “median barrel” of oil from their reserves in 8-10 years, PDVSA takes 200 years to extract a median barrel.

The collapse in PDVSA’s production is a stunning indictment of the world’s worst oil company and of Venezuela’s socialist system. The bathtub is nearly empty.

Steve H. Hanke | Professor | Economist | Author | Currency Expert | White House Alum. Steve Hanke is a professor of applied economics at The Johns Hopkins University and senior fellow at the Cato Institute. Over four decades Hanke has advised dozens of world leaders from R…

Authored by Steve H. Hanke of the Johns Hopkins University. Follow him on Twitter @Steve_Hanke.

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President Moise Wants Full Transparency in PetroCaribe Probe

(CMC, 19.Sep.2018) — President Jovenel Moise has called on newly installed Prime Minister Jean-Henry Céant to ensure that there’s total transparency in the investigation regarding the use of funds under the PetroCaribe initiative.

“As I explained in my message of Prime Minister Jean Henry- Céant (and) to the nation, and included in the statement of the general policy statement presented to Parliament, Prime Minister Céant must allow the nation to see clearly what has happened in the use of PetroCaribe funds,” Moise said during the inauguration of the new prime minister and his cabinet on Monday.

“The people are asking for explanations on the use of this money. The competent services of the State, notably the Central Financial Intelligence Unit, the Anti-Corruption Unit, the General Inspectorate of Finance will be mobilised on the PetroCaribe file.

“Besides the work of the Court of Auditors and Administrative Litigation, it is up to these technical services of the State to provide answers to the request for explanation of the population,” Moise said.

He said institutionally, the State must provide answers to the PetroCaribe file, adding “I ask people to remain calm and wait for the results of the work of the relevant institutions.

“We must avoid making amalgams so that honest citizens are not victims or unjustly indexed in the PetroCaribe file. The State is there to guarantee everyone the right to life and honour. This is why, at the institutional level, the State must treat the PetroCaribe dossier with the necessary rigour and give explanations to the citizens,” Moise said.

Concerns as to how the PetroCaribe funds have been used by previous governments have resulted in Haitians taking to the streets in protest at the billions of US dollars that have been allegedly squandered from the Venezuela oil programme.

Haitians have launched the “#petrocaribechallenge” campaign that has already resulted in the removal of the previous government headed by Jack Guy Lafontant.

Following Haiti’s 2010 earthquake, Caracas forgave US$295 million in debt that Port-au-Prince had accumulated since joining the PetroCaribe programme in 2006. However, since the quake the debt has ballooned.

PetroCaribe is an oil alliance of many Caribbean states with Venezuela to purchase oil on conditions of preferential payment. The alliance was launched in 2005 and in 2013 Petrocaribe agreed to links with the Bolivarian Alliance for the Americas, to go beyond oil and promote economic cooperation.

A Haitian Senate Commission investigative report last year alleges a significant amount of money had been embezzled under the programme.

In his address, Moise said that in search of a better being, the Haitian people demand more justice.

“More social justice, more economic justice, more transparency and rigour in the management of public funds. The Haitian youth wants to recover faith, confidence in the future. Accountability must now be a principle that cannot suffer from any derogation. There can be no excuses, no extenuating circumstances for those who have mismanaged state resources.”

He warned that no development is possible without justice, and that the greatness of a nation depends on the quality of justice.

“Justice must act independently. I ask your government to facilitate a fair and equitable distribution of justice.”

Moise said that Haiti “has everything it needs to live up to the glorious history forged by the heroes of 1804” and that by taking the right steps, “we can sustainably and positively change the living conditions of the population”.

He told the new government it must succeed in a number of areas including signing a pact with the private sector to promote jobs and growth, a sustainable solution to the minimum wage issue, as well as enabling the country to have universal and compulsory medical insurance.

Moise said there was also need to accelerate ongoing work in the field of infrastructure as well as to find the appropriate financial mechanism for the construction of the missing classrooms, so that all school-aged children attend school in good conditions and remain there.

He also called on the new government to supervise and continue the work undertaken in the framework of the reform of the State and strictly apply the decree on the reduction of the lifestyle of the State, take appropriate measures to resolve social crises in neighbourhoods and improve the working conditions of the security forces and ensure that the new army under construction is mobilized in the vast site of environmental rehabilitation.

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New Corruption Scheme Revealed at PDVSA

(Prensa Latina, 19.Sep.2018) — The Public Prosecutor”s Office (MP) has revealed today a new corruption scheme in the state-run Petroleos de Venezuela (PDVSA), which has caused losses of 18,500,000 dollars to the main industry of the country.

In a press conference from the MP headquarters in Caracas, Attorney General Tarek William Saab reported that there have been 17 such cases at the oil company over the past year, exposed as part of the state-sponsored anti-corruption campaign.

He noted the authorities have requested nine arrest warrants against managers and officials linked to the fraudulent purchase of 400 aluminum tanks for transporting fuels, without the appropriate technical specifications for their use in Venezuela.

During a national electrical emergency in 2010, it was decided to purchase by direct award to the Mexican entity Trailers and Aluminum Tanks of 300 cisterns, aimed at completing the fleet of the National Transport Company, subsidiary of PDVSA.

This acquisition would also serve to strengthen electric service, as they would be used to provide diesel to the country’s thermoelectric plants, said Saab.

He pointed out that PDVSA paid nearly 19,000000 dollars for 234 cisterns, of which 168 were delivered and 66 were pending, while these deposits did not fulfill the technical specifications required by PDVSA and a new contract had to be made to adapt them.

The attorney general stressed that through the investigations carried out by the Public Ministry, it was determined that the contracted adaptation was never carried out and the cisterns were unusable for their proper purpose.

Likewise, the MP is investigating another contract with the Mexican company Armadora Carrocera Caban, which does not physically exist, according to the results of the investigations.

During the last year, the Public Prosecutor’s Office prosecuted 90 PDVSA officials linked to several corruption schemes.

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Nicolas Maduro Says Venezuela to Double Oil Production

Venezuela’s President Nicolas Maduro. Source: PDVSA

(Energy Analytics Institute, Piero Stewart, 18.Sep.2018) — Venezuela, the struggling OPEC producer, is now planning to double its production of crude oil, according to statements from the country’s president.

“With revolutionary spirit we will double the productive capacity of PDVSA,” announced Venezuela’s President Nicolas Maduro during a press conference in Caracas broadcast on national television.

Venezuela – reeling in political, economic and humanitarian crises and suffering from the world’s highest inflation – continues to struggle to stop further declines in its oil production amid a near complete collapse in oil sector investments.

According to data in OPEC’s Monthly Oil Market Report, published on September 12 and citing data based on secondary sources, the South American country’s oil production fell 2.9 percent to 1,235 thousand barrels per day (Mb/d) in August 2018 compared to 1,272 Mb/d in July 2018.

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Venezuela’s Maduro Says Relationship With China ‘Win-Win’

(Energy Analytics Institute, Piero Stewart, 18.Sep.2018) — In terms of bilateral cooperation, Venezuela and China are seeking a ‘win-win’ scenarios.

“Relations with China are very clear and have been framed around mutual respect and under the premise of win-win, which has allowed for the reactivation of financial funds, and revival of sustained development,” announced Venezuela’s President Nicolas Maduro during a press conference in Caracas broadcast on national television.

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IEA Warns of Higher Oil Prices as Iran and Venezuela Losses Deepen

(Bloomberg, Grant Smith. 13.Sep.2018) — The International Energy Agency warned that oil prices could break out above $80 a barrel unless other producers act to offset deepening supply losses in Iran and Venezuela.

Iranian crude exports have fallen significantly before U.S. sanctions even take effect, the IEA said in a monthly report. The Middle Eastern nation will face further pressure in coming months and the economic crisis in Venezuela is pushing output there to the lowest in decades. It’s uncertain whether Saudi Arabia and other producers will fill any shortfall, or how far they’re able to, the agency said.

“Things are tightening up,” said the Paris-based IEA, which advises most major economies on energy policy. “If Venezuelan and Iranian exports do continue to fall, markets could tighten and oil prices could rise” unless there are offsetting production increases elsewhere, it said.

Oil climbed to a three-month high above $80 a barrel in London on Wednesday as fears of a supply crunch eclipsed concern about the risks to demand such as the U.S.-China trade dispute. While the Organization of Petroleum Exporting Countries and allies including Russia pledged to boost supply, the IEA said it remains to be seen how much will be delivered.

Saudi Arabia lifted output by 70,000 barrels a day to 10.42 million last month, but that remains “some distance from the 11 million barrels a day level that Saudi officials initially suggested was on the way,” the IEA said.

While the agency warned that “there is a risk to the 2019 outlook” for demand from challenges in emerging markets such as currency depreciation and trade disputes, it kept forecasts for consumption unchanged.

In the meantime, supply risks dominate. Oil inventories in developed economies are already below-average and will decline further in the fourth quarter, the IEA predicted.

Venezuela, which is pumping at just half the rate it managed in early 2016, could see its output slump another 19 percent to 1 million barrels a day this year as infrastructure deteriorates and workers flee, the agency predicted.

Iranian production has already fallen to the lowest since July 2016, at 3.63 million barrels a day, as buyers retreat ahead of U.S. sanctions that come into force on Nov. 4.

Although Russia, Saudi Arabia and other Gulf members of OPEC promised to bolster production by about 1 million barrels a day, the IEA remained cautious on whether the full amount would be delivered. It’s unclear how quickly OPEC’s spare capacity, which stands at about 2.7 million barrels a day, can be activated, it said.

“We are entering a very crucial period for the oil market,” which could push prices out of the $70-to-$80 a barrel range seen in the past few months, the IEA said.

To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net. To contact the editors responsible for this story: James Herron at jherron9@bloomberg.net Rachel Graham.

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U.S. Company Manager Pleads Guilty in PDVSA Bribery Scheme

(Reuters, 13.Sep.2018) — A former manager of a U.S.-based logistics company pleaded guilty on Thursday to paying bribes to secure contracts from Venezuela’s state oil company PDVSA, and the guilty plea of the official who was bribed was also unsealed, the U.S. Justice Department said.

Juan Carlos Castillo Rincon, 55, pleaded guilty in federal court in Houston to conspiring to violate the Foreign Corrupt Practices Act, the Justice Department said in a statement.

Judge Nancy K. Johnson also unsealed the guilty plea of Petróleos de Venezuela, S.A. (PDVSA) official Jose Orlando Camacho, 46, whom Castillo had bribed, it said.

Camacho had pleaded under seal to conspiracy to commit money laundering in July 2017, the statement said. It referred to Camacho as a “foreign official” but did not specify the position he held in the company, Petroleos de Venezuela.

Fourteen people have now pleaded guilty as part of an investigation by the Justice Department into bribery at PDVSA that became public with the arrest of two Venezuelan businessmen in December 2015.

Castillo, of Conroe, Texas, was arrested in Miami in April after he was indicted by a grand jury, the statement said.

A manager at a Houston-based logistics and freight forwarding company, Castillo admitted to conspiring with others to bribe Camacho from 2011 through at least 2013 in exchange for help in obtaining contracts and inside information about the company’s bidding process.

The Justice Department said that Camacho, of Miami, admitted as part of his plea deal to accepting bribes from Castillo and the company he worked for, as well as conspiring with him to launder proceeds of the scheme.

Castillo and Camacho have agreed to forfeit the proceeds from their criminal activity, and both are scheduled to be sentenced on Feb. 21, the Justice Department said.

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Venezuela’s Aug. 2018 Oil Output Continues Decline: OPEC MOMR

(Energy Analytics Institute, Jared Yamin, 12.Sep.2018) — Venezuela’s oil production seems on an unstoppable downward trend.

The OPEC country’s production of crude oil fell 2.9 percent to 1,235 thousand barrels per day (Mb/d) in August 2018 compared to 1,272 Mb/d in July 2018, according to data published in OPEC’s Monthly Oil Market Report, published on September 12 and citing data based on secondary sources.

Ecuador

Ecuador’s oil production rose slightly to 529 Mb/d in August 2018 compared to 525 Mb/d in July 2018, according to OPEC’s secondary sources data.

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Jamaica’s Economy Gets $5 Bln From PetroCaribe Over 13 Years

(CMC, 12.Sep.2018) — Jamaica says it has benefitted from projects estimated at US$5 billion under the Venezuela-led PetroCaribe initiative over the past 13 years.

CEO of the Petro-Caribe Development Fund Dr Wesley Hughes said the contributions of the fund to Jamaica have been “meaningful and significant”.

Speaking earlier this week at a ceremony marking the 203rd anniversary of the Jamaica Letter written by Venezuela’s liberator Simón Bolívar in 1815, Hughes said the PetroCaribe Development Fund, which has a mandate to strengthen national capacity in the areas of human capital, culture, infrastructure and the environment, had established the Simón Bolívar Cultural Centre as an important vehicle in strengthening the friendship between the two countries.

Hughes said the Jamaica Letter has had a “long-lasting impact on Venezuela and on all of Latin America, and I dare say the Caribbean”.

He said the letter demonstrated that Simón Bolívar understood that social and political organisations had to be based on national foundations and must be inclusive of all classes of the people who lived in those societies.

“Today, 203 years later, we stand here, a few metres from where Simón grappled with the ideas of nationhood, independence and national identity, and how leaders should relate to their citizens,” he added.

PetroCaribe is an oil alliance of many Caribbean states with Venezuela to purchase oil on conditions of preferential payment. The alliance was launched on 29 June 2005 in Puerto La Cruz, Venezuela. In 2013 Petrocaribe agreed for links with the Bolivarian Alliance for the Americas (ALBA) to go beyond oil and promote economic cooperation.

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Venezuela Constituent Assembly Seeks to Woo Private Oil Investment

(Reuters, Mayela Armas, 12.Sep.2018) — An overhaul of Venezuela’s constitution being prepared by the pro-government Constituent Assembly will likely include changes intended to attract private investment in the country’s oil fields, according to two assembly members.

Production by the OPEC nation’s oil industry is at a 60-year low, leaving President Nicolas Maduro’s government strapped for cash as it grapples with hyperinflation and a fifth year of economic contraction.

The Constituent Assembly, whose powers supersede those of the country’s Congress, would reword some articles of the constitution to reduce emphasis on state control of oil and ease the way for private investment, the assembly members said.

“We must take into account the economic situation of the country. You need investments to recover production,” said Assemblyman David Paravisini.

Assembly colleague Hermann Escarra echoed Paravisini.

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PDVSA to Reopen Damaged Port Dock by Month’s End -Documents

(Reuters, Marianna Parraga, 12.Sep.2018) — PDVSA expects to reopen the south dock of Venezuela’s main oil port Jose by the end of September, easing strains on crude exports delayed due to a tanker collision last month, according to internal trade documents from the state-run oil firm seen by Reuters.

Last week, PDVSA began diverting tankers to Puerto la Cruz for loading, but the South American country’s crude exports have remained slow in recent weeks as few customers have accepted the 500,000-barrel-per-cargo maximum neighboring terminals can handle.

Besides Puerto la Cruz, tankers waiting to load a total 2.65 million barrels of Venezuelan upgraded and diluted crudes also plan to be serviced this month by two monobuoys at Jose, including cargoes scheduled for U.S.-based Chevron Corp and Russia’s Rosneft, the documents showed.

But a 1-million-barrel cargo of diluted crude oil (DCO) scheduled to be lifted by Rosneft at Jose between late September and early October was cancelled, according to the documents.

Rosneft and PDVSA in April agreed to a “remediation plan” to refinance an oil-for-loan agreement after delays to deliver cargoes of Venezuelan crude on time. DCO shipments scheduled since then belong to that plan.

PDVSA did not immediately reply to a request for comment.

At least three other 500,000-barrel cargoes for Valero Energy and PDVSA’s U.S. refining unit Citgo Petroleum plan to be loaded at Jose’s available docks and monobuoys in the coming days, after delays.

Valero also would pick up two additional 600,000-barrel cargoes of Morichal crude after a maintenance project that would halt the 150,000-barrel-per-day Petromonagas crude upgrader in August was again postponed, allowing more production.

PDVSA and its joint ventures exported 1.292 million barrels per day (bpd) of crude last month, a 7.7 percent decline versus July, according to Thomson Reuters trade flows data.

The country’s oil output fell again in August to 1.448 million bpd, according to numbers reported by OPEC on Wednesday. Venezuela’s accumulated annual production this year is 1.544 million bpd, the lowest since 1950. (Reporting by Marianna Parraga in Mexico City Editing by Marguerita Choy)

***

Maduro Looks to China to Bolster Venezuela’s Collapsing Economy

(Afp, 12.Sep.2018) — Venezuela’s President Nicolas Maduro departed Wednesday for China in search of agreements to bolster the oil-exporting country’s collapsing economy.

Maduro said the trip was “very necessary, very opportune and full of great expectations.”

“We are leaving under better conditions, having activated a program of economic recovery, growth and prosperity. We are going to improve, broaden and deepen relations with this great world power,” he said in a televised address.

Maduro’s government has massively devalued the national currency as part of a raft of measures intended to halt the economy’s free-fall into hyperinflation.

The International Monetary Fund projects Venezuela’s inflation rate will reach 1,000,000 percent by the end of the year.

Hundreds of thousands of Venezuelans have fled the country, most of them into neighboring Latin American countries.

The trip to China is Maduro’s first outside the country since he was allegedly targeted by exploding drones at a military parade in Caracas August 4.

***

Venezuela Oil Production Continues to Collapse

(Energy Analytics Institute, Jared Yamin, 12.Sep.2018) — The decline is consistent and constant as well as consistently and constantly bad, writes Caracas Capital Market in a research note emailed to clients.

Summary details from the research note follow:

OPEC released the production counts for its member states today and while overall OPEC production was up 278,000 barrels per day (bpd) during the month, Venezuela’s production continued to collapse.

According to OPEC’s August calculations, Venezuela production fell another 36,000 barrels per day (bpd) to 1.235 million bpd. (Venezuela production actually fell 43,000 bpd from the original OPEC July count of 1.278, but OPEC revises their numbers as new data comes in later in the month and moved Venezuela’s July production count down to 1.272 million bpd from the original 1.278 bpd), according to the research note.

“The decline is consistent and constant.”

OPEC calculated that July’s Venezuelan production fall was 42,000 bpd and that June’s fall was 48,000 bpd. In May, Venezuela production fell 43,000; in April, -42,000 bpd; in March, -55,000 bpd; in February -52,000 bpd; in January, -47,000 bpd. Consistently and constantly bad.

In the one year period from August 2017 — when PDVSA was producing 1.918 million bpd — Venezuela has lost 683,000 bpd of production. At the current year average price, that is lost income of $47 million a day and $17.5 billion in a year.

Making this situation worse is that Venezuela’s current 1.235 million bpd production is just a shade more than a third of what the country was producing 20 years ago before Chavez came to power. Hundreds of billions of dollars lost through communism, corruption and incompetence in a country that can ill afford it.

“By the way, we are seeing just one example of how that corruption works in a case playing out before the U.S. Federal District Court in Miami that sucked $1.2 billion from PDVSA in what I label a ‘perpetual money machine for bad guys’ in today’s Miami Herald and El Nuevo Herald, writes Caracas Capital Markets Managing Partner Russ Dallen. “The cast of characters reaches all the way to the top and includes the Derwick boys (especially Francisco Convit), the Boligarch Raul Gorrin (who bought Globovision), the Maduro family (especially the stepsons ‘los chamos’ but also mentions mother Celia Flores and Nicholas Maduro), and a Swiss banker who has copped a deal to tell all (but still had to put up a $5 million bond yesterday).”

Drilling Rigs Fall

Meanwhile, Venezuela’s drilling rig count dropped by one in August, continues the Caracas Capital Market report.

Baker Hughes reports that the number of active drills operating in Venezuela fell to 27 last month, after popping up 2 in July off June’s thirty year low of 26. One of the two drills that was added in July was drilling for gas – the first in over a year. It was still deployed in August.

Having failed to capitalize on its natural gas (much less build the Mariscal Sucre LNG plant) for decades, Venezuela signed a deal last week to link into an already existing gas pipeline at a Shell platform in bordering Trinidad waters and through that pipeline pump gas to Trinidad’s Atlantic LNG plant where it will be converted into LNG for export.

Long time readers will also recall that Rosneft was given a 30 year totally wide-open lease on a gas field in that area last year.

Maduro Goes to China

Finally, as we predicted in our “China Promises Venezuela More Money” Report yesterday and correctly forecast in a Report and Wall Street Journal column in July, Venezuela seems to be making headway in getting help from the Chinese, writes Dallen.

“No one else seems to have been able to accurately uncover and read these Chinese tea leaves, so I am especially proud of our Caracas Capital team. We continue to knock the ball out of the park for our clients,” writes Dallen.

Maduro has just announced that he is going to China to sign some big new deals.

Minister of Oil and PDVSA head Manuel Quevedo is also in Beijing meeting with CNPC and is offering to expand natural gas agreements as well. Yesterday, Venezuela’s oil ministry released a statement touting that the Sinovensa joint venture had increased oil production from 70,000 bpd to 110,000 bpd.

Aside from oil, gas and drilling, we are anticipating some other upcoming ventures in gold mining, coltan and diamond mining, concludes the Caracas Capital Market note.

***

Venezuela’s Oil Output Continues Fall, Ecuador’s Rises in Aug. 2018

(Energy Analytics Institute, Piero Stewart, 12.Sep.2018) — Crude oil production in August 2018 in South America’s lone OPEC member countries, Venezuela and Ecuador, continued along usual trends, according to data published in the organization’s September 2018 Monthly Oil Market Report

Crude oil production in Venezuela, the country with the world’s largest oil reserves, fell to 1,235 thousand barrels per day (Mb/d) in August 2018 compared to 1,272 Mb/d in July 2018, according to OPEC data from secondary sources.

On the other hand, Ecuador’s crude oil production rose to 529 Mb/d in August 2018 compared to 525 Mb/d in July 2018, according to OPEC

***

#LatAmNRG

Venezuela Wants To Overhaul State Oil Firm PDVSA

(Oilprice.com, Tsvetana Paraskova, 7.Sep.2018) — Venezuela has set up a commission that will be working to reshuffle and reorganize its state oil firm PDVSA in the next few months, according to the country’s Official Gazette on Thursday, in what would be the latest Venezuelan attempt to show that it is trying to revitalize its dying oil industry.

According to OPEC’s secondary sources, Venezuela’s oil production in July dropped to below the 1.3-million-bpd mark—at 1.278 million bpd, plunging 47,700 bpd from June. This compares with an average of 2.154 million bpd in 2016, and an average of 1.911 million bpd in 2017.

Some analysts expect Venezuela’s production to fall to below 1 million bpd by the end of this year.

Venezuela has been claiming lately that it plans to raise its oil production.

Last week, PDVSA said that it signed a US$430 million joint service agreement with seven companies that would help it increase its crude oil production by 641,000 barrels per day.

On top of the incessant production slump, PDVSA has seen difficulties in exporting its oil cargoes after a partial closure at the Jose port at the end of August delayed shipments.

A week before that, ConocoPhillips reached a settlement with PDVSA to recover the full US$2-billion amount that an international court awarded it earlier this year for the expropriation of its oil assets in Venezuela a decade ago. PDVSA agreed to settle the dispute with Conoco and possibly save some assets in the Caribbean from seizures, as the U.S. oil firm said that it would be suspending the legal actions to enforce the award.

PDVSA has 90 days from August 20 to make the first US$500 million payment of the award to Conoco. On September 5, Conoco’s chief executive Ryan Lance said that the U.S. company was still awaiting the payment, but expected Venezuela to honor the settlement agreement. If payments aren’t made, however, ConocoPhillips would resume its legal enforcement actions, Lance noted.

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Tanker Backlog Builds Again in Venezuela

(Reuters, Marianna Parraga, 6.Sep.2018) — Crude exports by Venezuela’s PDVSA have slowed after a tanker collision at its main port last month disrupted operations, adding to a backlog of vessels waiting to load, according to shipping sources and Reuters data.

Oil is the financial lifeline for the embattled socialist government of President Nicolas Maduro, but his cash-strapped administration has failed to invest enough in the industry to prevent its decline. Venezuela has sought to increase exports after asset seizures and declining output earlier this year raised the prospect of temporary suspension of contracts.

PDVSA has not said how long it will take to repair damage from the collision and resume normal loading and discharging operations. The company did not immediately reply to a request for comment.

Last week, PDVSA offered loadings at an alternative port to crude customers whose shipments were affected by the collision, but only a few have accepted so far, the sources said. That alternative, the Puerto la Cruz terminal, is limited to loading 500,000 barrels of crude per tanker, far less than the 2 million barrels PDVSA’s main port of Jose can handle.

Large tankers including three Suezmaxes and seven Very Large Crude Carriers (VLCCs) are lined up off Jose waiting to load at the available docks and monobuoys systems.

The vessel backlog around PDVSA’s ports has been increasing since late August, following the collision. As of Sept. 6, more than 20 tankers were waiting to load 26 million barrels of Venezuelan crude, according to Reuters Trade Flows and vessel tracking data.

PDVSA’s crude exports rose in July to 1.39 million barrels per day (bpd), the most since November, but last month they slipped almost 8 percent to 1.29 million bpd on Jose port’s partial operations, falling oil output and Caribbean terminal seizure attempts by creditors including U.S. producer ConocoPhillips, according to the Reuters data.

One of PDVSA’s main customers, Russia’s state-run Rosneft, loaded a 925,000-barrel cargo of diluted crude oil (DCO) during the weekend at one of Jose’s monobuoys after being diverted from the South dock, still closed because of the collision.

Rosneft-chartered Nordic Moon set sail to Malta on Sunday after waiting to load in Venezuela since early August. But the Russian company still has other four vessels waiting to load up to 6 million barrels of heavy crude at Jose, according to the data.

Jose’s South dock, which suffered damage from the collision last month, is mainly used for shipping Orinoco Belt crude and discharging imported naphtha used to dilute the country’s extra heavy oil and make it exportable.

Reporting by Marianna Parraga; Editing by Steve Orlofsky

***

Venezuela Creates Commission to Reorganize PDVSA: Document

(Reuters, 6.Sep.2018) — Venezuela has created a commission to reorganize state oil company PDVSA in the coming months, according to the Official Gazette circulating on Thursday.

PDVSA did not immediately respond to an email seeking further details.

Reporting by Caracas newsroom; Editing by Chizu Nomiyama

***

Venezuela Oil Sales to US Fell in August

(Reuters, 4.Sep.2018) — Venezuela’s crude sales to the United States fell in August for the second month in a row as exports of two of the South American country’s main grades dropped following port interruptions by a tanker collision, according to Thomson Reuters Trade Flows data.

Venezuela’s state-run oil company Petróleos de Venezuela, S.A., known as PDVSA, and its joint ventures last month exported an average of 468,300 barrels per day (bpd) of crude in 30 cargoes to their customers in the United States, the data show. The total was the third smallest monthly figure this year.

PDVSA’s oil shipments have been affected in recent weeks by export limitations at the country’s main oil port, Jose, after a minor tanker collision forced the state-run firm to halt operations at one of its three berths.

The Jose dock problem came as the country was attempting to reverse a series of blows to oil exports, including declining output, a severe lack of investment in its energy infrastructure and asset seizure attempts by creditors.

PDVSA last week started a contingency plan for diverting tankers waiting at Jose to load to the nearby terminal of Puerto la Cruz. It has not said for how long Jose’s loadings would be affected.

The state-run company last month exported to the United States a 500,000-barrel cargo of Merey crude and three 500,000-barrel cargoes of Zuata crude, two of the OPEC-nation’s main grades for exports. Both come from the Orinoco Belt, Venezuela’s largest oil producing region.

Crude upgraders at the Orinoco, essential for turning Venezuela’s extra heavy oil into exportable grades, have been working intermittently in recent months due to planned maintenance and outages, limiting volumes available for export.

U.S. refining firm Valero Energy was the largest receiver of Venezuelan crude last month with 153,000 bpd, followed by PDVSA’s unit Citgo Petroleum and Chevron Corp , according to the data.

Shipments to spot customers in the United States continued falling to some 40,000 bpd in August, the second smallest monthly figure so far this year.

(Reporting by Marianna Parraga; Editing by Richard Chang)

***

Scorch Earth Suicide in Venezuela

(EnergyNomics de Venezuela, Carlos A Rossi, 1.Sep.2018) — Nicolas Maduro has drawn the line in the sand: “Either you are with me and stay here living precariously with Chavism, or you are against me and get out. If you choose none of the above: Starve.”

Cornered by a hyperinflation over 33,000% and climbing, expected to reach a million percent at years end by the IMF, a cumulative fall in the GNP of 50% since he took office in 2013, oil production to 1.2 MMb/d or 1947 levels despite harboring the largest oil reserves in the planet, plus a myriad of human miseries in education, medicine, scarcity, spontaneous protest all over and unprecedented exodus to near and far away nations and a long etc, not to mention the scourge of its neighbors and a standing military threat from the most powerful country in the World, Nicolas Maduro has had enough and on 17th of August, hereafter to be known as Red Friday, he announced a string of economic measures with the sole intent of what can only be interpreted as “Scorch Earth Policy”.

Defined: Scorch Earth Policy is “a military strategy of burning or destroying buildings, bridges, crops, water holes, or other resources in your homeland that might be of use to an invading enemy force”. Example, what Russia’s Red Army was forced to do when the Nazis invaded them in 1940. In Venezuela’s context the enemy is already here, as 82% of the people who oppose his ruling. Since the failure of Chavism in his mind can only be explained by “national and foreign economic war”, scorch earth is his only remaining option.

In his speech this fateful Red Friday Maduro defined many measures of which 3 stand out:

1) A sharp increase in the price of gasoline to international levels,

2) A unified exchange rate anchored to the governments “Petro” virtual currency, and

3) A 3,500% increase in the minimum wage.

Other measures like modest increases in income and value added taxes are minor and will not be discussed here except to say that in an economy that is in clear depression mode the increase of any kind of taxes further deteriorates consumption demand, a prerequisite for recovery.

Lets start with the sharp rise in the price of gasoline. It is actually a step in the right direction and one that I have been urging over the years. As is, at U$0.01 per liter is by far and away the cheapest in the world, second place Iran is 25 times more expensive; neighboring Colombia is 77 times more expensive and in the USA a motorist pays a full 83 times more than Venezuelans pay. This means that for what each American motorist pays to fill the gas tank of her sedan Venezuelans fill it 83 times!

This is not only beyond ridiculous but detrimental to Venezuela in many fronts:

First, it is a regressive tax on the poor who don’t own cars while the rich and middle class does.

Second, it fuels conspicuous driving consumption leaving less for exports, which would fetch tons of more money for the government.

Third, it provides irresistible incentives for contraband to neighboring Colombia and Brazil (114 times more expensive) (1).

The estimate of revenue losses to the nation for this practice has been estimated by the Venezuelan government to be anywhere between $18 billion and $20 billion per year. In fact, I strongly suspect that a big reason for this price hike is a vengeance move from Maduro to Colombia’s newly elected President Ivan Duque, who has taken a strong stance against the Venezuelan dictator.

Fourth, and finally, in other countries sharp gasoline price increases have absorbed excess liquidity from the public thus contributing to lowering fiscal deficits and inflation to normal levels (eg. Bolivia in 1980s). I said as much when I urged this policy years ago; but now I strongly doubt it would have much effect because Venezuela’s hyperinflation is foolishly fueled by the other policies of state production control, scarcity, and uncontrolled fiscal deficit of about 17% of GDP, all of which will surely exacerbate in the wake of Red Friday; even if the government successfully inoculates food transportation to the cities.

As I write these lines the government has not legally printed the new gas prices in the Gaceta Oficial, the official Gazzete that initiates the legality of any law or decree in Venezuela. To equate Venezuela’s current gas price with the international level, now at $1.16per Lt, it implies an increase of 11,500%. A much abrupt measure to be absorbed by anybody at once. But there is a caveat. Those citizens that own the “fatherland card”-the official identity card of chavism-will be exonerated from this increase by receiving at a “later date” a direct compensation into their bank accounts, or so they say, a clearly apartheid measure against most of us (>80%) that abhors what chavism has turned out to be. The experience of this plan in Iran has been reportedly good. The problem of course is that it’s hard to imagine any nation in the entire planet with a worst record of fulfilling a “Plan” than Venezuela.

But in conclusion, on balance this move is actually a plus, although it was done belatedly, much abruptly, and with clear intentions of apartheid.

Moving on, the unified exchange rate anchored to the Petro-Cryptocurrency has a so- so part and a terrible part. The unified part is good because as it stands, the complexity of 3 official levels far distant from each other plus a black parallel market exchange rate reported by a Miami private web site, where the vast majority of the transactions take place since the others are inaccessible and impractical (2). This time Nicolas Maduro did it, although again much belatedly, under much pressure, and surrendering to the Miami Web site; the level he put is almost exactly at the parallel market rate that they reported. But it is also, as my college and National Assembly member Jose Guerra reported, the single worst devaluation this country has ever experience in terms of magnitude. Maduro’s official rate devaluation this Red Friday was over 2,311%, by far dwarfing the previous 1989 mega devaluation of 134%. These sky high figures are dwarfed by the more deep space numbers of the parallel black market exchange rate: In 2018 alone this parallel exchange rate has devalued 2,332% and if you go back when Maduro started his administration, it has devaluated over 23,300,000%.

I call it so-so, a euphemism for mediocre, because it is good that Venezuela has a unified exchange rate that reflects the now market value of a strongly deteriorated exchange rate. However, what this is going to do to import costs of everything from food seeds to pharmacies, auto parts, PDVSA equipment and a long etc is downright horrible. The government has since announced that they will not auction dollars to the public because, as everyone knows, they don’t have any to offer (Venezuela’s external reserves are down to about $9.3 billion, about $1.5 billion of which is liquid and the rest are in Gold Bars that only the government is sure where they are-Middle East?). What they will auction is Petros. This leads us to the surreal and terrible part of this plan.

Cryptocurrency Petro

The anchoring of the exchange rate to a cryptocurrency Petro. The idea is for the State to link the Bolivar to the Petro and link that to the Price of Oil of 5,342mm of certified barrels of crude oil in the oil rich Orinoco Oil Belt (set at $60). So far so good because as opposed to Bitcoin that only depend on blockchain technology, the Venezuelan government is the only one allowed to mine this cryptocurrency that is linked to a tangible wanted energy source. But this is were the problem lies. First it breaks not 1 but 2 constitutional laws. The only currency that the Venezuelan Constitution allows to circulate in any form of exchange is the Venezuelan Bolivar which is also supposed to be anchored to oil exports and we already explained how the government managed that. Second, the only institution that can change this is the legitimate National Assembly which is majority controlled by the opposition, and since Maduro bulldozed their legality and ran most of them to exile, including its President Julio Borges, its hard to imagine any of them vouching for the Petro, let alone the required majority.

The second law that the Petro breaks is the guarantee, because again by constitutional law all mineral underground resources belong to the Venezuelan State, not the Government, and any deal that involves oil not yet produced must be agreed by the National Assembly, which will, again, never do. This means that if the government welshes on their commitment, as they have done numerous times, there is no way any Petro holder would be able to execute any guarantee. There is a further problem. The United States Treasury Department has formally announced direct sanctions on anyone dealing the Petro. So the Venezuelan government anchored its exchange rate on something that does not legally exist, that cant exist, and even if it does exists it will be quelled by international sanctions. This government is of course knowledgeable of all of these misfortunes but they went and did it anyway. This is Scorch Earth Policy, pure and simple.

The icing on the cake is the last policy, the outrageous and humongous 3,364+% wage hike of the minimum wage to what is today 180million bolívares per month, or in next month parlance, 1,800 Bolívares (1/2Petro) since the government also erased 5 zeros from its bills. This of course would create massive unemployment but since firing anyone is illegal here, what in all certainty will happen is massive private company closures thus creating massive unemployment. As companies shut down so will banks because they will not be able to recover their outstanding loans and will not be able to pay their own loans. As they collapse, a domino effect occurs were all privately owned pharmacies, clinics, insurance companies, food outlets, entire industrial and agricultural sectors will close shops, then the State will capture them and will thus nail down what it has always wanted, a full Communist nation. Judging from how the government has ran its already owned production and distribution facilities, its not hard to phantom what the only possible result of this will be.

Fiscal Deficit

The implications of this move to the fiscal deficit are clear. The government has about 3 million employees working in the Central Government plus an additional 3million retired people that earn the minimum wage and add a possible 600,000 people that work on contractual basis, including police in the nations municipalities etc, that also earn minimum wages. Where are they going to get the money to pay all these people? The only answer is the printing machine. But when they do this, they are either going to kill what’s left of the international reserves or destroy the Petro anchoring strategy in a month and create a black-markets for everything. In addition, the government has said that they will cover the PYMES (small and medium sized companies) payroll for 90 days. Are they really? Is a pharmacy in a far-out post in Delta Macuro State going to get this every fortnight? I don’t think so. And what about the large companies like Polar, how are they going to pay their people whom they need to produce the little people eat here?. The government is imposing price freezes in their products and raising their payroll 35 times!. GDP collapse and Scarcity galore. There is but one interpretation of this. “I am taking over everything.”

The final implication being, as stated above: “I know you are after me USA, Europe, Latin America, Canada, but if I am going down this ship is going down with me.”

Conclusions

So what are Venezuelan’s supposed to do?: Submit themselves to this hellhole quietly? Unlikely. Leave the country by sparking up what is already an enormous exodus? More Likely. Wait for a Pinochet style military coup? Possibly but only if an international threat is real. Worthwhile mentioning, these economic measures were announced the day before the legitimate National Assembly voted unanimously to uphold the ruling of Venezuela’s legitimate Supreme Court (in exile) to oust Nicolas Maduro and jail him for 18 years+ on charges of corruption. The importance of this measure cannot be overstated; for it means that a military push on Maduro cannot be seen as a constitutional break down or “coup”, since they would be fulfilling the mandate of the legitimate constitutional institutions, the National Assembly and the Supreme Court. On the contrary, if the military decides (as it looks like they are) to maintain Nicolas Maduro in power, that would be seen as a military coup by international observers.

What about an spontaneous social implosion? Likely too except that if history is any guidance the words spontaneous and successful do not go together in political movements. The memories of the 140 killed in last year’s uprisings are still fresh and create understandable fear. As it happened in India with Gandhi, South Africa with Mandela, Poland with Walesa and here in Venezuela with Betancourt in the late 1950’s and others Unified leadership and a Plan for the Day After is required; because the first identifies people with the movement and the latter assures them that they will not jump the plane without a parachute. But today given the disgraceful behavior and inflated egos of the Venezuela’s opposition parties any unity amongst them would be a miracle3. They even abstained from voting in the Constitutionally mandated Presidential Elections last May when they had Maduro on the ropes with 22% polling popularity and, at the time, over 100.000% inflation!4. What about creating destabilizing atmosphere through workers and owners strikes to breed the ground for a foreign coalition of humanitarian intervention, knowing well that whatever its results will be better than Chavism? Maybe. All of the Above? YES, Certainly, You Bet!!

Yes, the announced economic policies of Nicolas Maduro are scorched earth suicidal, just not for Venezuela.

“Tyranny cannot possibly reign but over the ignorance of the people”

Francisco de Miranda

NOTES:

1) Gas petrol stats from GlobalPetroPrices.com

2) Thru out Chavez-Maduro’s terms in office this official rates have been called, at various times, Cadivi; Sicad; Sitme and Ditcom. All of them failed for the same reason; none of them could have enough foreign currency to meet demand or deliver it quickly enough. So people were left with no choice but to deal at the much more expensive private black parallel market rate. The ultimate humiliation: that was controlled by a Miami based web page called DolarToday who daily set its official price from the daily average transaction of Vzla. Bolivar-US$ in Cucuta (a border Colombian city in the Andes).

3) EnergyNomics, in my person, has such a plan in the Venezuelan economic sectors that matter most. Including foremost Energy. The works of Albert Hirschman highly influenced this work, among others.

4) Please read this firms a detailed account of that fateful event here.

***

 

PDVSA Inks $430 Mln Deal in Effort to Boost Oil Output

(S&P Global, Mery Mogollon, 30.Aug.2018) — State-owned Venezuelan oil company PDVSA signed a $430 million service agreement with seven companies to boost its oil production by 641,000 b/d, company president Manuel Quevedo said in a statement Wednesday.

The companies on the other side of deal are: Well Services Cavallino, Petro Karina, Helios Petroleum Services, Shandong Kerui Group, Rinaca Centauro Karina Consortium, Oil Consortium Tomoporo and Venenca. The companies will help boost output from wells in the Arecuna, Sanvi Guere, Orocual, Dacion, Jusepin, Franquera-Tomoporo and Carito-Pirital fields, the statement said.

According to the statement, current production at the fields is 384,000 b/d.

“We have the opportunity to increase oil production at these fields by 641,000 b/d,” said Quevedo.

“We will provide legal security, investment facilities and the production of each barrel of crude will be recognized a fair rate,” Quevedo added.

Venezuela holds the world’s largest crude reserves, but has seen its oil industry crumble amid mismanagement, corruption and a lack of investment.

Venezuela’s crude output fell to 1.2 million b/d in July, according to the latest S&P Global Platts OPEC production survey.

In 2007, the Venezuelan government expropriated assets from international companies that operated light, medium, heavy and extra-heavy crude fields under contracts signed in the 1990s.

***

Venezuela Aims To Boost Oil Output By 640 Mb/d

(OilPrice.com, Tsvetana Paraskova, 30.Aug.2018) — Venezuela’s state oil firm PDVSA has said that it signed a US$430 million joint service agreement with seven companies that would help it increase its crude oil production by 641,000 barrels per day.

The companies will help PDVSA to raise production at wells at the oil fields Arecuna, Sanvi Guere, Orocual, Dación, Jusepín, Franquera-Moporo, and Carito – Pirital, the state firm said in a statement.

Currently, the 14 wells where Venezuela will look to boost production pump 384,000 bpd, Oil Minister Manuel Quevedo said, adding that “we have the opportunity to raise production by 641,000 bpd,” and hailing the agreement as “the beginning of a new era at PDVSA.”

This is not the first time that Venezuela has claimed it has grand plans to boost its production. Quevedo said last month that he had discussed plans with PDVSA to raise the country’s crude oil production in the second half of the year.

Venezuela is suffering the worst loss of oil production in history amid an unprecedented economic collapse, years of mismanagement and underinvestment in the oil industry, an aggravating humanitarian crisis, and a leader who is hell-bent on clinging to power. Venezuela’s inflation will surge to a staggering one million percent by the end of this year as the country with the world’s biggest oil reserves remains stuck in a profound economic and social crisis, the International Monetary Fund (IMF) predicts.

Venezuela’s collapse, alongside U.S. sanctions on Iran, have been putting upside pressure on oil prices for months, and is expected to continue to do so, as analysts don’t see an end to the crisis in sight.

According to OPEC’s secondary sources, Venezuela’s oil production in July dropped to below the 1.3-million-bpd mark—at 1.278 million bpd, plunging 47,700 bpd from June. This compares with an average of 2.154 million bpd in 2016, and an average of 1.911 million bpd in 2017.

Some analysts expect Venezuela’s production to fall to below 1 million bpd by the end of this year.

***

Trinidad: Crouching Tiger

Trinidad and Tobago Prime Minister Keith Rowley and Venezuela’s President Nicolas Maduro during the Dragon gas signing event in Caracas. Photo: PDVSA

(Trinidad and Tobago Newsday, Kiran Mathur Mohammed, Camille Moreno, 30.Aug.2018) — The Dragon gas deal signed last Saturday is worth celebrating. The clink of glasses will be heard in boardrooms in both countries. The government deserves it for getting this far, amid the chaos in Venezuela, and the spectre of international sanctions.

At least one senior banker I’ve spoken to noted that the agreement rings hollow for Venezuelans on Maduro’s Twitter feed who mocked the grand signing ceremony, as thousands of hungry and desperate refugees flee to Trinidad. Instability there may still upset the deal’s execution, and could result in costly penalties if supply is ever interrupted. That said, there is much to be hopeful about.

Another energy executive reckons that this could eventually lead to Venezuela exporting its onshore gas (currently being flared off and wasted) to Trinidad: improving efficiency and the environment. It could even lead to discussions on how we can help the refugees coming to TT, and seriously engage with Venezuela on human rights.

We are massively short of gas. It may sound strange, given that we export it and the world is awash with the good stuff. Gas is firstly used in Trinidad to generate power. Then, almost all the rest is liquefied and exported. What remains is used as “feedstock” for the plants in Point Lisas that produce chemicals that are exported, mainly for fertiliser. The energy producers have locked-in contracts that mean that almost all of our gas is exported.

When we were producing enough and earning tax dollars, this was a good deal. But our gas production has been in continual decline. There isn’t enough gas to satisfy local and external demand. Since the multinational energy companies make more money exporting gas than by selling it locally, this means that the plants in Point Lisas end up starved of gas. Some have shut down and sent home hundreds of workers. To help plug this shortage, and boost revenues, the government aims to pipe in gas from the Dragon field in Venezuela’s waters.

The celebration has been earned. But back to work. We won’t see first gas from the Dragon field until 2020. Moreover, as an energy executive pointed out, the gas is coming from Venezuela and will not be directly subject to our petroleum taxes – unlike gas produced from Trinidad waters. No doubt this is one of the reasons the energy companies are so keen to sign up. The Dragon field will also produce just 150 million cubic feet of gas per day, compared to our average current consumption of 3.46 billion cubic feet per day. And this is consumption with a number of mothballed plants. So, what can we do quickly?

It turns out that energy efficiency – once laughed at in a country with gas to burn – could be one additional way forward. Our lumbering power plants, partially owned and operated by multinational corporations, are ripe for investments in efficiency – and the operators have said so themselves. Powergen alone could save up to US$45 million a year in gas if it invested US$80 million to make their plant more efficient. This is according to both the National Gas Company (NGC), and youth-led non-profit IAmMovement’s co-founder Jonathan Barcant. This gas could be freed up for our chemical industry – allowing it to bring back workers. The numbers get even more impressive if renewable energy or LED bulbs are considered as gas saving alternatives.

With numbers like that, why haven’t they done it already?

The answer lies in the incentives embedded in the power-purchase agreements signed between the TT Electricity Commission (TTEC), the government and the international power operators. TTEC pays the generators by capacity (the amount of electricity they are able to produce) instead of by the amount of electricity they actually produce.

At the same time, TTEC guarantees and pays for the gas supply to the power plants. And in practice, TTEC hasn’t actually paid for any of the gas it receives from NGC.

So Powergen doesn’t benefit by investing in more efficient plants, even though the country as a whole would save money.

If an agreement was signed that allowed Powergen to benefit from investments in energy efficiency: this would be a win-win. Powergen would boost its bottom line, have a better operating plant, and (yes) reduce polluting carbon emissions.

Gas would be freed up for the downstream chemical plants, and NGC would benefit by finally getting paid. Most of all, the workers and engineers worried in their houses in Couva and Freeport could breathe just a little easier.

Kiran Mathur Mohammed is a social entrepreneur, economist and businessman. He is a former banker, and a graduate of the University of Edinburgh.

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The Latest Episode in the Crystallex-Venezuela Saga

(Mining.com, Valentina Ruiz Leotaud, 29.Aug.2018) — State-owned Petróleos de Venezuela SA or PDVSA announced on Twitter that it filed an appeal requesting that a Delaware court vacate a decision made public on August 23 granting Canadian miner Crystallex the right to seize its U.S. assets.

In its statement, the oil company said it had filed a petition on Friday, August 24, 2018, to the 3rd U.S. Circuit Court of Appeals. The petition is to direct the Delaware District Court to acknowledge it had been “divested of jurisdiction with respect to PDVSA and its property.”

The petition refers to a decision made on August 9, 2018, by U.S. District Judge Leonard Stark in the eastern U.S. state. Stark approved a request by Crystallex to attach shares in PDV Holdings, a U.S. subsidiary of PDVSA that indirectly controls refiner Citgo.

Citgo owns three refineries in Louisiana, Texas and Illinois, as well as other assets that have been valued between $8 billion and $10 billion.

With this move, Crystallex is aiming at collecting a $1.4-billion-award in compensation following a decade-long dispute over Venezuela’s 2008 nationalization of its gold mine in the southern Bolívar state. The amount is comprised of $1.2 billion plus $200 million of interest awarded by a World Bank arbitration tribunal in 2016.

If PDVSA’s appeal does not proceed, the Nicolás Maduro government could be forced to comply to Crystallex’s demands.

The Canadian firm has accused the Nicolás Maduro government of performing “fraudulent transfers” to avoid paying what it owes. Among those transactions, Crystallex has cited the payment of dividends from PDV Holding to PDVSA for $2.2 billion and the issuance of 49.9% of Citgo’s shares to secure a $1.5 billion loan granted by Russian giant Rosneft in 2016.

A lawsuit introduced by the miner against such asset transfers by Citgo was initially dismissed in January 2018, but the Toronto-based company requested a new hearing.

Nevertheless, PDVSA’s lawyers have argued that Crystallex cannot seize the holding company’s shares because it doesn’t have proper grounds for suing in the U.S. and because it couldn’t show the unit was the Venezuelan company’s “alter ego.”

In November 2017, Crystallex and Venezuela agreed to settle the dispute before Ontario Superior Court Justice Glenn Hainey. However, the deal did not resolve the fight over the $1.2 billion award because the cash-strapped South American country did not honour its payments.

With files from Reuters, Bloomberg, El Universal.

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CITGO Awards Grant, Continues Restoration Work

(Citgo, 29.Aug.2018) — Through the CITGO Caring for Our Coast initiative, a program designed to boost ecological conservation, restoration and education, The Conservation Foundation (TCF) has been awarded a grant to continue its restoration work in the Heritage Quarries Recreation Area (HQRA) in Lemont.

In partnership with TCF and the Village of Lemont, the CITGO Lemont Refinery has been funding semiannual projects and working alongside local volunteers in the HQRA since the fall of 2014, removing invasive plant species and brush, and harvesting native species’ seeds for replanting.

Located half a mile east of downtown Lemont, the HQRA is situated among thousands of acres of forest preserves, which includes more than 65 miles of hiking and biking trails, as well as access to fishing and boating along the I & M Canal and the Consumers, Great Lakes and Icebox Quarries.

According to Scott LaMorte, senior advancement officer at TCF, the transformation of the HQRA, in just four years, has been remarkable.

“During a community workday last year, my group was assigned to clear a section near the picnic grove. After cutting out some of the weedy shrubs, we uncovered a pond that hadn’t been seen in decades! The ‘before’ and ‘after’ photos are just incredible,” said LaMorte.

Dennis Willig, Vice President and General Manager of the CITGO Lemont Refinery, describes the HQRA project as neighbors-serving-neighbors.

“We are proud to partner with the local community, because not only are natural resources being preserved, but residents will be able to enjoy the benefits of this outdoor recreational space for years to come,” said Willig.

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Carolyn Wants Details on Dragon Gas Deal

(Trinidad and Tobago Newsday, Sean Douglas, 28.Aug.2018) — Four questions have been posed by Congress of the People leader and former energy minister Carolyn Seepersad-Bachan over the Dragon gas deal signed on Saturday between the leaders of TT and Venezuela.

“Whereas the government may not be able to publicly state the agreed price for gas produced from the Dragon field, it ought to provide details on the pricing formula and other emerging issues related to this project,” she said in a statement yesterday.

Saying the field will boost this country’s gas supply for both liquefied natural gas (LNG) and the petrochemical sectors, she said each use of gas is priced separately.

“In the case of LNG, the price at the well-head is determined based on the net back pricing formula, and in the case of the petrochemical sector NGC’s (National Gas Company’s) re-sale prices are linked to international commodity prices.

“If the same approach is not applied to the pricing of the Dragon gas, the NGC is at risk of its sale price being lower than its cost price thus incurring huge losses.”

Secondly, Seepersad-Bachan asked what is TT’s obligation to the special purpose vehicle (SPV), formed with Shell and PDVSA to build a 30 kilometre gas pipeline for US$100 million.

“What is the percentage holding of NGC in this SPV as this will dictate capital investment required for this project? Additionally, at what point does fiscalisation occur?”

Thirdly, she wondered about the deal in light of the current state of affairs in Venezuela. “Has the Government taken into consideration the geopolitical risks, which significantly impact on the viability and reliability of this project?” Would future governments of Venezuela honour this deal to supply gas at the agreed pricing?

If not, the NGC and the citizens of TT would bear the full cost of lost revenue for ALNG and petrochemical companies, Seepersad-Bachan said. “In addition, the literature is replete with examples of expropriation of assets in the Venezuelan energy sector. This places the US$100 million investment at risk should such an event occur. The Government and the NGC must openly indicate to the citizenry how they intend to mitigate these risks.”

She said answers to these questions will show whether this is “a theoretical dream or an implementable reality.” Seepersad-Bachan alleged Energy Minister Franklin Khan had erroneously likened the Dragon project (which fully lies within Venezuelan territory) to the Loran Manatee project which is a cross-border field.

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Venezuelan Oil Port Working Partially After Collision

(Reuters, Marianna Parraga, 28.Aug.2018) — Venezuela’s main oil port of Jose is operating partially following a weekend tanker collision that halted one of its three docks, curtailing state-run PDVSA’s ability to export upgraded crude and receive imported diluents, three sources with knowledge of the incident said on Tuesday.

PDVSA has been struggling this year to deliver exports on time to most customers due to falling oil output, legal actions by creditors aimed at seizing overseas assets and U.S. sanctions. In July, the country’s crude production fell to its lowest level in over 60 years.

Crude exports from Jose were running earlier this year at about 900,000 barrels per day (bpd), according to Thomson Reuters data. Some 60,000 bpd of naphtha imports, which is used to dilute Venezuela’s extraheavy crude for export, also are received at the terminal.

The collision shut the South dock, one of Jose Offshore Platform’s three oil berths – East, West and South – and two monobuoy systems, used to ship crude from the Orinoco Belt, Venezuela’s main producing region, and to discharge imported diluents. The South dock was refurbished in 2016.

“Jose’s East and West docks are totally busy. Each VLCC (Very Large Crude Carrier) takes up to five days to load. There is not extra capacity for discharging naphtha imports and more upgraded crude exports there,” one of the sources said.

PDVSA did not immediately reply to a request for comment.

PDVSA’s upgraded crude, produced at four upgraders that convert Venezuela’s extraheavy oil into lighter grades, is mainly exported to the United States, a market that has seen a 26-percent decline in imports of Venezuelan crude this year, according to Thomson Reuters Trade Flows figures.

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Venezuela Gas Price Deal Competitive—Khan

(Trinidad Guardian, 27.Aug.2018) — Government is giving no details on the pricing structure this country will pay for gas from the Dragon Field under the agreement signed with Venezuela on Saturday, but Energy Minister Franklin Khan is assuring that the pricing structure agreed to was competitive and followed “months of negotiation, serious intervention, serious sharing of information and serious sharing of economic models, to come up with an appropriate gas price”.

Speaking during a press conference at the Hyatt Regency in Port-of-Spain, yesterday, Khan said, “It is no cheap gas. It is competitively priced gas and is obviously no secret Dragon deal.”

Khan said Venezuela has the largest oil reserves in the world, larger than Saudi Arabia, Russia and the United States and has the fifth largest gas reserves in the world, which this country can benefit from.

“It’s a win-win situation, especially since we in Trinidad face challenges on the supply side,” he said.

T&T, he said, also has world-class gas infrastructure through which Venezuela can monetise its gas.

“This provides an ideal opportunity for Trinidad and Venezuela. If I can say so, I think it is a marriage made in heaven,” Khan said.

Khan said he took “umbrage” with the way the media reported on the deal signed in Caracas on Saturday by Prime Minister Dr Keith Rowley and Venezuelan President Nicholas Maduro, as he dismissed a report in another daily newspaper that under the deal the T&T Government would be buying the gas at a mere US$1 per MMBTU. Khan said that was simply trying to create mischief by telegraphing to the Venezuelan people that the government was selling “cheap gas to Trinidad and Tobago”. However, he said the price being paid was substantially more.

Both countries, according to Khan, have benefitted, as T&T could import the gas, process it into LNG and for downstream petrochemicals “and still make a profit and it is a price acceptable to the Venezuelans to get a good monetary return for the resources they own.”

Khan said when Rowley was asked by T&T Guardian journalist Curtis Williams about the price, “Dr Rowley said these gas prices are subject to strict confidentiality clauses. However, he took the liberty to say the prices are very competitive and in some cases lower than what we are paying to domestic upstream producers in Trinidad and Tobago”.

He said it was widely known in the energy sector that “the commercial terms of gas sales agreement are subject to the strictest confidentiality clauses”. As he revealed that he could not even answer a question in the Parliament on pricing when asked some time ago, he said because of the confidentiality clause.

“No government past or present, UNC or PNM, has ever made known to the public any negotiated price of gas,” Khan said.

The PM did, however, reveal that under the agreement the volume of gas to be provided will be 150 million cubic standard feet per day with an option to go to 300 million standard cubic feet per day.

On Saturday, Rowley and Maduro signed two documents – a base term sheet for the Dragon Gas deal which set out the commercial term for the gas sales agreement, including volume and price, which was signed by the Venezuelan state oil company PDVSA, Shell as the private investor and the National Gas Company.

Another agreement was signed where both governments committed to the implementation of the project and to see it to finality. Khan said while it was a cross-border relationship with Shell, PDVSA and NGC, “at its most fundamental level it is a government to government arrangement”. He said the gas deal had the effect of securing “a long-term symbiotic relationship with Venezuela”.

He said it was a pricing model and template to allow them to move forward with other fields, including the Loran Manatee, which was the first cross-border project identified between the two countries more than a decade ago.

The Loran-Manatee field contains in excess of 10 trillion cubic feet of gas with 7.3 TCF on the Venezuela side and 2.7 TCF on the Trinidad and Tobago side of the border. Khan said Maduro suggested and PM Rowley agreed “we should develop agreements for the production of Loran Manatee.”

***

Dragon Gas Deal May Be ‘Political Gimmicks’

(Trinidad and Tobago Newsday, Richardson Dhalai, 26.Aug.2018) — The Dragon gas deal may be “public relations and political gimmicks” which may not benefit TT.

That’s the view of Pointe-a-Pierre MP David Lee who, in a media release yesterday, cited the 2016 trade deal between TT and Venezuela saying some local manufacturers had not yet been paid for goods which had been delivered to the South American nation.

On Saturday, Prime Minister Dr Keith Rowley and Venezuela’s President Nicolas Maduro shook hands to seal the deal that will see TT for the first time processing Venezuelan natural gas.

However Lee, in his statement, said recent public statements by the TTMA have indicated that “some manufacturers have not yet been paid for goods delivered to Venezuela which formed part of a trade deal fostered between the governments of our nation and Venezuela in 2016.”

He said this is not only proof of government’s “failed commitment” to the manufacturing sector but also “signs of a government which continues to abandon its responsibility of protecting our nation’s economic framework.”

“We in the Opposition were always concerned with this agreement given the economic hardship being experienced by the Venezuelan Government as well as this Government’s track-record of incompetence.” Lee said several questions had been directed to the Trade and Industry Minister Paula Gopee- Scoon in the Parliament but she had “on each occasion would respond by saying that some payments were still being received for shipped goods.”

“It is therefore unacceptable and irresponsible that over one year since these questions were first posed and over two years since goods were first shipped to Venezuela manufacturers have not been adequately compensated.”

He said the trade deal was a “government to government initiative” and questions have to be asked why the minister failed to take a trade delegation to Venezuela to address the issue.

“Did Government, knowing that Venezuela would not be able to keep its financial commitment just use our manufacturers as a bargaining tool to gain access to Venezuelan natural gas? They called the Opposition Members unpatriotic when we questioned these deals however the issues presently surrounding these non-payments demonstrate why the Opposition did so. Therefore our nation must remain vigilante and find no comfort in the signing of the Dragon Gas Deal which took place yesterday in Venezuela as this could be all about Public relations and political gimmicks as was seen with this trade deal.”

***

Five Things About T&T, Venezuela’s Dragon Gas Deal

(Loop News, 26.Aug.2018) — On August 25, 2018, an historic agreement was made between Prime Minister Dr Keith Rowley and Venezuelan President Nicolás Maduro for access the Venezuela’s Dragon Field.

Source: PDVSA, Venezuela’s Ministry of Petroleum

Here are five things to know about the Dragon field gas deal:

  1. Dragon will produce 150 million cubic feet per day

The Dragon field, part of the Mariscal Sucre offshore gas project, is projected to produce an estimated 150 million cubic feet per day of natural gas from four wells. The Dragon Field contains approximately 2.4 trillion cubic feet of natural gas.

The Mariscal Sucre Dragon and Patao fields, located in water depths between 328-427 feet (100-130 metres), are situated nearly 25 miles north of Venezuela’s Paria peninsula in Sucre state.

It’s expected that production from Venezuela’s four fields which comprise the Mariscal Sucre project – Mejillones, Rio Caribe, Dragon and Patao – will reach 1.2 billion cubic feet per day of natural gas and 28,000 barrels per day of condensates, and will be directed primarily toward export.

  1. Gas to be transported via 30km gas pipeline

The gas will be transported to the Hibiscus platform off the north-west coast of Trinidad, just 18 kilometres from the gas field. Hibiscus is jointly owned by the T&T government and Shell.

The project involves the construction of a 30km gas pipeline – construction of pumping stations, metering systems and related facilities, the laying of gas pipelines, and the installation of safety and control systems.

In March 2017, Shell signed an agreement with NGC and PDVSA to build a 17km pipeline from the Dragon Gas Field to Hibiscus platform.

  1. PM says details ‘confidential’

Details of the deal are ‘confidential’, according to Dr Rowley, but he said the agreed-upon price was ‘competitive’.

  1. Dragon’s gas to be used for T&T products

In the first phase, the gas from the Dragon will boost the country’s gas supply for both the LNG and the petrochemical sectors. T&T plans to expand domestic gas production to 4.14 Bcf/d by the end of 2021.

  1. Dragon project to cost approximately US$100 million

The project will cost an estimated US$100 million, according to media reports. First gas from Dragon is expected in 2020.

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PDVSA, Citgo Evaluating Aruba Gas Plan

(Energy Analytics Institute, Piero Stewart, 25.Aug.2018) — Venezuela is evaluating a plan to implement a natural gas project with Aruba.

Officials from Venezuela’s state oil company PDVSA, and its refining arm Citgo Petroleum Corporation continue to evaluate the potential of such a project that would imply a gas interconnection between Venezuela and Aruba, reported PDVSA in an official statement.

No further details about the plan were revealed by PDVSA.

***

Aruba’s San Nicolás Refinery to Take Faja Oil

(Energy Analytics Institute, Piero Stewart, 25.Aug.2018) — Valero’s old Aruba refinery will be revitalized as an upgrader.

PDVSA announced the San Nicolás Refinery located in Aruba will be converted into an upgrader in order to process extra-heavy oil from Venezuela’s Hugo Chavez Orinoco Heavy Oil Belt, also known as the Faja.

Citgo Aruba Refinery. Source: PDVSA

The upgrader will have capacity to process 200,000 barrels per day, reported PDVSA in an official statement.

Venezuela — the country with the world’s largest oil reserves, and reeling in political, economic and humanitarian crises and suffering from the world’s highest inflation – continues to struggle to stop oil production declines. The country’s refineries and upgraders continue to suffer from a lack of investment, among other issues that continue to affect the OPEC country’s oil patch.

No further financial details related to refinery conversion were revealed by PDVSA.

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Venezuela to Send Dragón Gas to Trinidad

(Energy Analytics Institute, Piero Stewart, 25.Aug.2018) — Venezuela will send its Dragón field natural gas to Trinidad for processing.

That’s according to a deal signed today in Caracas between the governments of Trinidad and Tobago and Venezuela, reported Venezuela’s Ministry of Petroleum in a series of tweets. The countries were represented by Prime Minister Dr. Keith Rowley and President Nicolas Maduro, respectively.

The deal calls for construction, operation and maintenance of a 16-inch diameter submarine gas pipeline that will span 15 kilometers from the Dragón field in Venezuela to the Hibiscus field in Trinidad and Tobago.

Companies involved in the pipeline project include: PDVSA, National Gas Company of Trinidad and Tobago (NGC), and Shell Trinidad and Tobago Limited.

Gas from Venezuela will be used in Trinidad and Tobago to feed the twin-island country’s LNG plant and potentially other industries.

However, it’s still unclear what initial production will look like or when the pipeline will be online.

Venezuela’s National Assembly has not approved the gas agreement. However,  under Venezuela’s gas laws, no approval is needed to move forward with negotiations such as those signed today.

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Trinidad and Venezuela to Sign Gas Agreement

(CMC, 24.Aug.2018) — Prime Minister Dr Keith Rowley will lead a delegation to Venezuela tomorrow to sign an agreement for the development of the across border gas from the Venezuelan Dragon Gas Field, according to an official statement issued here.

The statement from the Office of the Prime Minister noted that the signing of the terms of the agreement will be between the National Gas Company (NGC), the Venezuelan NGC, Shell, and the Venezuelan state-owned oil and natural gas company, Petróleos de Venezuela, SA (Petroleum of Venezuela).

The agreement was originally scheduled to have been signed here on Wednesday, but the statement said the accord will be signed in caracas on Saturday.

“This was requested and acceded to due to the concerns about the earthquake,” the statement said, in reference to the 7.0 earthquake that rocked both Venezuela, Trinidad and Tobago, and other Caribbean countries on Tuesday evening.

The Dragon Field is located within Venezuela’s maritime territory, just off the north-west coast of Trinidad. It is close to the Hibiscus platform, jointly owned by the Trinidad and Tobago government and Shell.

Shell is also the operator of Dragon. The deal will hopefully see Venezuelan gas from Dragon transported to Hibiscus and then to Point Fortin, where Atlantic will turn it into liquefied natural gas.

“That’s the plan we’ve been working on for the last three months,” Rowley told reporters here in April.

Shell is also the helping the government develop and process gas from Loran-Manatee, which is off the south-east coast of Trinidad, and spans the maritime borders of Venezuela and Trinidad and Tobago.

The Loran-Manatee field has an estimated 10.25-trillion cubic feet of gas of which roughly 74 per cent belongs to Venezuela, with 26 per cent belonging to Trinidad and Tobago.

***

Rosneft May Challenge Crystallex Claim To Citgo Shares

(Oilprice.com, Irina Slav, 23.Aug.2018) — Rosneft has asked a U.S. federal court to establish “a robust appraisal and sale process” of Citgo shares following Canadian miner Crystallex’ win at court against the parent company of Citgo, PDVSA, Argus Media reports citing documents submitted by Rosneft to court.

“Such a course of action is particularly appropriate under the circumstances given the multitude of parties and interests potentially affected by a sale of PdVH,” the documents said.

Crystallex was ruled the winner in a long-running case against Venezuela, which it has sued over the forced nationalization of its assets by the Hugo Chavez government. A U.S. federal judge last week awarded the miner the right to approach Venezuela’s U.S. oil unit, Citgo, to seek its compensation of US$1.4 billion.

Yet the Russian state company has priority rights over 49.9 percent in Citgo. PDVSA used the stake as collateral for a US$1.5-billion loan provided by Rosneft in 2016. The move at the time sparked a lot of negative comments in the United States, with some legislators worried that Rosneft could at some point take control over the U.S. company. The rest of the Citgo stock has been pledged as collateral to a PDVSA bond issue that matures in two years, Argus Media notes.

Now Crystallex wants to take control over the refiner, which operates a refinery network with a daily capacity of 750,000 bpd, and then sell the stock on to another investor or investors to get its US$1.4 billion. The sum was awarded to the Canadian miner as compensation for the forced nationalization of its operations in Venezuela by the Hugo Chavez government.

At the time, the Associated Press noted that the ruling by Chief Judge Leonard P. Stark is unique: government assets such as Citgo’s parent, PDVSA, are as a rule protected from lawsuits targeting a state. Yet in Stark’s ruling, the judge said that Venezuela had blurred the lines between the government and the state oil firm, with a military official at the helm of PDVSA.

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Exec Pleads in $1.2 Bln Venezuelan Money-Laundering scheme

(AP, 22.Aug.2018) — A former Swiss bank executive has pleaded guilty to his role in a $1.2 billion money-laundering scheme involving Venezuela’s state-run oil and natural gas company.

Federal court records show that 44-year-old Matthias Krull pleaded guilty in Miami federal court on Wednesday to conspiracy to commit money laundering. The German national and Panamanian resident is scheduled to be sentenced Oct. 29.

Authorities say the scheme began in 2014 with bribery and fraud at the state-run PDVSA oil and gas enterprise and grew over time. A criminal complaint contends the scheme involved members of the Venezuelan elite, money managers, brokerage firms, banks and real estate investment firms.

Krull acknowledged joining the conspiracy in 2016. Officials say Krull and others used Miami real estate and sophisticated false-investment schemes to conceal the embezzled money.

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Oil Workers Support Maduro’s Economic Plans

Venezuelan oil workers march thru the streets of Caracas. Source: PDVSA

(Energy Analytics Institute, Ian Silverman, 21.Aug.2018) — Oil workers at state oil company PDVSA marched in Caracas and across the country to show their continued support of Venezuela’s President Nicolás Maduro in the aftermath of recent economic announcements by the official.

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Dragon Gas Deal Finalised Tomorrow

(Trinidad and Tobago Newsday, Carla Bridglal, 21.Aug.2018) – After nearly two years of negotiations between this country and Venezuela the deal that will allow TT to process gas from the Dragon gas field is expected to be finalised tomorrow.

A release from the Office of the Prime Minister (OPM) said the agreement on the final terms for the development of the across the border gas from Venezuela’s Dragon gas field will be signed tomorrow by representatives of the National Gas Company, Venezuela’s state oil company, PDVSA, and Shell, the multinational energy giant with the rights to drill the Dragon field.

OPM said A “high-level Venezuelan delegation” will also participate, along with representatives of the TT Government, to witness this “historic event.”

In late June, Stuart Young, then a Minister of State in the Officer of the Prime Minister, said while discussions were almost complete, price was the main sticking point.

In December 2016, Prime Minister Dr Keith Rowley had visited Venezuela, and along with that country’s President, Nicolas Maduro, signed an agreement that put the plan in motion for TT to process Dragon’s gas.

First gas then was estimated by 2020; that timeline is still on track. Young had given reporters a timeline of 18 months to two years to get first gas here—providing the deal is signed soon.

A special purpose vehicle between multinational energy giant Shell and the National Gas Company (NGC) has been created to lay down the infrastructure; Shell’s pipelines, including those in the North Coast Marine Acreage will be used to transport Dragon’s gas to the Hibiscus platform off the north-west coast of Trinidad and only 18 kilometres away from the gas field.

Hibiscus is jointly owned by the TT government and Shell. The first tranche of Dragon’s production will yield about 150 million standard cubic feet of gas per day (mmscfd), or 26,505 barrel of oil equivalent per day (boed). For comparison,

Petrotrin produces 43,000 barrels of oil per day and 130 mmscfd; bpTT’s Juniper well, which came on stream in the latter half of 2017, produces about 590 mmscfd.

The Dragon field is part of the Mariscal Sucre natural gas complex off the Caribbean coast of Venezuela, north west of Trinidad. That Dragon is just one of the fields in a total acreage reserve of 14.7 trillion cubic feet of gas. Dragon alone contains 2.4 tcf.

***

Venezuela Takes Action To Stabilize Currency

(ZeroHedge, 21.Aug.2018) – As previewed yesterday, on Monday Venezuela officially slashed five zeros from prices and its currency as part of what has been dubbed one of the greatest currency devaluations in history which slashed the value of the official bolivar by 95 percent, an overhaul that President Nicolas Maduro said would tame hyperinflation, and which everyone else called the latest desperate failed socialist policy that will push the chaotic country deeper into crisis and unleash even higher hyperinflation (impossible as that may sound: as a reminder the collapse of Venezuela’s currency recently surpassed the Weimar republic).

Venezuela’s President Nicolas Maduro ordered a 96 percent currency devaluation, pegged the bolivar currency to the government’s petro cryptocurrency and boosted taxes as part of a plan aimed at pulling the OPEC member out of its economic tailspin.

As part of the devaluation, the official rate for the currency will go from about 285,000 per dollar to 6 million and together with salaries and prices, will be pegged to the Petro cryptocurrency, which is reportedly backed by crude oil and is valued by the government at $60, or 3,600 sovereign bolivars. The Petro will fluctuate and be used to set prices for goods.

Government officials tried to partly mask the shock by raising the minimum wage 3,500 percent so instead of the new minimum wage being 1.8 million strong bolivars, it will be 1,800 sovereign bolivars: the equivalent of $30 a month. Banks were closed and busy trying to adopt ATMs and online platforms to the new currency rules; they will likely fail.

Less discussed was the concurrent increase in the value added tax by 4 percent, while officials also ended some gasoline subsidies, saving the government $10 billion a year, as many ordinary citizens are forced to switch from subsidized to western fuel prices.

Even though Maduro boasted in Friday night’s announcement that the IMF wasn’t involved in the policies, aspects of the moves bore a resemblance to a classic orthodox economic adjustment, even if those usually involve removal of the corrupt regime whereas Maduro is only becoming more entrenched. Meanwhile, most economists said the plan announced on Friday will escalate the crisis facing the once-prosperous country that is now suffering from Soviet-style product shortages and a mass exodus of citizens fleeing for nearby South American countries.

As Bloomberg notes, the symbolism of announcing the drastic measures on a Friday night wasn’t lost on many Venezuelans. In 1983, President Luis Herrera Campins devalued the bolivar for the first time in 22 years after oil prices crashed. The day became to be known locally as “Black Friday.”

When in 1989 Venezuela raised gasoline costs, lifted foreign-exchange controls and let the currency plunge, prices soared 21 percent in one month alone, leading to riots known as the “Caracazo” that killed hundreds and eventually paved the way for Chavez’s rise to power.

There were no riots – or celebrations – on Monday, however: streets were deserted, and shops were closed due to a national holiday that Maduro decreed for the first day of the new pricing plan for the stricken economy, which the International Monetary Fund has estimated will have 1 million percent inflation by year end. Venezuela is already well on its way: according to the Bloomberg Cafe Con Leche index – which tracks the price of a cup of coffee – inflation in Venezuela has hit an annual inflation rate of 108,596 percent.

In many ways the devaluation is a mere formality. For years now, most people and companies have been unable to access dollars at government-set rates and have been purchasing them in the black market. As a result, the prices on many goods across the country are already based on that exchange rate.

“They had to do this because they ran out of money,” Moises Naim, a fellow at the Carnegie Endowment and a former minister in Venezuela, said from Washington. He pointed out that oil production — pretty much the country’s sole industry at this point — has plummeted in recent years amid a shortage of equipment and technical expertise, foreign reserves have plummeted and allies such as China and Russia are providing less support.

As for ordinary Venezuelans they were mostly baffled by the monetary overhaul and skeptical it will achieve anything. “This is out of control, prices are sky high,” said Betzabeth Linares, 47, in a supermarket in the central city of Valencia. “What worries me is how we’ll eat, the truth is that the way things are going, I really don’t know.”

Most local businesses were shocked by the announcement: the new measures spooked shopkeepers already struggling to stay afloat due to hyperinflation, government-set prices for goods ranging from flour to diapers, and strict currency controls that crimp imports.

Private companies, already dealing with hyperinflation, years of brain drain, price controls and threats of seizure, now must deal with even faster inflation and mandatory wage hikes. It’s also possible that the exodus of Venezuelans to other countries will increase, even as Ecuador and Peru announced entry restrictions and tensions flared along the border with Brazil.

“People are leaving because of a feeling of despair, and the desperation will now increase,” Naim said.

But the biggest question is how the military, without whose support Maduro will be swept from office overnight, would react. It was not immediately clear how the shock measures will sit with the local military which already runs much of the nation. Top ranking generals have been handed the keys to ministries, the state-run oil company and the lucrative business of food imports. Myriad exchange rates created juicy arbitrage opportunities that enriched many close associates of the state.

“Clearly this will hit Maduro’s popularity, but power is being sustained with bullets and not with votes,” Naim said. “As long as the military continues to have access to lucrative businesses it will continue to grant support to the government.”

For now there is little hope that the official opposition, a fragmented group of parties whose leaders are either in hiding or in jail, can stir a popular uprising: Together with several labor unions, the opposition called for protests against the measures Tuesday as well as a 24-hour national strike. It was not immediately clear if anyone turned up.

Maduro, who was re-elected to a second term in May in a vote many said was rigged, has said his government is the victim of an “economic war” led by political adversaries with the help Washington, and accuses the United States of seeking to overthrow him. While the U.S. has denied the accusations, it has described the former bus driver and union leader as a dictator and levied several rounds of financial sanctions against his government and top officials.

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Magnitude 7.3 Quake in Venezuela Felt in Guyana

U.S. Geological Survey (USGS)

(Stabroek News, 21.Aug.2018) – A powerful earthquake has hit the northern coast of Venezuela with a magnitude of 7.3, according to the U.S. Geological Survey. It had been originally reported as a 6.8 event but this has since been upgraded to 7.3.

Reuters reported that the quake, which was centred near the town of Guiria, was felt as far away as the capital, Caracas, where it shook buildings, witnesses said.

According to Reuters, the U.S. Pacific Tsunami Center said the quake, which was fairly deep, could cause small tsunami waves along the coast near the epicenter, 23 miles (37 km) southwest of the town of Carupano.

A magnitude 7.3 quake is considered major and is capable of causing widespread, heavy damage, but the quake was 76.5 miles (123.11 km) deep, which would have dampened the shaking.

The Trinidad Express this afternoon said that reports are beginning to come in of widespread damage and destruction on the twin-island republic

Buildings have sustained structural damage, cars have been flattened by falling concrete and supermarkets are reporting losses, the Express said.

There is also significant loss of telecommunication being reported, the newspaper report added.

Strong tremors were felt in Georgetown and surrounding areas around around 5.30 this afternoon.

Guyanese have begun reporting their experiences with the tremor. There are reports that it was felt severely in the northwest of Guyana which is much closer to the epicentre of the earthquake.

East Bank Demerara residents reported feeling the walls of their homes moving as well as trees and power lines swaying.

In Georgetown, some buildings shook and residents streamed into the streets but there have been no immediate reports of any damage.

Head of the Civil Defence Commission, Kester Craig said on his Facebook page that there is no Tsunami Warning for Guyana at the moment. The Hydrometeorological Service is monitoring and would provide the necessary updates, he said.

“I feel like I’m about to faint. I’m shaking. It was long,” said telemarketing worker Sheny Fuentes, 22, speaking outside her work building in eastern Caracas told Reuters. “I’m relieved that it doesn’t seem like damage was that bad. We would have been even more affected (given Venezuela’s economic crisis) – there are already people eating from the garbage and buildings aren’t well made,” she told Reuters.

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PDVSA to Resume Use of Caribbean Terminal Under NuStar Deal

(Reuters, 21.Aug.2018) — Venezuela’s PDVSA and NuStar Energy LP have reached an agreement over outstanding storage fees, allowing the state-run company to resume use of a key storage terminal in the Caribbean, the U.S. energy firm said on Monday.

NuStar had suspended PDVSA several times since 2017 from using its St. Eustatius facility over millions of dollars in missed payments.

The terminal played a role in a legal dispute between PDVSA and ConocoPhillips, which earlier this year tried to enforce a $2 billion arbitration award by seizing some of the Venezuelan firm’s assets in the Caribbean.

“We can confirm that we have signed an agreement with PDVSA, which brings their account current,” NuStar spokesman Chris Cho said in an email. “This agreement improves the earnings outlook for our St Eustatius terminal for the remainder of 2018.”

NuStar and PDVSA also signed a new contract that reduces the storage available to PDVSA at the facility, while securing fees for about one year’s worth of storage, he added.

In May, when Conoco started legal actions to seize PDVSA’s assets on several islands where it rents or owns terminals and refineries, over 4 million barrels of Venezuelan heavy crude stored at Statia were temporarily retained under a court order.

Conoco tried to seize the inventory, but the dispute for missing storage fees between PDVSA and NuStar added complications to the case.

In 2017, a similar legal fight between PDVSA and the conglomerate of shipping companies Sovcomflot led to an auction in which an inventory of Venezuelan crude stored in Statia was sold to a trading firm for satisfying a portion of the Russian firm’s claim.

(Reporting by Gary McWilliams in Houston and Marianna Parraga in Mexico City; Editing by Lisa Shumaker and Richard Chang)

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Venezuela’s Oil-linked Cryptocurrency Leaves Heads Spinning

(Bloomberg, Andrew Rosati & Fabiola Zerpa, 21.Aug.2018) — Beaten-down Venezuela on Tuesday began confronting a 95 percent currency devaluation and a regimen of economic controls that, after years of hunger and hyperinflation, landed like a hassle rather than a cataclysm.

Caracas returned to work after a holiday weekend that saw President Nicolas Maduro announce the devaluation and a minimum wage hike of more than 3,000 percent, decisions that were a tacit acceptance of the ubiquitous black-market exchange rate. They accompanied the roll-out of new banknotes that dropped five zeroes to recognize how inflation had made the old money virtually meaningless. Many Venezuelans waited outside banks to get their hands on the new sovereign bolivares after months of living almost cashless.

Jimmy Lugo, 39, a heavy-machine operator, said as he waited to use an ATM downtown that he was paying much as 500 percent markups for legal tender, on which he depends for bus fare. While he doubted the latest economic package would put more food on his table, he hoped it would at least bring temporary relief as the autocratic Maduro is unlikely to leave power on his own.

“This is the only ship there is. Either it floats, or we’re all going down,” Lugo said after collecting his cash.

Yet many fear the reforms will sink a foundering nation still deeper. Inflation is running over 100,000 percent, food and medicine are scarce and citizens are are fleeing by the thousands to neighboring countries. Some have been met with violence.

The Maduro regime is taking measures to quell a rising sense of panic in the nation. The minimum wage will increase more than 3,000 percent. Regulated prices for 50 staples will be announced Tuesday, and the government has begun to pay a “reconversion bonus” to help holders of the official “Fatherland” identification card make ends meet during the transition.

The sovereign bolivar’s value will be linked to a cryptocurrency — believed to be the first time a government has tried such a thing. The Petro is backed by crude oil, and the government sets its value at $60, or 3,600 sovereign bolivars. The Petro will fluctuate and be used to set prices for goods. Still, the cryptocurrency doesn’t trade on any functioning market, Francisco Rodriguez, chief economist of Torino Capital, wrote in a note to clients Monday.

Opposition politicians and unions called a strike for Tuesday, saying the devaluation would deepen suffering. Much of Caracas was working, however, with traffic flowing and many bakeries and supermarkets opened after days shuttered. Still, citizens were befuddled by the head-spinning math of the devaluation, the new currency and the very idea of a bolivar tied to the vaporous Petro.

“They’re going to pay us in cryptocurrency now — Petros? It’s crazy. I have no idea how it will work. We’re barely using bolivars at this point,” said Jose Bastida, a 58-year-old maintenance worker waiting outside a bank in central Caracas.

Maduro’s plan was “marked by inconsistencies and was short on specifics, suggesting that any attempt to stabilize the economy would start out facing huge credibility problems,” Rodriguez from Torino Capital wrote.

Private firms are “in serious risk of bankruptcy due to the way in which the measures are being implemented,” Fedecamaras, the nation’s main business chamber, said in a statement Monday. The president’s announcements foster “uncertainty, are improvised and undebated and are not being correctly communicated.”

Death Drones

Maduro’s gambit follows years of policies that turned what had once been one of Latin America’s wealthiest countries into a basket case. Pressure is mounting, with new calls for the socialist’s overthrow five years after he succeeded the late Hugo Chavez. This month, Maduro cracked down anew on his opponents after an attempt to kill him using aerial drones laden with explosives.

The announcement of the measures on a Friday night was a historical rhyme for many Venezuelans. In 1983, President Luis Herrera Campins devalued the bolivar for the first time in 22 years after oil prices crashed. Citizens called the date “Black Friday.”

Complex Calculations

Across Caracas on Tuesday, many residents said that they were already beginning to feel a rise in prices despite Maduro’s warnings to the private sector.

Marelis Martinez, a 57-year-old administrative assistant, said prices of many essentials like cheese and eggs had already gone up by as much as a third over the weekend.

“This is all a joke; I feel like I’m being laughed at,” Martinez said. “The president can say the minimum wage is worth whatever he wants, but it still won’t be enough to cover a chicken.”

To contact the reporters on this story: Andrew Rosati in Caracas at arosati3@bloomberg.net;Fabiola Zerpa in Caracas Office at fzerpa@bloomberg.net

To contact the editors responsible for this story: Vivianne Rodrigues at vrodrigues3@bloomberg.net, Stephen Merelman

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PDVSA and ConocoPhillips Reach New, Positive Settlement

(Citgo, 21.Aug.2018) — As officially reported by Petróleos de Venezuela, S.A. (PDVSA) and ConocoPhillips, the two companies recently reached a settlement agreement resulting from the nationalization of the Hamaca and Petrozuata projects in 2007.

As background, ConocoPhillips initiated arbitration before the International Chamber of Commerce (ICC), demanding that PDVSA pay approximately $20 billion in return for its assets. This amount was based on the theory that PDVSA should have unlimited liability for the actions of the country. However, on April 24, 2018 the ICC ruled that PDVSA should pay only $1.87 billion, an amount based on the previous association agreements between the two companies.

As a result of the settlement, ConocoPhillips has agreed to suspend its legal enforcement actions of the ICC award, including in the Dutch Caribbean. At the same time, PDVSA will pay approximately 25 percent of the award in the short term and the remaining balance in quarterly installments over the next 4.5 years.

PDVSA confirmed in a statement that it will continue serving both the international and domestic markets. Furthermore, the company affirmed that this agreement reached with ConocoPhillips demonstrates, once again, the firm will of PDVSA to reach commercial solutions with its creditors while continuing to strengthen itself and its commercial operations.

CITGO also continues serving its customers in the United States, and the resolution of this matter helps to ensure the stability in the overall CITGO commercial supply chain. As a leading refining and marketing company, with strong financial and operational performance, CITGO will continue producing and selling quality products and is well positioned for the future.

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Venezuela Agrees to Pay $2 Bln Over Seizure of Oil Projects

(The New York Times, Clifford Krauss, 20.Aug.2018) – More than a decade ago, Venezuela seized several oil projects from the American oil company ConocoPhillips without compensation. Now, under pressure after ConocoPhillips carried out its own seizures, the Venezuelans are going to make amends.

ConocoPhillips announced on Monday that the state oil company, Petróleos de Venezuela, or Pdvsa, had agreed to a $2 billion judgment handed down by an International Chamber of Commerce tribunal that arbitrated the dispute. Pdvsa will be allowed to pay over nearly five years, but as it is nearly bankrupt, even those terms may be hard to meet.

After winning the arbitration ruling in April, ConocoPhillips seized Pdvsa oil inventories, cargoes and terminals on several Dutch Caribbean islands. The move seriously hampered Venezuela’s efforts to export oil to the United States and Asia, and emboldened other creditors to seek financial retribution.

“What they did was choke the exports and made it clear to Pdvsa that the cost of not coming to an agreement would be higher than actually settling on a payment schedule,” said Francisco J. Monaldi, a Venezuelan oil expert at Rice University.

As its oil production has plummeted to the lowest levels in decades, Venezuela has fallen behind on more than $6 billion in bond payments. Pdvsa has already defaulted on more than $2 billion in bonds after failing to make interest payments over the last year, and owes billions of dollars more to service companies.

Adding to Venezuela’s woes, the Trump administration has imposed sanctions that prohibit the purchase and sale of Venezuelan government debt, including bonds issued by the state oil company.

Mr. Monaldi said Pdvsa would be forced to pay ConocoPhillips with money it would have paid other creditors and would probably delay some oil shipments to China it owes in separate loan agreements. He added that “there is not a negligible probability” that at some point it will discontinue payments for lack of money.

Hyperinflation, corruption and growing starvation have crippled the Venezuelan economy, as the socialist government is forced to choose between buying food and medicine and satisfying the demands of creditors. Over the last few days, the government has scrambled to deal with its economic crisis by sharply devaluing its currency, raising wages and promising to shave energy subsidies.

Venezuela has the largest oil reserves in the world. Its crisis has tightened global oil markets at a time when threatened United States oil sanctions against Iran could drive up prices.

The settlement with ConocoPhillips over the 2007 seizure resolves a drawn-out legal struggle, at least for the time being.

“As a result of the settlement, ConocoPhillips has agreed to suspend its legal enforcement actions of the I.C.C. award, including in the Dutch Caribbean,” ConocoPhillips said in a statement.

Pdvsa, which did not comment on the agreement, is to pay the first $500 million within 90 days.

ConocoPhillips is pursuing a separate arbitration case over the same seizure against the government of Venezuela before the World Bank’s International Center for Settlement of Investment Disputes, which could result in another large settlement award, perhaps as high as $6 billion.

That amount would probably be unpayable, experts say, but it could put ConocoPhillips in a strong position to obtain access to Venezuelan oil fields in the future if the current government eventually falls.

Pdvsa’s problems with creditors are far-reaching, putting its American Citgo assets, including three large refineries and a pipeline network, in jeopardy. A federal judge in Delaware recently ruled that Crystallex, a Canadian gold mining company, could seize over $1 billion in shares of Citgo as compensation for a 2008 nationalization of a mining operation in Venezuela.

Citgo is appealing. If it loses, that may open the way for more claims on Citgo assets by companies whose investments have been expropriated in Venezuela, including Exxon Mobil.

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Rafael Ramírez Says Maduro Destroyed PDVSA

(Energy Analytics Institute, Jared Yamin, 19.Aug.2018) – Former PDVSA President Rafael Ramírez says Venezuela produced 3 million barrels per day until December 2013. That figure has dropped by 1.8 million, according to his statements.

“When we were in the revolutionary government of Comandante Chávez, we had fiscal balance and enough income for all social programs, not because the price was 100 dollars a barrel, as the infamous say (we showed that we only had those prices for 4 years, the rest of the years prices were between 22 and 42 dollars a barrel, much less than now), but, precisely, because we charged transnationals and PDVSA all the taxes and royalties without exemptions of any kind. But, in addition, we had oil production of 3 million barrels per day until December 2013,” writes Ramírez in a blog post on Medium.

A PDV petrol station in the once popular Las Mercedes section of Caracas, Venezuela. Prior to its takeover, the station was controlled and run by Chevron Corporation. Source: Energy Analytics Institute (EAI)

“Now, the government has destroyed PDVSA, its production has fallen, in just 4 years (with a dramatic drop since Quevedo entered) to 1.2 million barrels a day due to the inability and irresponsibility of Maduro in the management of oil issues. In PDVSA, we have lost 1.8 million barrels per day, at an average price of 63 dollars per barrel, we are talking about 113.4 million dollars every day, which [is to say] they [have] stopped receiving, 4.139 million dollars a year!,” writes Ramírez, who also served as Venezuela’s Minister of Petroleum, among other posts during the governments of the late President Hugo Chávez and current Venezuelan President Nicolas Maduro, until his departure and rupture with the latter.

“Now, the owners of the petroleum, that’s to say, the Venezuelan citizens, have to pay the international price for gasoline, as if [Venezuela] were not a petroleum country.” — Ramírez

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Cure for Venezuela’s Mercantilism, Rentism Disease

House located in the eastern coastal region of Lake Maracaibo in Venezuela. Source photo: Energy Analytics Institute

(EnergyNomics, Carlos A Rossi, 18.Aug.2018) – Are natural resource endowed countries victims of their own wealth? Is there a richness threshold beyond which the institutions designed to protect a country’s citizens turn against them and become their worst enemy by annihilating their productive apparatus riddling it with the miseries of declining GNP, hyperinflation, unpayable debt, zero investor confidence, poverty, crime, hunger and repression of loss liberty?

This is exactly what has happened to Venezuela, holder of the world’s largest petroleum reserves, and it happened precisely because the oil prices were high. Examination of this paradox renders Rentism its principal culprit.

Rentism is an endemic degenerative fiscal disease that metastasises throughout a nation’s economy because it is a degradation of Rent, a concept first defined by 19th century English Economist David Ricardo to distinguish between “normal profits” produced by the wise employment of capital and labor on land, from “abnormal profits”-or Rents-that are captured due to the bountiful legacy of better fertile land even though this luckier lad is employing the same mix of capital and labor; except at lower costs. Ricardo reckoned that the difference between rent and normal profits, which can be huge, is windfall luck that is captured but never produced.

Rentism occurs when this rent portion is captured by the State, meaning politicians, a common occurrence in institutionally weak-oil rich countries that places politicians too close to unimaginable amounts of money. Rentism produces expensive white elephants projects that are never finished because their sole intent is to pocket its budget in offshore accounts.

By acquiring a life of its own, Rentism at its highest creates crony “state-capitalism”, corruption, bloated invoices, inflated import receipts, vanishing loans, kickbacks, plutocracy, and capital flight. When the commodity price plunges the ill effects of Rentism crystallize in disappearing international reserves, budget deficits, hyperinflation, worthless currencies, unemployment, poverty, commodity dependency, foreign debt, political crisis, etc resulting in a skewed economy within an incapacitated repressive state.

You can think of Rentism as Lupus, a deadly serious autoimmune disease that turns the very defensive mechanisms that your body has designed to protect you (politicians and institutions) into your worst possible enemy.

The following graphs illustrate this.

The first graph demonstrates Venezuela’s Gross Fixed Capital Formation, a measure of capital accumulation, for both the private and state sector between 1950-2012 (Venezuela stopped publishing data in 2015). In the early period 1950-1976, capital accumulation of both Private and State grew in tandem at a vigorous pace of 400% and 900% respectively. During this golden era GNP grew at 6.7% annual average and Inflation never topped 2.5% per annum. Venezuela prospered well.

In mid 1970’s two things happened that forever changed Venezuela’s history for the worst. The 1973 Yom Kippur war quadrupled oil prices showering the State with unprecedented revenues. Then, in 1976 Venezuela’s oil was nationalized passing ownership from Private to the State. To the delight of politicians, this opened the door for explicit rent seeking exigencies from all sectors especially local capitalists and bureaucrats. From then onwards a widening gap between the curves opened favouring State capital accumulation that saw a 210% increase at the expense of Private accumulation, which suffered an 80% decrease lessening to oblivion, close to 1950 levels.

Venezuela’s prosperity turned sour illustrated in the per-capita income behaviour of the second graph, exacerbated ad absurdum by Hugo Chavez’s private property expropriation years of this century. When the Private Sector (national and international) stopped accumulating capital Venezuela’s economy imploded. The political control of Rent is the smoking gun.

We can also say that Rentism pushed Venezuela’s incipient industrial development backward in time to the age of 18th century Mercantilism, the step-stone transition system between Feudalism and Capitalism. Coined by Adam Smith, Mercatilism is State controlled capitalism were the State has the power decision making of which sectors (specifically which companies) get the generous dollar “loans” and to which ends. It was never a formal economic system per se, but rather a set of very adaptable ad-hoc rules which goals was to promote national wealth through strict regulation of private entrepreneurship. Or as Max Webber cleverly defined it: “The Passage of Capitalist Lust into Politics”.

The major difference being that whereas in Adam Smith’s England the State benefited solely from the efficiency of its tax collectors on its crony friends, in Venezuela there is no need for a tax-man because nature’s petrol bounty is already in the hands of the State; meaning that all it has to do is to pick and choose which of its crony clients get the money and what level are the tariff walls to shield them from competition (500% tariffs were common). Kickbacks and crafty graft were and are the price the crony benefactor gracefully paid. This happened in Venezuela during the oil boom of the 1970s and on this millennium’s oil price rack up with the difference that last century graft and distortions lead to some construction whereas in this period graft has meant only destruction of all the productive apparatus, including investor confidence, ethics and PDVSA’s oil machine.

Adam Smith (the finest of the enlightment thinkers), spent many pages debunking mercantilism with his liberalism laissez faire-laissez passer policy; he would have certainly predicted, in both of Venezuela’s experience with rentism the end results to be, in the best of cases: disastrous. Now those French words are to Venezuela as foreign as they sound, and they have been for at least 2 generations and counting.

Solving for Rentism and for Mercantilism is easy: A managing contract with an established multilateral institution with experience in development, like the World Bank and/or the UN´s Food and Agriculture Organization to administer investment of all Rent proceeds under proven criteria.

Problem: Venezuela’s politicians need to make this decision of be forced to make this decision by an international coalition of power that is bent on bringing the opportunity of economic prosperity to its 30+million citizens and of assuring themselves increasing quantities of the Worlds most efficient fossil base energy resource in the planet. Until this happens, Venezuelan citizens will always be victims of their own wealth.

Scrapping Rentism and Mercantilism will not solve all of Venezuela’s problems, which are deep seeded thanks to Chavism; but it will in all certainty go along way into resolving them for good.

Editor’s Note: Carlos Rossi is President of Caracas-based EnergyNomics and a regular contributor to Energy Analytics Institute.

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Former PDVSA Director Detained in Argentina

(Energy Analytics Institute, Ian Silverman, 17.Aug.2018) – A former PDVSA director has been detained and accused of money laundering.

Luis Abraham Bastidas Ramírez, the cousin of former PDVSA President Rafael Ramírez, was detained in Argentina, wrote reporter Dean Rojas in a tweet on his personal twitter account.

Ramírez’s capture was ordered by the Principality of Andorra as it related to the possible laundering of $5 million, wrote Rojas in his tweet.

State oil company PDVSA has yet to emit a statement regarding the developments.

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