EP Petroecuador To Open Envelopes For Diesel No. 2 Tender

(Energy Analytics Institute, Piero Stewart, 13.Nov.2018) — EP Petroecuador will open envelopes today related to the import of 3,120,000 barrels (plus or minus 2%) of No. 2 Diesel Oil No.

Approximately 36 companies qualified for the tender through registration via EP Petroecuador’ Suppliers Registry of the International Trade Management, the online media El Universo reported.

The companies were invited to submit their proposals on October 30, 2018.

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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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Pampa Energia Curbs Polystyrene, Styrene Butadiene Rubber Output On Demand

(S&P Global Platts, Bernardo Fallas, 13.Nov.2018) — Argentina-based energy company Pampa Energia is cutting polystyrene and styrene butadiene rubber production amid lackluster demand in Argentina and barriers to export, two company sources said Monday on the sidelines of the 38th Latin American Petrochemical Association meetings in Cancun.

Pampa expects to shut its 65,000-mt/year PS plant December 1 through mid-January because of economic reasons, the company sources said. Production of SBR at the company’s San Martin complex also has been cut, as has production of ethylene at the company’s 19,000-mt/year cracker in San Lorenzo.

Argentina is weathering a financial crisis highlighted by high inflation and sharp devaluation of its currency, which in recent months prompted the government to turn to the International Monetary Fund for a $57.4 billion bailout.

Demand for PS will close the year approximately 12% lower from 2017 levels, one of the sources said. Argentina’s recent implementation of temporary export taxes has hurt the company’s ability to place volumes overseas, given PS’s already-thin margins.

Pampa has also reduced production of aromatics such as benzene, toluene and mixed xylenes as it aims to reduce feedstock naphtha imports.

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Work On Modernization Of Talara Refinery Reaches 71% Mark

(Energy Analytics Institute, Piero Stewart, 12.Nov.2018) — Construction of the Talara refinery in Perú continues.

Modernization work at the refinery — which is comprised of 16 processing units and 5 auxiliary units — is 70.94% complete, PetroPerú reported in an official statement on its website. Work completion will increase the refinery’s production capacity to 95,000 barrels per day from 65,000 barrels per day.

Additionally, work on the refinery will improve technology standards and improve its competitiveness and allow for production of the cleanest fuels in the region, of a quality dubbed ‘Euro VI,’ according to PetroPerú.

The refinery is expected to come online in December 2020.

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Is Your Gasoline Burning Out Faster?

(Trinidad Express, Sandhya Santoo, 7.Nov.2018) — Is super gasoline burning faster?

This is the claim by some motorists who are insisting that the fuel is burning faster, leading to lower mileage per litre and higher costs.

And many taxi drivers say that the Super gasoline is causing economic hardship. Some want the State to subsidize taxi drivers.

At the pumps, car owners would pay $4.97 for super gas, $5.75 for premium gas, and 3.41 for diesel fuel.

Vice president of the St Croix/ Barrackpore Taxi Drivers Association Narine Lochan said the fuel seems to be burning faster.

He said given the higher cost of super gas and premium, using regular fuel has become a preferred choice, despite the car manual recommendation that a certain octane of fuel be used.

“Super is burning out like water and we have to mix using regular gas because the cost is too much. We can’t get the distance we cover with the super now. What we need is for the government to subsidise taxi drivers. The gas is causing havoc to the taxi industry,” he said.

Lochan said the poor road conditions was adding to the woes.

He said many drivers have fewer passengers and attributed this to an increase in unemployment.

He said: “We seeing less people travelling because they are losing their jobs. Where we could get a lot of passengers during peak times, we seeing less and it’s not because there are new taxi drivers or “ph” drivers but it is because they are not travelling like they used to.”

Lochan said the use of Compressed Natural Gas (CNG) is not suitable for taxi drivers of the association given that there are limited CNG fuelling stations in south Trinidad.

“ By the time we go to fill our tanks with CNG and run a trip, we have to keep coming back to fill the tanks. You cannot keep running to the gas station three or four times a day. There isn’t enough stations that is even close for us to use and so you will not see many taxi drivers for our route using CNG,” he said.

The fuel being used at the pump was imported by State-owned oil refinery, Petrotrin, which received its first shipment of refiner fuel on October 27.

Sixteen shipments will be delivered over the next four months under an agreement with BP’s Latin America Integrated Sales and Trading Group.

Petrotrin Chairman Wilfred Espinet in a television interview this week said, “we do know for a fact that the fuels we imported are consistent in terms of the specifications of what we were producing in Trinidad and Tobago so there should be no effect”.

Espinet said the fuel brought in was a shipment of diesel.

Espinet said the fuel goes into an inventory and “although we may be transferring from tanks, there are times you are going to get residual in tanks that are going to mix with each other.”

President of the Petroleum Dealers Association Robin Naraynsingh said the statements being made are done so with limited and uninformed knowledge.

He said drivers must be cognizant of the size of the gas tanks, the millage and ensure that there is proper maintence of vehicles.

“They are saying things they don’t know. Every manufacture of a vehicle will tell you how much miles per gallon of fuel you get. They have to know what is the fuel consumption of their vehicles. If you say its burning out faster, are you doing city driving or highway driving? This thing is science, it’s not something you can just ‘feel’. Its burning faster, but faster to what?

People who are saying this have to be cognizant of what they are saying. What is their fuel consumption? How long you burn the engine for, the mileage.

Do proper maintenance, read the manual to car and learn about the fuel consumption of your vehicle.

The consuming public have to be more aware. Check vehicles if they are working properly, know that you are using the right octane level. If you buy regular you are using more,” he said.

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Ecopetrol Business Group Reports 3Q:18, Year-To-Date 2018 Results

(Ecopetrol S.A., 31.Oct.2018) — Ecopetrol S.A. announced the Business Group’s financial results for the third quarter and year-to-date 2018, prepared in accordance with International Financial Reporting Standards applicable in Colombia.

The figures included in this report are not audited. Financial information is expressed in billions of Colombian pesos (COP) or US dollars (USD), or thousands of barrels of oil equivalent per day (mboed) or tons, and is so indicated where applicable. For presentation purposes, certain figures in this report were rounded to the nearest decimal place. Further information on the Business Group’s financial figures may be consulted in Ecopetrol’s Consolidated Financial Statements, published on our website.

In words of Felipe Bayón Pardo, CEO of Ecopetrol:

“For the first nine months of the year, Ecopetrol is reporting the best financial results of the past four years. Net income attributable to owners of Ecopetrol rose to 8.9 trillion pesos, EBITDA totaled 23.8 trillion pesos and EBITDA margin was at 48%. These solid financial results were achieved due to the good operating performance of all segments, which brought about an increase in crude oil and gas production, lower crude oil imports for the Downstream segment as well as of refined products to supply the local market. In summary, we were able to capture the profit coming from the higher international oil prices.

The flexibility of the Group’s commercial strategy allowed us to take advantage from the higher demand for crude oil from refiners in Asia to create more value. In the third quarter of 2018, sales to Asia accounted for a 45% share of total crude exports, versus 25% during the same quarter in 2017. Thanks to this initiative, the discount price of the crude basket versus Brent remained at approximately 11%.

In the third quarter of 2018, Ecopetrol Group’s average production totaled 724,000 barrels of oil equivalent per day, the highest in the last 10 quarters. Year-to-date average production was 716,000 barrels of oil equivalent per day. The increased production for the quarter is in line with the target set for 2018 and it was possible due to the positive results from our drilling campaign and the greater demand for natural gas in the thermal power and industrial sectors. At the end of the quarter, we had drilled 421 development wells and had 41 rigs in operation.

This increase in activity is reflected in larger investments during the quarter, totaling 789 million dollars and representing 80% of what was invested in the first half of the year and more than 50% over the investment in the third quarter of 2017.

In the exploration segment Ecopetrol entered into one of the highest-potential oil basins in the world. The Pau-Brasil block, located in the central region of the Santos basin, in the Brazilian pre-salt, was awarded to the joint venture between BP Energy (50% – Operator), Ecopetrol (20%) and CNOOC Petroleum (30%). This milestone is consistent with our long-term growth strategy and demonstrates Ecopetrol’s ability to develop strategic alliances with leading companies in world-class industry opportunities.

During the third quarter, we drilled five exploratory wells, for a total of nine during the course of the year, and had an exploratory success rate of 44%. These results are in line with the goal of drilling 12 wells in 2018, and materialize our strategy of building a solid base of assets for the company’s future sustainability.

In the Midstream segment, we saw increased volumes of crude oil and refined products transported, primarily due to the optimization of certain systems, such as Galán – Bucaramanga and Coveñas – Cartagena and the beginning of operation of San Fernando-Apiay-Monterrey system along with the expansion of Ocensa P135. Moreover, it is important to highlight the transportation tests carried out at a higher viscosity of 700 centistokes (cSt — a measure of viscosity) with positive operating results, which are now under economic evaluation.

During the third quarter, the oil pipeline network continued to suffer from third-party disruptions, especially on the Caño Limón- Coveñas system; nevertheless, the Bicentenario oil pipeline was able to mitigate those impacts, resulting in five reversion cycles during the quarter. Year to date, 35 reversion cycles have been carried out on the Bicentenario oil pipeline. This flexible operation has prevented deferred production from Caño Limón field.

In the Downstream segment, the two refineries jointly achieved a new historic maximum of 380,000 barrels of stable throughput per day. The third quarter was the best of the year in terms of throughput and gross refining margin for each of our refineries.

In line with the optimization process, the Cartagena refinery continued to generate value by achieving an average throughput of 158,000 barrels per day for the quarter, with a throughput composition of 80% domestic and 20% imported crude. This result contributed significantly to the reduction of the Group’s cost of sales. In August, a record was attained at the refinery by using 100% local crudes during nine days, getting an average throughput of 164,000 barrels per day. Gross refining margin for the quarter was 12.1 dollars per barrel which represents a 17.5% increase vis-à-vis the third quarter of 2017.

Additionally, the Barrancabermeja refinery showed an 11% increase in throughput versus the third quarter of 2017. This outcome was primarily due to the stable operation of its units and the segregation of light and intermediate crudes. The average refining margin for the quarter was 13.9 dollars per barrel, largely impacted by the increase in the prices of the crude basket vs. Brent.

Ecopetrol continues to work on fuel quality. In line with this commitment, we have taken advantage of the greater synergies between the Cartagena and Barrancabermeja refineries, as well as operational adjustments in the transport and logistics systems, to produce cleaner fuels.

In September, diesel distributed in Colombia had an average sulfur content between 15 and 20 parts per million (ppm), below the maximum of 50 ppm of sulfur permitted by local regulation. Specifically, we delivered diesel with an average sulfur content between 12 and 14 ppm to the city of Medellin that complies with international reference markets standards as those in the United States (10 to 15 ppm sulfur content).

Our reducing cost strategy through efficiency measures allowed us to account for 1.8 trillion pesos of higher efficiencies across the Group during the first nine months of 2018, up 26% versus those reported during the same period of 2017. We remain committed with cost efficiency and capital discipline, which are now embedded in our corporate culture.

These accomplishments had enhanced the financial position of the Group. At the end of the third quarter, we increased our cash position from 15 trillion at the end of the second quarter, to 18 trillion pesos, despite the payment of the second installment of dividends to the Government for 1.6 trillion pesos and the prepayments of debt for a total amount of 637 million dollars. This financial strength is essential to support the profitable growth plans of the Group and secure long-term sustainability through crude oil price cycles.

In September, Ecopetrol completed the negotiation of a new Collective Bargaining Agreement that will apply for four and a half years and cover aspects such as education, health, food, loans and transport services, among other worker benefits. The New Collective Bargaining Agreement is aligned with the business strategy that seeks to maintain efficiency, capital discipline and collective labor in the new phase of Ecopetrol’s growth. We believe it will contribute positively to the workers wellbeing and the country’s development.

Talking about our ESG initiatives, year-to-date efforts have been focused on activities such as the recycling of 63.3 million cubic meters of water used in our operations. This amount represents an additional saving of 20% compared with the same period last year, enabling us to optimize the water requirement. On another front, we have advanced towards the incorporation of non-conventional renewable energy into the matrix of energy resources, with the announcement of the construction of a solar farm that will supply part of the energy consumption of Castilla field. This is in addition to the existing renewable energy supply from biomass.

Ecopetrol remains committed to generating value, and caring for environment, safe operations, ethics and transparency. Maintaining positive results and growing profitably will remain our focus as we continue to operate as a sustainable company that generates value for its shareholders.”

To review the full report please visit the following link:

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Petrotrin Moves Against Land Grabbers

(Trinidad and Tobago Newsday, Azard Ali, 29.Oct.2018) — Starting today, Petrotrin will employ measures to stop people from grabbing its lands.

The state-owned refinery is expcted to cease operations on November 30, and transfer its assets into new companies being set up.

Even as it does so, it now faces an onslaught from people attempting to illegally occupy its lands.

Newsday understands that patrols are expected to begin today, and illegal structures will be demolished.

Tomorrow, Petrotrin officials will go out with the company’s police to erect eviction signs.

Expected to be evicted is the Church of God of Prophecy, at Mussarapp Trace, Barrackpore. Also expected to receive an eviction notices are a Hindu temple at Mussarapp Trace and the million-dollar Point Fortin Early Learning Centre (ELC).

Both buildings are on the company’s lands and are close to oil wells.

Petrotrin recently served demolition notices to the pastor of Church of God of Prophecy, who was asked to stop holding prayer services at the church.

The church building is within 100 feet of an oil well and poses a serious safety risk.

Attorneys for the church and oil company have been engaged in a legal battle over rights to the land. The church’s pastor is contending they had been in occupation of the lands for more than 17 years.

Tomorrow’s demolition notice will be the final legal step to demolish the structure which will take place 14 days after.

Petrotrin also wrote to a woman, named Leion Howard, about the erection of the ELC at Bryce Road, Point Fortin.

In the letter, Petrotrin’s manager of Lands and Service, Gerard Lewis, accused Howard of unlawfully entering the lands at Bryce Road, east of oil well FW257 and west of oil well FW 191.

The letter alleges Howard cleared the land and began construction on it.

The building, constructed of steal beams and concrete blocks, has cost about $1.5 million so far.

Petrotrin’s letter also informed Howard that she refused to obey previous notices to cease construction.

The letter said a safety risk existed because of the proximity to its active wells. I

“Petrotrin hereby gives you notice to immediately deconstruct and remove the aforementioned concrete structure from upon the lands. Please further be advised that failure to acede to this request will leave us with no alternative but to vigorously seek to protect our interest in the lands,” the letter said.

Howard was also told to demolish the building within 21 days.

Contacted in Barbados yesterday, Petrotrin’s chairman Wilfred Espinet said people’s need for housing must not be at the expense of putting their lives at risk by constructing churches and schools near oil wells.

He said the company has embarked on a hectic campaign against invasion of its lands.

“We appreciate people need for housing, but we must strive to become a rule-based society in which each and everyone must not do things to suit themselves. It is unfortunate, but we have to do the right thing because you cannot put people lives at stake.”

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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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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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#LatAmNRG

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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Pemex Designates Four Shipments to Import Light Crude Oil

(Pemex, 22.Oct.2018) — Petróleos Mexicanos evaluated several proposals for shipments to supply light crude oil, in accordance to the parameters established by Pemex Transformación Industrial (Pemex Industrial Transformation).

As a result, PMI assigned four shipments of 350,000 barrels each for the import of Bakken light crude oil, which will be delivered during the month of November.

Currently, the contracts are in the process of being signed and the details of the assignment will be published once this process is completed.

This decision is in line with the strategy to improve the quality of the crude oil used in the National Refining System, which will result in higher value distilled products, such as gasoline and diesel fuel.

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Bolivian Refineries Cover 71.4% Of Domestic Demand for Special Gasoline

(Energy Analytics Institute, Jared Yamin, 19.Oct.2018) — Production of special gasolines from Bolivia’s three existing refineries isn’t sufficient to cover the country’s demand.

Domestic supply only covers 71.4% of domestic market demand, down 2% compared to 2017, and down 5% between January and May of the current year, reported the daily El Diario.

In May 2018, the Jubilee Foundation reported the Gualberto Villarroel, Guillermo Elder Bell and Río Negro refineries produced a combined 3,570,000 liters per day of gasoline versus demand of 5,000,000.

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Petrobras and CNPC Define Business Model For COMPERJ, Marlim Partnership

(Hydrocarbon Engineering, Alex Hithersay, 18.Oct.2018) — Petrobras has announced that it has signed an integrated project business model agreement (IPBMA) with China National Oil and Gas Exploration and Development Co. (CNODC), a subsidiary of CNPC, advancing towards their strategic partnership, as disclosed to the market on July 4, 2018.

The IPBMA details the steps of a feasibility study to evaluate COMPERJ refinery’s current technical status, its investment case and the remaining scope to conclude the refinery and the business valuation. A joint team composed by CNPC and Petrobras specialists and external consultants will conduct the studies.

Once the full benefits and costs of this project are quantified, the next step is to create a joint venture (JV) between Petrobras (80%) and CNPC (20%) to conclude and operate the refinery.

The integrated project also includes 20% participation of CNPC in Marlim cluster, which is composed by Marlim, Voador, Marlim Sul and Marlim Leste fields. Petrobras will have 80% and will keep the operatorship of all these fields.

Marlim crude oil production perfectly fits the design crude slate to be processed in COMPERJ refinery, a high conversion heavy oil refinery.

The JV’s effective implementation depends on the successful results of COMPERJ feasibility study with the respective investment decision by the parties, as well as the negotiation of final agreements.

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#LatAmNRG

Trinidad Government Announces New Company For Refinery Assets

(Trinidad and Tobago Newsday, Carla Bridglal, 18.Oct.2018) The government has announced a new state company, Guaracara Refining Company, into which the assets of the Pointe-a-Pierre refinery will be placed.

The refinery is scheduled to be shuttered by next month, and after the assets have been transferred to Guaracara, the company will advertise a “very broad” request for proposals (RFP), where any interested party can pitch their plan on how the refinery can be utilised.

“Everything will be open for discussion. At the end of the day, we feel we will get a proposal that is acceptable where we will no longer have this albatross around our neck called the refinery, but the assets can still be used in a productive way for the benefit of TT,” Energy Minster Franklin Khan said yesterday at the post-Cabinet media briefing.

Guaracara is one of five new companies created as part of the restructuring of state oil company Petrotrin, including Heritage Petroleum Company Ltd and Paria Fuel Trading Company, which will handle exploration and production and trading and marketing, respectively. Petrotrin as an entity will remain as a company to deal with legacy matters, and these will all be placed into one, Trinidad Petroleum Holdings Ltd.

Heritage and Paria were incorporated on October 5, but according to the Companies Registry, Guaracara is not yet listed.

Khan said a vesting order was being prepared to transfer Petrotrin’s exploration and production assets to Heritage and the terminal, port and pier assets to Paria. There will also be an assignment of exploration and production licences under the name of Petrotrin at the Ministry of Energy to Heritage.

“The transformation process is well on its way and going smoothly,” Khan said. The government hopes to have the new companies operationalized by the end of this year, he said. “All things being equal, 2019 will be a brand new year for the energy sector in TT,” he said. As it stands, all operations are still continuing under the name of Petrotrin. Khan added that all timelines are on schedule for the import and export of fuel and crude oil. The first shipment of fuel is expected around October 22-24 and the first crude export will be October 30-November 1. Neither Khan nor his Cabinet colleague Communications Minister Stuart Young could verify if Petrotrin had indeed retained a supplier for fuel. Khan said the company was “very close if not there already” when asked by reporters for the status, while Young said, given the information provided “I’m sure they have a supplier by now.”

Regardless, Khan said there would be a “seamless transition for the supply” of liquid fuel, liquid petroleum gas (LPG or cooking gas) and bitumen, and the country has a 20-day buffer supply should there be any lapse in delivery time.

Young also said that the price Petrotrin’s crude oil was fetching on the international market was well above the West Texas Intermediate price, the international benchmark price at which the TT budget is pegged. “We thought it would have been less than WTI. It’s even higher than we thought the crude was worth,” Young said.

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Mexico’s Next Government Faces Bind In Pemex Ethane Deal

(Reuters, Diego Oré, 17.Oct.2018) — Mexico’s incoming government will soon inherit a costly dilemma over an ethane supply contract between national oil company Pemex and a consortium led by a unit of Brazilian builder Odebrecht.

Under the contract’s terms, Pemex has had to supply ethane well below current market prices.

A hydrocarbon that comes from natural gas, ethane is used to make ethylene, which in turn is used to make the common plastic polyethylene at the Braskem-Idesa plant near the Gulf coast port of Coatzacoalcos.

The plant is operated by the consortium in which Odebrecht’s unit Braskem has a 70 percent stake and Mexico’s Grupo Idesa holds the remainder.

Energy aides to President-elect Andres Manuel Lopez, who takes office Dec. 1, have said the contract is problematic, but have not yet said what the new government will do about it.

“The contract with Braskem is very damaging to Mexico’s interests,” Sen. Armando Guadiana, of Lopez Obrador’s Morena party and heads the Senate energy commission, told Reuters last week. Pemex is fully owned by the government.

The Braskem-Idesa consortium told Reuters last week it has no plans to void the contract.

If President-elect Lopez Obrador were to direct Pemex to cancel the contract, it would be forced to purchase from the consortium the sprawling Etileno XXI petrochemical facility currently valued at $1.26 billion (£956.43 million), according to a contract annex seen by Reuters.

Neither Pemex or Braskem responded to questions about the valuation.

Conversely, if the new government opted to stick to the deal, it could only hope for more favourable ethane prices that might reduce its losses.

MUTUALLY BENEFICIAL?

Under the terms of the 20-year-long contract, Pemex committed to selling ethane to Braskem-Idesa for 16 cents per gallon. When the contract was signed in 2010 market prices for ethane were three times that, at 50 cents per gallon.

Current ethane prices hover around 40 cents per gallon.

A Pemex spokesman said the contract, which took effect in 2016, “responded to the market conditions of that time.”

Before the facility began operations in 2016, Pemex produced more ethane than it needed, forcing it to inject excess supply back into its natural gas pipelines.

Pemex’s production of ethane this year averages 88,000 bpd, but this is now insufficient to supply its own Morelos and Cangrejera petrochemical facilities that require a combined 66,900 bpd, plus the Baskem-Idesa contract obligation of 66,000 bpd.

As a result Pemex was forced to turn to ethane imports this year for the first time as domestic oil and gas production continues to fall, costing Pemex some $50 million during the first half of 2018, according to Reuters calculations, due to the cost of imported ethane at market rates compared to the cheaper fixed price in the contract with the Braskem-Idesa consortium.

If Pemex is left without enough ethane, it would have to shut down the so-called cracking plants at its two petrochemical facilities, and the cost of re-starting them after being idled one week would be some $2.6 million, according to comments from the head of Pemex’s ethylene unit, Alejandro Cruz, at a board meeting in December.

In June, pricing agency Platts reported that Pemex entered into a $237.6 million contract with Swiss commodities trader Vitol to supply 720,000 tonnes of ethane to Pemex through 2020.

Both Pemex and Vitol declined to confirm the deal.

In 2016, Mexico’s federal auditor determined that Pemex ethane exports during a 10-month stretch of that year could have yielded the company more than $100 million had it not been for the Braskem-Idesa contract.

Using official data, Reuters calculated a similar $100 million opportunity cost in 2017.

Both Pemex and Braskem declined to comment on the calculations.

Braskem said the contract was mutually beneficial, arguing that it helps cut Mexico’s reliance on foreign plastics.

“We are not planning on undoing a positive contractual relationship that we’ve been building with Pemex and that brings benefits to all,” said Sergio Plata, head of institutional relations for the Braskem-Idesa consortium.

Rocio Nahle, Lopez Obrador’s pick to be Mexico’s new energy minister, has said the incoming government will review the Braskem-Idesa contract for possible signs of corruption, part of a broader energy contract review.

The consortium’s Plata said he was confident the contract will not be modified.

According to a transcript of a recent session of the board of directors of Pemex’s ethane unit, acting director Rodulfo Figueroa, admitted that supplying the gas is “the most serious problem” it faces.

Lopez Obrador’s incoming transportation minister, Javier Jimenez Espriu, is an alternate member of the Grupo Idesa board of directors but told Reuters the contract was reviewed by the separate board of the Braskem-Idesa joint venture.

Luis Miguel Labardini, a Mexico City-based energy consultant, said an even bigger problem for Pemex lies with whoever agreed to the contract’s terms in the first place.

“We should give the benefit of the doubt to whoever negotiated this contract that they didn’t act in bad faith,” he said. “But they were negligent.”

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Mexico’s Salina Cruz Refinery Normal After Electrical Accident: Pemex

(Reuters, 17.Oct.2018) — Mexico’s Salina Cruz oil refinery is operating normally after three people were injured in an electrical accident, a spokesman for state oil company Pemex said on Wednesday.

The 330,000 barrel-per-day capacity facility, Pemex’s largest, had a short-circuit on Tuesday evening that sparked flames, the spokesman said.

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Pemex Seeks Up To 2.1 MMbbls Of U.S. Bakken Crude -Traders

(Reuters, 17.Oct.2018) — Mexico’s state-run oil company Pemex received bids this week for up to six 350,000-barrel cargoes of U.S. Bakken crude it wants to import from November through December, according to traders with knowledge of the tender.

This is Pemex’s second attempt to import U.S. light oil mostly for its Salina Cruz refinery. A previous tender launched earlier this month to buy U.S. Light Louisiana Sweet (LLS) crude was not awarded due to lack of bids.

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Mexico And Brazil’s Crude Politics

(Foreign Policy, Lisa Viscidi, .16.Oct.2018) — A potential return to resource nationalism could set both countries back.

Until this year, resource nationalism—when a government asserts its control over a country’s natural resources—seemed to be on the wane in Latin America. With oil prices low, state oil companies were struggling, and market-friendly governments had started opening their energy industries to private investment.

In the coming months, though, the region’s two largest economies may both have new leaders who came to power on promises of a return to the old days. In Mexico, President-elect Andrés Manuel López Obrador’s vow to restore Mexico’s state energy companies to their glory days and his emphasis on energy independence from the United States were central to his campaign. Similarly, Brazilian presidential candidate Fernando Haddad (who is polling well behind his rival, Jair Bolsonaro, but could still eke out a win later this month) wants to reassert state oil and power companies’ dominant positions in Brazilian energy markets. Both López Obrador and Haddad have argued that the current Mexican and Brazilian governments, in trying to open energy sectors to private investment, have effectively handed over state assets to foreign companies.

This is not the first time Latin American countries have flip-flopped on resource nationalism. The idea was initially championed in the 1950s and ’60s by Juan Pablo Pérez Alfonzo, the Venezuelan oil minister who helped found OPEC, and Getúlio Vargas, the Brazilian president who created the state oil company Petrobras in 1953. The slogan he gave it: “O petróleo é nosso,” or “The oil is ours.”

In the 1990s, historically low oil prices pushed Latin America’s energy sectors toward privatization. Petrobras shares were floated on the São Paulo and New York stock exchanges. Argentina’s state oil company, YPF, was sold off to private investors entirely. Then, in the early 2000s, as oil prices rose again, governments across the region began expropriating energy assets. A wave of recent reforms, again tied to low prices, encouraged private investment once more. In Mexico and Brazil, however, these reforms were never popular. And so, in both countries, the idea of energy sovereignty, part of a broader economic nationalist and protectionist approach, is again taking root.

For his part, López Obrador has long criticized the energy reform that the current president, Enrique Peña Nieto, signed into law in December 2013. That reform revised the constitution to open the oil and power sectors to greater private investment, creating competition for state monopolies. As a presidential candidate, López Obrador condemned the opening as putting the country’s riches into foreign rather than Mexican hands. Now, he wants to strengthen the state oil company, Pemex. He has vowed to increase Pemex’s investment budget to boost oil production, which has plummeted to 1.8 million barrels per day from a peak of 3.4 million barrels per day in 2004. His goal of 2.6 million barrels per day by the end of his term in 2024 is ambitious.

In order to end imports of gasoline from the United States by 2022, another of the president-elect’s goals, López Obrador plans to build a new refinery in his home state of Tabasco and upgrade six existing refineries, which would add over 1 million barrels per day in output if all existing refineries ran at full capacity. Mexico produces mostly heavy crude oil, much of which it ships to the United States for refining. It then imports about 1.3 million barrels per day of refined products back from the United States for domestic consumption. At the same time, López Obrador has promised Mexican voters a decrease in gasoline prices. The Peña Nieto government had cut gasoline subsidies just as international oil prices started to rise again, causing a 20 percent bump in fuel prices.

In the power sector, López Obrador plans to strengthen the state utility company and expand hydroelectric capacity in Mexico to slash imports of natural gas. In recent years, Mexico has become a critical market for U.S. shale gas as the pipeline infrastructure between the two countries has been beefed up. Cheap U.S. natural gas has also lowered the cost of electricity generation in Mexico, so tapering off the imports could hurt on both sides of the border.

In Brazil, the polarizing right-wing candidate Bolsonaro, who won 46 percent of the vote in the country’s first-round presidential election on Oct. 7, will face Haddad, a left-wing candidate from the Workers’ Party, in a second round later this month.

Bolsonaro has said that he is open to foreign investment, privatizing state companies, and creating more competition in oil and gas markets. He would likely push onward with the Petrobras divestment plan that was started under the current center-right president, Michel Temer. As part of that plan, which was designed to reduce Petrobras’s enormous debt, the company has sold off assets in refining, logistics, and transport to focus on its more profitable core business of oil exploration and production. Continued privatization is worthwhile, but beyond his support for it, Bolsonaro has been widely criticized for lacking any specific energy plan or even a detailed economic agenda.

Haddad, meanwhile, is fairly clear in his support for a return to the resource nationalism favored by his fellow Workers’ Party member former President Luiz Inácio Lula da Silva. Following the 2007 discovery of vast deepwater oil reserves, Lula introduced reforms that increased the government’s stake in Petrobras and made the state company the exclusive operator of the new fields. Temer later signed a law that reversed Lula’s bill, creating more opportunities for private investment in the sector. Haddad has promised to reverse Temer’s reversal and recover the oil to benefit the people. He has also pledged to strengthen Petrobras and to support the development of local industries by increasing local content requirements in oil exploitation and production. In short, Haddad would likely look to slow Petrobras’s divestment to keep energy assets in the state company’s hands and reassert its role as a driver of economic development.

Once in office, the new leaders of Mexico and Brazil will inevitably face challenges to implementing many of their plans. It is unlikely that Brazil’s next president will have enough support in Congress to overturn Temer’s law, for example. Likewise, in Mexico, although the president has broad powers to roll back aspects of the energy reform, only a two-thirds congressional majority—which López Obrador is unlikely to secure—can undo a constitutional reform. And in both countries, the administrations would face major legal challenges if they tried to unilaterally change existing contracts with private energy companies.

And then there’s the budget to think of. New refineries cost billions of dollars, are highly susceptible to corruption, and ultimately won’t lower gasoline prices for consumers. Expanding large hydroelectric dams also takes money, and it presents tremendous social and environmental challenges. Forcing a state oil company to operate all exploration and production projects risks massive corporate debt and a credit rating downgrade—precisely what happened to Petrobras under Lula and his successor, Dilma Rousseff. Meanwhile, strict local content requirements that are not coupled with programs to modernize local suppliers merely slow the development of oil and gas reserves. Despite the discovery of the undersea reserves in 2007—one of the most significant oil finds in the world in years—Brazil’s oil production remained nearly flat for years.

State-led development of energy resources can be very successful. Witness Saudi Aramco, the state oil company that has made Saudi Arabia one of the largest oil producers in the world. But experience in Latin America suggests that giving state companies a monopoly over energy production tends to restrict the industry rather than boosting it. And beyond that, it is worth considering whether it is wise to continue depending on oil to float the economy at all. As many other countries around the world, from nearby Colombia to Saudi Arabia, debate whether the time has come to transition the economy away from dependence on fossil fuels, in Mexico and Brazil, debates over energy policy continue to focus on nationalization versus privatization.

Considering resource nationalism’s poor track record in actually benefiting most citizens, it is time for these countries to shift the focus of policy discussions toward addressing today’s more pressing problems.

Lisa Viscidi is the director of the Energy, Climate Change, and Extractive Industries Program at the Inter-American Dialogue.

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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.

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Energy Analytics Institute (EAI): #LatAmNRG

Costa Rica Crime Groups Diversifying Oil Theft Techniques

(InSight Crime, Parker Asmann, 10.Oct.2018) — The ways in which gangs of fuel thieves in Costa Rica are tapping oil pipelines in order to steal and later resell the good are growing increasingly sophisticated, providing further evidence of the growing strength of criminal groups in the Central American nation.

What were previously rustic oil taps are now becoming more sophisticated as groups of fuel thieves in Costa Rica are paying experts as much as 3 million colons (around $5,000) to perform professionally made illegal oil taps on pipelines, CRHoy reported.

Since 2015, the Costa Rican Petroleum Refinery (Refinadora Costarricense de Petróleo – RECOPE) — the country’s state-owned oil company — has seen an increase in the number of illegal oil taps, causing millions of dollars in losses, according to Costa Rica’s Judicial Investigation Agency (Organismo de Investigación Judicial – OIJ) and intelligence agency (Dirección de Inteligencia y Seguridad – DIS).

In May of this year, authorities arrested six suspected members of an oil theft network operating in the city of Heredia just north of the capital San José that allegedly stole at least $2 million from the state oil refinery, La Nación reported.

Just weeks later, authorities arrested 14 other suspected members of a different oil theft network operating in the city of Limón on the country’s Caribbean coast that allegedly stole more than $2.1 million in oil, EFE reported. Authorities also seized an AK-47 rifle, ammunition, trucks with specific storage tanks for oil, as well as bulletproof vests, among other things.

InSight Crime Analysis

The increased effort crime groups in Costa Rica are reportedly putting into their oil theft operations suggests that they are growing stronger and diversifying their criminal portfolios as a result.

A rise in coca production in Colombia since 2013 and the revitalization of Central America as one of the main corridors for cocaine being trafficked to US markets has transformed Costa Rica’s role as a key transshipment point in the drug trade. This has, in turn, provided increased revenues for local crime groups, which have diversified their portfolios and expanded into other illegal activities like oil theft and illegal gold mining.

Oil theft is big business in Latin America, and the industry is largely considered to be a relatively low-risk, high-reward revenue stream for crime groups. In Mexico, for example, it is a billion dollar industry that may prove more profitable than the drug trade, according to a recent report from Rolling Stone.

As crime groups grow stronger, it makes sense that they would venture into other, more profitable criminal activities like oil theft. However, it remains to be seen if Costa Rica will face the same deadly consequences that the lucrative industry has created in Mexico. Authorities in Costa Rica are already confronting rising violence due to increased fighting between criminal groups for control of local drug markets.

***

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)

***

Trinidad Government Defends Decision To Close Petrotrin

(CMC, 3.Oct.2018) — The Trinidad and Tobago government Monday reiterated its position that it was necessary to close down the refinery of the state-owned oil company, Petrotrin, insisting that the company was losing billions of dollars (One TT dollar=US$0.16 cents) annually.

Finance Minister Colm Imbert, delivering the TT$51.7 billion budget to Parliament, said that the Keith Rowley administration had agreed following a “comprehensive assessment and analytical review of its operations” to shut down the refining and marketing business unit of Petrotrin.

“We are repurposing Petrotrin which would now focus on the full exploitation of its exploration and production activities and on a new terminalling business through which imports will now meet the demand of Trinidad and Tobago and the Caricom region for the refined products previously produced by the refinery,” Imbert said.

He said these would include motor gasoline, diesel, aviation fuel, liquefied petroleum gas and other derived and refined products.

He said in 1985 when a former people’s National Movement (PNM) had decided to purchase the failing refinery assets from the international private sector in a bid to save jobs, the situation has changed.

“Since that time, the refinery economics have further deteriorated as the refinery has failed to adapt to the changing fuel environment which demanded cleaner standards for fuel technologies in local and foreign markets.

“The continuing efforts over time by the managerial, technical and governance personnel to improve the efficiency of the refinery to meet the standards for the internationally marketable products fell short of requirements.”

Imbert said that all the major plant upgrades failed – from the gas optimisation plant to the ultra-low sulphur diesel complex and the gas-to-liquids plant – all experiencing substantial cost overruns in the process.

He said the cost of these upgrades has loaded the company with an unsustainable debt burden estimated at TT$12 billion of which TT$5.780 billion is due in August 2019.

“While the company continued to incur persistent losses, the gasoline optimisation programme saw its cost rise from TT$2.45 billion in 2005 to TT$12.6 billion when it was completed in 2013, the cost of the unfinished gas-to-liquids plant rose from TT$1.55 billion to TT$3.15 billion and that the cost of the ultra-low sulphur diesel complex rose from TT$791 million to $2.89 billion “

He said while the project is 98 per cent mechanically completed, it cannot be operated because the structural specifications were not followed, meaning that the foundation is faulty and cannot be used. It would take TT$2.5 billion to rectify the defects, Imbert added.

Petrotrin’s Pointe-a-Pierre refinery operations. Photo: Richard Charan
5000 JOBS

He said in the context of these managerial failures, the size of the employee-base at Petrotrin remained in the vicinity of 5,000, divided between the refining and marketing business unit and the exploration and production business unit.

“In addition, the monthly wage bill amounted to TT$183 million per month or TT$2.2 billion on an annual basis. Coupled with this wage bill, the medical plan was running at an annual cost to Petrotrin of approximately TT$245.0 million per year but with very low contribution rates by the employees ranging from TT$50 to TT $80 per month.”

Imbert said what is interesting about this TT$245 million, medical plan is that it currently covers 21,000 present and past employees and their unmarried family members under the age of 21 or under the age of 23 if still in school.

“It effectively covered a Petrotrin employee and spouse until death. This has to be one of the most generous medical plans in Trinidad and Tobago, if not in the entire Caribbean region,’ Imbert told legislators.

He said the survival of the company was only possible through the non-payment of TT$3.5 billion in taxes and royalties, in breach of the law, and the procuring of government guarantees in the amount of TT$1.5 billion for loans from financial institutions which have significantly increased the public debt.

“This has placed a severe burden on the Treasury and on taxpayers, especially in view of the fact that Petrotrin extracts 40,000 barrels per day of taxpayers’ oil, at a value of six billion dollars per year, for which taxpayers receive no benefit.”

Imbert said that despite the fact that Petrotrin is tottering on the brink, as recently as last month, it approached the Ministry of Finance for financial support by way of another government guarantee in the amount of US$56 million to purchase a cargo of crude oil, since the shipper refused to discharge the cargo without a guaranteed letter of credit.

“And just last week, Petrotrin approached the Ministry of Finance for more financial support to refinance debt instruments totalling a further US$180 million as they become due for payment,” Imbert said, telling legislators that in its current form the company “remains unprofitable and whatever scenario is analysed, it cannot generate a profit without drastic restructuring.

“The financials generated by independent consultants, both local and foreign, provide a grim outlook of a deteriorating financial situation which cannot be improved even if billions of dollars in capital are injected into the company, which capital is simply not available.”

He said the latest financials for the company are illustrative of a looming crisis which if left unresolved would have a serious impact on the national economy.

Imbert said the government will do all that it can to assist displaced workers at Petrotrin to transition to their new circumstances.

“We will provide all available support at our disposal. And we will work with the company to ensure that adequate funds are available to pay termination benefits on time and in full,” he said, adding ‘we are confident that the reinvented Petrotrin will resume its rightful place as a leader in the oil and gas sector of Trinidad and Tobago and will become a profitable and efficient entity that makes a positive contribution to the Treasury.

“May I also point out that the company has advised that it will continue to be a significant earner of foreign exchange, in the vicinity of US$200 million-plus per year, after it completes the transition to its new business model,” Imbert added.

***

Mexico’s President-Elect AMLO Commits to Respect Oil Contracts

(Renaissance Oil Corp., 2.Oct.2018) — Renaissance Oil Corp. announced that Mexico’s president-elect, Andres Manuel Lopez Obrador, who will take office on December 1, 2018, assured private energy executives on September 27, 2018 that their contracts will not be canceled if they meet existing terms.

During the meeting with AMEXHI, Mexico’s association of oil and gas producers, which Renaissance is a member of, Mr. Lopez Obrador underlined the importance of the private sector’s participation in developing the oil and gas sector in Mexico and its important role in increasing production in the following years.

Further, Mr. Lopez Obrador’s designated Energy Minister, Rocio Nahle, confirmed the incoming administration’s support for the contracts as well as a commitment to resolving regulatory delays.

“Renaissance is reassured by these developments and encouraged that the Mexican government is supportive of the important role international oil companies, like Renaissance, play in the development of the Mexican petroleum industry,” said Renaissance CEO Craig Steinke.

***

Pemex to Import U.S. LLS Crude for Oct Delivery

(Reuters, 1.Oct.2018) — Mexico’s state-run Pemex has launched a tender to buy 350,000 barrels of U.S. Light Louisiana Sweet (LLS) crude for October delivery, according to a document seen by Reuters on Monday, a deal that marks the first crude imports in over two decades.

Pemex, which plans to use the foreign crude to supplement its dwindling domestic fuel output, would mostly process the oil at its largest refinery, the 330,000-barrel-per-day Salina Cruz, the company’s chief executive said last week.

Since 2015, Pemex has been considering a crude swap with the United States so it can import lighter oil while exporting its flagship heavy Maya crude. The company finally opted for importing the U.S. light oil on the open market at least until the current administration finishes its term at the end of November.

“(The) Light Louisiana Sweet shall be obtained from conventional fields without being blended, processed chemically or being added with naphtha or condensates,” according to the document detailing the tender’s terms.

Pemex is requesting the cargo be delivered between Oct. 20-22 at its Pajaritos terminal in the Gulf coast state of Veracruz.

Payment will be made 45 days after delivery. Bids will be received until Oct. 3, and must be indexed to West Texas Intermediate crude prices, according to the document.

LLS is a very light crude grade with 38.5 API degrees of density and about 0.4 percent of sulfur content. Tests for choosing the crude to be purchased were completed several days ago, Pemex said.

Pemex’s fuel imports increased 17 percent in 2017 as Mexico’s refining network worked far below capacity. So far this year, fuel purchases have remained almost unchanged at 961,100 bpd as input of light grades to its domestic refineries has been limited. Independent retailers have started importing their own gasoline and diesel on top of that volume.

Apart from a limited oil exchange with the U.S. Strategic Petroleum Reserve in the late 1990s, Mexico has not recently swapped or otherwise imported U.S. crude.

Some U.S. crude exporters have this year sought new customers amid trade tensions between China and the United States affecting the bilateral oil trade.

U.S. crude exports have grown this year. In July, they averaged 2.139 million bpd versus 956,000 bpd in the same month last year, according to the Energy Information Administration.

***

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.

***

$2.6 Billion to Close Petrotrin Refinery

Petrotrin refinery in Trinidad. Source: Trinidad Guardian

(LoopTT, Darlisa Ghouralal, 1.Oct.2018) — Severance packages for retrenched Petrotrin workers are expected to cost the State in the region of $2.6 billion.

Finance Minister Colm Imbert made the announcement based on initial estimates as he delivered the 2018/2019 fiscal package in Parliament on Monday.

State-owned oil company Petrotrin began its phased exit of the refining business on October 1.

This transition process is expected to be completed on November 30.

Approximately 4700 employees – 3500 permanent workers and approximately 1200 non-permanent workers – are expected to be affected in this restructuring exercise.

The Minister said 1400 employees are eligible for retirement packages in the closure of the Pointe-a-Pierre refinery, with some 800 workers to be recruited in Exploration and Production and 200 workers for the terminaling business unit.

He gave the assurance that support will be provided to the retrenched workers to ensure they make the transition to their new circumstances, as he expressed confidence that the transition will bring the Company back to a position of profitability.

“We are confident that the reinvented Petrotrin will assume its rightful place in the economy and positively contribute to the Treasury.”

The termination benefits will be paid on time, and in full, he continued.

Imbert added that Government remains open to any alternative proposal to the refinery, stating that the majority representative union, the Oilfields Workers Trade Union still has the first option to operate the refinery.

The Minister stressed that the closure of the refinery was a hard decision that had to be taken as it has been consistently losing over $2 billion over a number of years and, if left, unchecked will have a negative impact on Trinidad and Tobago’s economy.

***

Trinidad Energy Chamber, Petrotrin Officials Discuss Refinery Closure

(Energy Analytics Institute, Aaron Simonsky, 30.Sep.2018) — Members of the Energy Chamber of Trinidad & Tobago and a Petrotrin transition team meet to discuss issues related to closure of the Petrotrin refinery, among others energy related issues.

The officials discussed the impending closure of the Petrotrin refinery, located Pointe-à-Pierre, and new opportunities with the refocused exploration and production company and the terminal operations, announced the Chamber in an official emailed statement.

During the meetings, Petrotrin provided an overview of planned activities over the coming two to three months, including how the company would settle all outstanding valid contractual obligations.

***

Mexico Must Double Oil Exploration Spending to Halt Output Fall: Pemex

(Reuters, Marianna Parraga, David Alire Garcia, 28.Sep.2018) — Mexico will need to double to about $4 billion its annual oil exploration investment to reverse a 14-year decline in output, a move that will require more funding by Pemex and private producers, a top official with the state-run firm said Friday.

The nation’s oil industry needs Petroleos Mexicanos to invest more than $2.5 billion per year and another $1 billion to $1.5 billion from private companies to fully replace its reserves, Jose Antonio Escalera, the firm’s chief of exploration, said at an energy conference in Acapulco.

Pemex this year expects to invest about $1.65 billion, roughly the same as 2017. Reserves fell 7 percent this year, to 8.48 billion barrels of oil equivalent, and have slid more than 40 percent over the past decade, according to government data.

Escalera made the comments as the administration of President-elect Andres Manuel Lopez Obrador is still formulating its plan for Pemex and has given mixed signals over the future of the landmark energy reform.

Lopez Obrador, who will take office in December, has said he aims to boost Mexico’s oil production by a third to 2.5 million barrels per day (bpd,) from 1.82 million bpd in August. He also wants to increase domestic refining to end imports of foreign fuel.

However, he has been a critic of the nation’s opening of its oil industry to outside firms and has called for a review of the more than 100 exploration and production contracts awarded to oil companies, and a suspension of future auctions, casting doubts on what direction the energy reform will take in coming years.

“The reason why Mexico has seen an output decline since 2004 is not because of lack of potential, it is because it stopped exploring,” Juan Carlos Zepeda, chief of Mexico’s energy regulator National Hydrocarbons Commission (CNH), said at the energy conference.

Pemex said it will not meet its annual output target in 2018, and is likely to see a further slide in 2019.

LONG RANGE INVESTMENT

Pemex is making progress: It drilled 24 exploratory wells in 2017 and 35 are planned for 2018. But stemming the oil output decline will require the country to replace its reserves faster, Pemex and experts interviewed at the conference said.

The country will need $20 billion in exploration investment in the long term to confirm its estimated reserves and increase oil and gas output, according to Pemex’s calculations, a difficult task as prospective oil and gas resources to be confirmed are mostly in deep waters and onshore shale formations that require higher investment and technical knowledge.

As a sign of how it has fallen behind in replacing those reserves, Mexico has drilled 58 exploration wells on its side of the deep water Gulf of Mexico, compared with more than 1,100 on the U.S. side.

“What we need is more activity, even more exploration,” said Monica Boe, Mexico country manager of Norwegian oil major Equinor. She said auction terms could be changed to encourage more exploration activity.

***

Pemex to Begin Importing US Crude in H2 October: CEO

(S&P Global Platts, Daniel Rodriguez, 27.Sep.2018) — Pemex plans to begin importing light crude from the US Gulf Coast in the second half of October, CEO Carlos Trevino told S&P Global Platts.

The imports will enable Pemex to raise its total crude processing to 700,000 b/d-800,000 b/d in the final months of 2018, he said on the sidelines of the Mexican Petroleum Congress in Acapulco Wednesday.

A “question many people ask me is, ‘will this benefit us?’ The definite answer is yes,” Trevino said, adding that the measure will allow Pemex to improve its crude processing and marketing margins.

Trevino did not specify the volume or the terms of the purchase, saying it was competitive, private information. He added that the incoming administration has to decide whether the strategy would continue.

It will enable Mexico’s 330,000 b/d Salina Cruz refinery to raise its operational levels by 100,000 b/d. The refinery lacks coking capacity, preventing it from processing Mexican Maya heavy crude blend at a positive margin, Trevino added.

“We are going to empower Salina Cruz as it is the refinery where we can boost crude processing levels the most,” Trevino told reporters on Thursday at a press conference.

Salina Cruz processed 150,550 b/d in August, compared with a 2018 monthly peak of 236,700 b/d in April and an average of 269,000 b/d for the full-year 2014.

Trevino also told reporters the imports could be used to enhance operations at its other two refineries designed to process light oil: the 315,000 b/d Tula and 220,000 b/d Salamanca facilities.

The optimal and profitable operation of these facilities has been affected by light crude shortages. Tula processed 132,200 b/d and Salamanca 158,320 b/d in August.

Pemex’s light crude production has been skidding lower for some time. Its light crude output was 759,250 b/d in August, down from 861,160 b/d in January and 1.16 million b/d in 2014.

The slide has steepened this year because of seawater invading its Xanab shallow water field in on the Tabasco coastline.

Xanab’s production has been in freefall since January, decreasing its output by 68,200 b/d to 104,400 b/d in August. Pemex produced 1.81 million b/d in August, down from 1.93 million b/d in January.

Trevino said the company is doing its best to solve the “premature” water invasion at Xanab as fast as possible.

In August, the company processed 404,300 b/d of light crude, 60% of its overall slate, compared with 455,800 b/d in 2017 and 651,000 b/d in 2014.

The company is focusing on profitability rather than refining fuel at any cost. For the first time in decades, Pemex’s refining unit posted positive results in 2017, although this led to lower crude processing.

Pemex’s downstream director, Carlos Murrieta, previously told Platts the company has been weighing the costs of importing fuel against refining it domestically.

Murrieta also said the company is going to evaluate the differentials between light and heavy crude oil to decide how much sweet crude it could import.

***

EP PetroEcuador Controls Fire at Esmeraldas Refinery AOV 14 Tank

(Energy Analytics Institute, Jared Yamin, 27.Sep.2018) — Today at approximately 12:10 pm a fire was reported at the Esmeraldas Refinery AOV 14 Asphalt tank.

The EP PetroEcuador fire brigade located at the refinery acted immediately to smother the flames and reduce harm to the environment and the other facilities related to the industrial plant. No injuries were reported and operations were not affected, announced EP PetroEcuador in an official statement on its website.

Officials with EP PetroEcuador continue to analyze the cause of the fire in order to implement corresponding corrective measures.

***

Khan: No Fuel Supply Disruption

(Trinidad and Tobago Newsday, Julien Neaves, 26.Sep.2018) — Energy Minister Franklin Khan has assured there would be no disruption in fuel supply to the travelling public with the closure of the Petrotrin Refinery next Monday.

Khan was responding to a question in the House yesterday from Pointe-a-Pierre MP David Lee on the strategic steps to ensure the supply of fuel was not disrupted with the closure of the Petrotrin Refinery on October 1, in a phased manner.

Khan reported the country consumes 25,000 barrels of liquid fuel per day or 3.9 million litres, comprising of aviation fuel, diesel, super and premium gasoline and small amounts of regular.

He said the refinery would be closed on a phased basis in October and upon its closure there would be a 20-day supply of fuel from stock. Khan said steps are currently being put in place for the importation of fuel from international traders and request for proposals from 13 reputable international suppliers and traders were currently out.

Prime Minister Dr Keith Rowley also responded to a question from Lee that given Government’s offer to the Oilfield Workers’ Trade Union (OWTU) of a preferential option to purchase the Petrotrin refinery if the Prime Minister could indicate the other options Government intends to pursue if this offer is not accepted by the OWTU. Rowley said it was Government’s position the refinery would be excised as a separate entity from the rest of Petrotrin’s business and be an independent asset. He said at that stage if OWTU puts forward a proposal to Government, the union would be given the first option. “They have indicated some interest is being shown pertaining to that.”

Lee asked if there were any other proposals but Rowley said he was not aware Petrotrin was in receipt of other proposals but interests have been expressed if the asset becomes available.

***

PetroTal Provides Update On Peruvian Blocks 95 and 107

(PetroTal Corp., 26.Sep.2018) — PetroTal Corp. is increasing production from the Bretaña oil field on Block 95, as well as evaluating the Osheki prospect in Block 107.

Key highlights from the fields follows:

— Bretaña oil field (Block 95):

– One of the largest undeveloped discoveries in Peru

– First oil achieved in June 2018, ahead of schedule

– Installation of initial Long-Term Testing Facilities to handle production of 5,000 barrels of oil per day (b/d) and 5,000 b/d of is expected to be completed on schedule and under budget by late October, 2018

– Average September 2018 production is ~900 b/d naturally flowing, expected to increase to over 2,000 b/d by November 2018

– First development well to be spud in early 2019, allowing for production growth to 5,000 b/d by mid-2019 and to 10,000 b/d in early 2020.

– Significant proved + probable (2P) reserves of 39.8 million barrels of oil, independently verified by Netherland Sewell & Associates, Inc. (NSAI) effective as of December 31, 2017

– Attractive fiscal terms with an initial cash royalty of five percent, not surpassing eight percent at peak production

– Established routes to market with current production being sold at the Iquitos Refinery

“We have achieved operational milestones, ahead of schedule and under budget, including the commencement of production at Bretaña. PetroTal is in a strong financial position with no debt, and our investment case is further de-risked by a relatively simple geological story,” said PetroTal President and Chief Executive Officer Manolo Zuniga.

— Osheki light oil prospect (Block 107):

– Recent confirmation that Osheki prospect is estimated to hold 534 million barrels of mean prospective recoverable resources, estimated by NSAI effective as of June 30, 2018.

– Estimate is based on a recovery factor of 30 percent of the estimated 1.78 billion barrels of mean prospective original oil in place (OOIP)

– Currently in discussions with potential joint venture partners to drill Osheki

– Further potential material upside from additional leads in Block 107

“We are proud to be aligned with the Peruvian government as we play our part in helping the country increase production and reduce oil imports. I am very upbeat about the future as we continue our journey to become a Peruvian focused E&P of scale, creating value from our existing assets, and over time expanding the portfolio in Peru,” concluded Zuniga.

***

Pemex Plans up to 100,000 b/d of Light Crude Imports, Says CEO

(Reuters, David Alire Garcia, Marianna Parraga, 26.Sep.2018) — Mexican state-run oil company Pemex expects to begin importing up to 100,000 barrels per day of light crude oil, likely from the United States, from late October and at least until the end of November, its chief executive said on Wednesday.

“A hundred thousand barrels (per day) more or less is what we’re going to import to process and incorporate into our refineries, mostly at Salina Cruz,” Pemex CEO Carlos Trevino said in an interview with Reuters on the sidelines of the Mexican Petroleum Congress in Acapulco.

The imports, planned to run through at least the end of President Enrique Pena Nieto’s tenure in office on Nov. 30, mark a stark shift for historically major crude exporter Mexico, where decades of oil self-sufficiency are a badge of pride.

Years of under investment and declining crude output have severely hampered Mexico’s refineries and helped necessitate the move.

Salina Cruz, like Pemex’s other five refineries, has recently been producing far below capacity due to accidents and operational problems, as well as Pemex’s focus on maximizing the value of its oil even if that means refining less domestically.

“We’re going to mix it with Mexican crude, with some of our mix to be able to process at the levels we want to get back to in refining. We should be around 800,000 barrels (per day of refining in the country’s entire system) by the end of the year,” he added.

Mexico’s refining network can process up to 1.6 million bpd of crude. It has been working this year at around 40 percent.

Trevino said he expects auctions of oil exploration and production blocks scheduled for February, which include the selection of key partners for Pemex, will take place as planned.

“I think there is total certainty” that Mexico’s oil regulator, the National Hydrocarbons Commission (CNH), will carry out the auctions.

Mexican President-elect Andres Manuel Lopez Obrador has said that oil auctions are suspended until contracts already awarded over the past few years have been reviewed, but he has not specifically weighed in on the February tenders.

Pemex, whose oil production and refining volumes have continued declining this year amid the depletion of some of its main oilfields, will not meet its crude output target of 1.95 million barrels per day in 2018.

“We’re going to be considerably below that,” Trevino told reporters at the conference later in the evening, declining to provide a specific volume.

He expects another year of production decline in 2019, even though Pemex had originally planned to stabilize output by then.

Lopez Obrador, who takes office on Dec. 1, handily won Mexico’s presidential election in part by promising sweeping changes to Mexico’s energy industry. His energy team has signaled they want Pemex to select its own partners instead of having them chosen in auctions run by the CNH.

Trevino said the new process would be “easier,” underscoring that the current selection process “costs us time.”

***

Petrobras Cuts Gasoline Refinery Price After Pump Record

(Reuters, 24.Sep.2018) — Brazil’s state-owned oil company Petroleo Brasileiro SA said on Monday that it would cut the average price of gasoline at its refineries by 0.59 percent after pump prices hit record levels in the country last week.

Petrobras, as the company is known, said the price reduction to 2.2381 reais ($0.5476) per liter will go into effect on Tuesday.

That’s a decline from the previous fixing of 2.2514 reais per liter, the highest refinery price since Petrobras began nearly daily price adjustments last year.

Gasoline prices at the pump hit an average price of 4.652 reais per liter last week, a record when not accounting for inflation, according to a survey conducted by industry regulator ANP.

Petrobras’ move to cut its refinery rate is at odds with global oil prices, which rose more than 3 percent on Monday to four-year highs after Saudi Arabia and Russia said they would not immediately act to increase production, despite appeals from U.S. President Donald Trump.

Earlier this month, Petrobras unveiled a program that would allow it to hedge against gasoline price moves, allowing it to reduce volatility in refinery fuel prices.

The mechanism will permit Petrobras to maintain prices at a set level for up to 15 days without incurring losses, reducing the frequency of adjustments, according to the company.

Petrobras shares fell 0.74 percent by late afternoon trading on Monday to 19.99 reais. ($1 = 4.0868 reais) (Reporting by Roberto Samora Writing by Jake Spring; Editing by Sandra Maler)

***

Petrotrin Loses Board Member

(Trinidad and Tobago Newsday, Yvonne Webb, 20.Sep.2018) — Days before Petrotrin’s refining operation ceases and workers are retrenched, a member of the board who would have participated in the restructuring exercise, has become the first casualty of the plan.

An internal circular from the company to all employees confirmed board member Randhir Rampersad has ceased to be a member of the board of directors. No reason was given for his departure, causing speculation among some workers.

The memo, signed by Sharon Morris-Cummings, advised employees to amend the director listing on the company’s letterheads to only reflect the remaining members – chairman Wilfred Espinet, deputy Reynold Ajodhasingh, Anthony Chan Tack, Nigel Edwards, Joel Harding, Selwyn Lashley, Eustace Nancis and Linda Rajpaul.

The Oilfield Workers Trade Union (OWTU), which also received a copy of the memo yesterday, said this warrants a probe. A spokesman said it is unusual at this point in the process of restructuring, for a Board member to leave without a reason. The trade union said it raises a lot of questions as to whether Rampersad was fired or if he resigned; and why.

***

Pemex CEO Launches Management System at Cangrejera Petrochemical Complex

(Pemex, 19.Sep.2018) — The CEO of Petróleos Mexicanos, Carlos Treviño Medina, launched the Management Assessment System at the Cangrejera Petrochemical Complex, located in the state of Veracruz that will help increase the production value of oil products processed in this center, through the identification of critical inventory items, oversight the plant´s operation, inputs and consumables for production, maintenance and financial performance.

Following up on the visits he has made to strategic Pemex facilities around the country, on Sept. 20 Treviño Medina toured the Cangrejera Complex and the “Lázaro Cárdenas” Refinery in Minatitlán, to oversee operations and get a first-hand account of the concerns and needs of the oil workers stationed in these work centers.

Regarding the Control Center and the Management Assessment System of Pemex Etileno (Pemex Ethylene), the CEO of the state-owned productive company pointed out that launching this system will allow the company to anticipate and manage changes promptly, solve problems and make better decisions using a single system that allows for real-time monitoring of all processes simultaneously from a single location.

He explained that the automated management system is based on information technologies that promote the coordination of efforts through the periodical exchange and analysis of electronic data providing the characteristics of various different analysis and decision-making systems in a single application. “With this system, we integrate key operating, logistics and financial information for online and prompt decision-making,” he said.

In recent weeks, Treviño Medina has kept up an intense schedule of visits to various strategic facilities to oversee their operation. During July and August, he visited the Storage and Dispatch Terminal (TAD) in the state of Querétaro and the Tanker Vessel Calakmul, which is docked at the facilities of the Integrated Port Management of Puerto Progreso, in the state of Yucatán.

He awarded acknowledgments to both facilities for their outstanding compliance with the Order and Cleanliness Campaign.

He also toured the Antonio M. Amor Refinery, located in Salamanca, in the state of Guanajuato, as well as the Dos Bocas Maritime Terminal in the state of Tabasco, where he learned of the progress made on the Command and Control Center that will safeguard this strategic facility.

He was recently at the “Antonio Dovalí Jaime” Refinery in Salina Cruz, in the state of Oaxaca, where he oversaw the progress of the ongoing reconstruction efforts of several facilities that were damaged during the earthquakes that occurred on September 2017.

During his visits, Treviño Medina has expressed his deepest recognition tothe oil workers, who, with their daily effort, commitment and capabilities, have turned Pemex into the largest company in Mexico and one of the most valued Latin American brand names.

“A time of great change is coming, but what we have sown here will endure forever, because Pemex is one of the foundations of Mexico thanks to the strength you have given this great company, which is a source of pride and wealth for the country,” he affirmed.

***

More Than TT$1 Billion in Compensation for Petrotrin Workers

(CMC, 19.Sep.2018) — The Trinidad and Tobago g overnment Monday said the compensation package for workers being laid off by the closure of the oil refinery of the s tate-owned company, Petrotrin could be more than TT$1 billion (one TT dollar=US$0.16 cents).

But energy minister, speaking in the Senate, said while he would not want to provide an accurate figure, the workers’ representatives, the Oilfields Workers Trade Union and the Petrotrin board of directors will meet on Tuesday to discuss termination packages for the affected workers.

“I personally said the packages will cost upward of one billion dollars and if you take the collective agreement and you do some basic calculations, it is obviously more than one billion.

“But the government and the board of Petrotrin are willing to sit down with the union and go through all the numbers and possibly offer some enhancement to that package,” he told legislators.

Last month, the government announced that it would be closing down the oil refinery after indicating that it was losing an estimated two billion dollars annually.

The Keith Rowley administration said that more than 2,500 workers would be laid off as a result and Khan told the Senate that the figure was 4,700.

“The termination packages and the benefits therein are currently being negotiated by the board of Petrotrin and the Oilfield Workers Trade Union, and a meeting is carded for tomorrow. So, in a sense, I wouldn’t want to pre-empt or prejudge what package they will come up with.

“As to the number of employees that will be impacted, the total number of permanent employees that will be impacted from the Petrotrin restructuring is approximately 3,500 permanent workers and approximately 1200 non-permanent workers,” he told the Senate.

***

Expert Says Closure of Petrotrin Refinery Will Decimate Trinidad

(Trinidad Express, 17.Sep.2018) — Former Director of Energy Industries at Industrial, Jim Catterson, says closure of the Petrotrin refinery makes no economic sense. He said the closure would decimate south Trinidad.

Catterson said unemployment would rise and poverty would spread across the nation.

Speaking at a press conference at the Oilfield Workers Trade Union (OWTU) headquarters in San Fernando, Catterson said the Government must consider the proposal presented by the OWTU last week.

“Tens of thousands of people would be unemployed. These people would no longer contribute to the national economy through taxes. They would no longer contribute to the national economy. There would be a downward spiral of the economy into poverty,” he said.

Catterson said it was important that the government have further discussion with the OWTU and Petrotrin management.

“Get around the table and discuss the future of this industry and economy. It is the only way to resolve this situation. Find a way for the country to survive,” he said.

Catterson questioned why a government wanted to close the refinery and import petroleum products.

“Where would you get the foreign exchange to buy the things you need? And when you can produce these products yourself,” he said.

Catterson said oil workers were highly skilled, educated and knowledgeable and should be paid accordingly.

But he dismissed reports by Energy Minister Franklin Khan that salary and wages totalled 52 per cent of Petrotrin’s operating cost.

He said, “Salary and wages is under 10 per cent of the company’s operating cost. Oil workers are highly skilled, educated and handles equipment worth millions and potentially dangerous. So they should be highly paid.”

IndustriALL Global Union is a global union federation representing more than 50 million working people in more than 140 countries, working across the supply chains in mining, energy and manufacturing sectors at the global level.

***

EP Petroecuador Detects Illegal Connection at Shushufindi Refinery

(Energy Analytics Institute, Piero Stewart, 15.Sep.2018) — EP Petroecuador detected a clandestine connection in the liquids line of the northern section of the gas capture station of the Shushufindi Refinery.

Technical personnel at the company immediately implemented a contingency plan to eliminate the illegal connection, which was detected on September 15, 2018, reported the state oil company in an official statement on its website.

***

 

Barbados Hunting New Suppliers Following Closure of Petrotrin Refinery

(Jamaica Gleaner, 14.Sep.2018) — Barbados says it is holding discussions with a number of suppliers to replace the energy arrangements it had with oil refinery Petrotrin.

The refinery, based in Trinidad & Tobago, is locking down operations, a measure it blamed on increasing financial losses. The closure has led to the retrenchment of more than 1,700 employees.

In a statement on Wednesday, the Barbados National Oil Company Limited, BNOCL, said it currently imports gasolene from and sells its crude oil to Petrotrin, while diesel and fuel oil are sourced extra-regionally. It said kerosene is imported by the oil companies Sol and Rubis.

BNOCL said that at the time of the Petrotrin announcement regarding the closure of the refinery, it was exporting 260,000 barrels of crude oil annually to the Trinidad refinery and importing 60,000 barrels of gasolene on a monthly basis.

It said the annual contract with Petrotrin entailed the exchange of the crude oil for gasolene, which aided in the reduction of the foreign exchange cost, as the value of the crude offset the outlay for the gasolene.

BNOCL said its storage capacity for gasolene is 80,000 barrels. However, as of Wednesday, September 12, its gasolene stock was at 53,582 barrels, “which is enough inventory for 25 days”.

The inventory is expected to rise to 38 days’ supply, when Petrotrin delivers another 30,000 barrels of gasolene on Saturday, September 15.

BNOCL expects to receive its final shipment from Petron over the period September 24-28 of around 30,000 to 35,000 barrels.

Altogether, assuming the shipments arrive as scheduled, the oil company expects to have enough inventory to supply local needs to November 5, assuming a “usage rate of 2,000 barrels a day.”

The Ministry of Energy and Water Resources said that through BNOCL, it has been in discussion with a number of suppliers with a view to employing a similar arrangement to that with Petrotrin.

“The goal is to ensure that this country has a consistent supply of gasolene at an affordable price, while securing a market for Barbados’ crude oil. BNOCL has never had a stock-out of petroleum products and always has adequate inventory to service Barbados, and is ever mindful of the need to do so, particularly during the hurricane season,” the ministry said.

The Mia Mottley-led government also sought to assure Barbadians that “despite the closure of the Petrotrin refinery, there will be no shortage of gasolene in Barbados,” saying it was keeping on top of the situation.

***

NP CEO Says No Fallout On Refinery Closure

(Trinidad and Tobago Newsday, Sasha Harrinanan, 12.Sep.2018) — Most everyone knows about the 1,700 workers who will be out of a job once Petrotrin closes its oil refinery in Pointe-a-Pierre. What fewer people know is that when confirmation of this came on August 28, some National Petroleum Marketing Co Ltd (NP) workers feared they too would lose their jobs.

This was revealed by Bernard Mitchell, CEO of NP during an interview with Business Day at St Christopher’s gas station, Wrightson Road, Port of Spain on September 5.

“There was some anxiety because when the story broke, there wasn’t clarity about what the implications would have been for NP. So there was a bit of anxiety but what we’ve done is engage our employees – indicate there’s no need to be concerned – at a staff meeting last week.”

Seated in a conference room on the first floor of the popular NP-branded gas station, Mitchell said NP’s customers too can rest assured the refinery’s closure will not affect their fuel supply.

“Whether it’s using the seabridge to Tobago, your car or your travel internationally, nothing has changed in terms of the delivery of fuel. Based on what Petrotrin has indicated, it’s their intention to purchase fuel and sell to us, (so) nothing really changes. If, however, we do have to purchase fuel ourselves, we might want to use a larger vessel to deliver more fuel to our sufferance wharf, rather than making more frequent trips on a smaller vessel.”

NP’s sufferance wharf – a licensed private wharf where dutiable goods may be kept until the duty is paid – is behind its head office in Sea Lots, Port of Spain.

Petrotrin will begin transitioning out of the refining business on October 1, but it has not said when the refinery is expected to cease operating. This is one of the questions Mitchell will ask Anthony Chan Tack – interim oversight team member and director in charge of refining and marketing at Petrotrin – when the two meet.

“We are one of their primary stakeholders, so Petrotrin would be meeting with us soon to determine whether there’ll be any changes and if we need to do things differently. Mr Chan Tack is my point of interface there because he’s the one overseeing the refinery side, so the delivery of fuel is through his area.”

Mitchell and Chan Tack held an initial conversation shortly after the August 28 meeting between Petrotrin and the Oilfields Workers Trade Union (OWTU) at the company’s corporate headquarters, Southern Main Road, Pointe-a-Pierre.

Chester Beeput – general manager of aviation and marine fuels at NP – joined the interview via speaker phone at one point to answer Business Day’s questions about possible upgrades to the sufferance wharf.

“We use an ocean-going vessel to transport refined fuels from Petrotrin to Sea Lots. It brings in roughly 25,000 barrels of product and (the wharf’s) draft is five metres. Dredging the channel down to seven metres allows you to go from 25,000 to between 30,000 and 35,000 barrels, depending on the vessel. The other element to consider is, if we dredge down to seven metres, we would now be restricted by the length. The current length of our vessel is roughly 100 metres. We can go up to a maximum of 120 metres,” Beeput said.

Mitchell added to this, explaining that if dredging is required, it would fall under the purview of the National Infrastructure Development Co Ltd (NIDCO).

“We have been in contact with NIDCO and they are in the process of looking at the issue…It’s only if the opportunity arises for us to purchase fuel internationally, that there would be some urgency in doing that (dredging). Remember, the model is for Petrotrin to continue supplying us with refined fuel, so there’s no need to dredge at this time.”

The supply of aviation fuel to state-owned Caribbean Airlines Ltd (CAL) and all other airlines which refuel in TT was also discussed.

Beeput said after the announcement, several airlines expressed concern about the possible impact on jet fuel supplies.

“They asked if we anticipated any disruptions. I explained that for all intents and purposes – based on the information we have – there would be no disruption because whether Petrotrin provides fuel via refining or via importation, the net effect on the airlines would be zero.”

Petrotrin sells jet fuel to NP, then NP sells that to airlines from its tanks at Piarco International Airport, Piarco and ANR Robinson International Airport, Crown Point.

Beeput said CAL pays NP in TT dollars while foreign-based airlines/aircraft pay in US dollars.

During his September 2 televised address to the nation, the Prime Minister said the OWTU “will be given the first option to own and operate (the refinery) on the most favourable terms.” Dr Keith Rowley’s offer was rejected the following day by OWTU president general Ancel Roget, who accused the PM of already having a potential buyer for the refinery.

Asked if NP was considering entering into a partnership with another entity to purchase the refinery, Mitchell immediately replied, “No, no, no.”

He later said this was “an unlikely scenario, at this point in time, because we have absolutely no information on that refinery. To make such a decision would involve detailed, in-depth analysis. Also, it’s not part of our core business.”

“We don’t have the expertise, we don’t have the background information and we don’t see what that’s going to do to add value if we change our business model to include (refining),” Mitchell told Business Day.

***

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)

***

Jamaica: Gas Prices Down $0.72, Diesel Down $0.35

(Jamaica Gleaner, 12.Sep.2018) — Gas prices are to go down by $0.72 tomorrow Thursday, September 13

The state-owned oil refinery, Petrojam, says E-10 87 will sell for $137.82 per litre and a litre of E-10 90 will sell for $140.65.

Automotive diesel oil will go down by $0.35 per litre to sell for $140.50.

The price of Kerosene will move down by $0.28 with that fuel to sell for $123.22.

In the meantime, propane cooking gas will go down by $0.35 to sell for $58.73, while butane will go down by $0.62 to sell for $64.75 per litre.

Retailers will add their mark-ups to the announced prices.

***

AMLO to Continue Drilling Service Contracts

(Bloomberg, Amy Stillman and Eric Martin, 6.Sep.2018) — Mexico’s next president said he will continue with tenders for drilling service contracts starting when he takes office.

“We are preparing the rescue plan for the oil industry that will consist of producing more crude oil soon, and we will need these companies that have experience, most of them national companies,” President-elect Andres Manuel Lopez Obrador told reporters on Thursday in Mexico City. “We are already preparing tenders for the drilling of wells, and we are getting ready because we are going to launch those tenders from the first days of December.”

Lopez Obrador said he will travel to his home state of Tabasco on Saturday to meet with representatives from oil service companies. The meeting will take place with his pick for energy minister Rocio Nahle and the next chief executive officer of Pemex, Octavio Romero, according to a spokesman for Lopez Obrador who asked not to be identified, citing internal policy.

Mexico’s National Hydrocarbons Commission plans to hold auctions for more than 40 blocks and Pemex farm-out deals on February 14.

The leftist leader had previously indicated that future oil auctions, which have lured some of the world’s biggest oil companies, could be suspended or canceled as his government seeks to strengthen Pemex and focus on expanding refining capacity. He has also said that more than 100 oil contracts already awarded to companies such as Royal Dutch Shell Plc, Exxon Mobil Corp and BP Plc are being reviewed.

Pemex’s crude oil output has declined every year since 2004, which Amlo has pledged to turn around with an additional 75 billion pesos ($3.9 billion) for exploration and production investment.

***

AMLO Plans Massive New Oil Refinery

(OilPrice.com, Irina Slav, 5.Sep.2018) — Mexico’s President Andres Manuel Lopez Obrador has plans to build the country’s largest refinery with a capacity to produce 400,000 barrels of gasoline daily, Reuters reports, citing comments by Obrador during a meeting with businessmen in Monterrey.

The refinery would cost US$8 billion to build and construction could start soon, which would see it complete within three years. Though Reuters quoted Obrador as saying, “400,000 bpd of gasoline,” it added in its report that the comments did not made it clear whether he was referring to the crude oil processing capacity of the future facility or its gasoline production capacity.

Currently, Mexico’s refineries have a combined processing capacity of a maximum 1.6 million bpd of crude but, Reuters notes, it has been working at just 40 percent capacity since the start of the year because of accident-caused outages and operational issues. Pemex, which operates the six refineries, also exported more crude as prices improved internationally. In July, the state oil company produced 213,000 bpd of gasoline.

Earlier this year, Rocio Nahle, an adviser to Obrador and the most likely candidate for the Energy Minister job, said “In a three-year period, at the latest, we need to try to consume our own fuels and not depend on foreign gasoline.” This would be bad for U.S. refiners, who export the biggest portion of their production to Mexico. In the last few years, Mexican imports of gasoline and diesel have risen to more than 800,000 bpd, representing over 66 percent of domestic demand.
Mexico’s current oil production stands at about 1.84 million bpd, of which 60 percent is exported. At the same time, according to Reuters, the country imports around 1 million bpd of refined products.

“The commitment is to produce gasoline in Mexico,” Obrador said at the Monterrey meeting. “We want to produce gasoline because we have the raw material, we have crude oil.”

Regarding production, last month Obrador said all oil auctions would be suspended until contracts awarded by the previous government over the last three years are reviewed.

***

An Iconic Legacy Petrotrin – Not Too Big To Fail

(Trinidad and Tobago Newsday, Melanie Waithe, 5.Sep.2018) — Petrotrin has been in operation for over 97 years, and now our legacy refinery as we know it, will close. Its transition is set to begin next month. The announcement was made on the eve of our 56th anniversary of independence and Ancel Roget, president of the Oilfield Workers’ Trade Union (OWTU) commented that a move to privatise the company would bring the country back to “plantation days.”

I offer the proposition that this decision of the Petrotrin board and Cabinet was not the best option, notwithstanding the massive debt with which the company has found itself burdened, due to decisions taken over the last decade. Unfortunately, the major stakeholders could not find common ground.

However, some experts believe there are wider and deeper economic and social implications that are hinged to this decision. I heard a former energy minister ask a pertinent question: was the decision based on the company’s balance sheet, or did stakeholders consider the effects on the economy. So, what were the other options available to the board?

Joint Trade Union Movement (JTUM) members responded to the news via a press conference and issued a statement in support of the plight of their fellow OWTU members. They took the news as a declaration of war on the trade union movement.

The OWTU had proposed a plan to focus on increased productivity, accountability, and achieving production targets, with employees taking full responsibility for performance. Its plan also addressed quick-win projects yielding an additional 2,000 barrels of oil daily, and multiple other initiatives in land and offshore areas. Increasing refinery efficiencies and reviewing from whom TT imports crude were among aspects of this plan.

OWTU’s education and research officer Ozzie Warwick said the Lashley team, chaired by permanent secretary in the Ministry of Energy Selwyn Lashley agreed with the union’s recommendations and commented, “It’s strange it didn’t recommend closing the refinery. But our plan will ensure Petrotrin’s survivability.”

According to reports, Petrotrin is heavily over­staffed, with deficiencies in technical competencies in key disciplines. Manpower costs accounted for between 47 and 50 per cent of recurrent expenditure. It’s net debt at financial year-end 2017 amounted to $11.4 billion while taxes and royalties owed to Government amounted to $3.1 billion. The company is projected to continue accumulating losses at a rate of about $2 billion a year, and left as is, a $25 billion cash injection is needed to keep Petrotrin afloat. Petrotrin also needs to improve the integrity of its assets, estimated to cost around $7 billion to prevent oil leaks for example. This is indeed a dying company.

An unfortunate circumstance is that now the company is apparently bordering on insolvency, as it has been operational only due to its non-payment of taxes, and the Government’s guarantees of short-term loans.

The Government had commissioned the now termed Lashley Report and a strategic review and transition report from McKinsey and Company Inc. After the Lashley Report was received by the energy sub-committee of the Cabinet, it was passed to the ministries of energy and finance and Petrotrin for deeper reviews and analysis, following which a new board was appointed to come up with a plan to turn the company around.

The Lashley Report recommended splitting the company into three divisions: land-based production; its marine operation, Trinmar; and refining and marketing. Energy Minister Franklin Khan had said no options are off the table, but the report failed to propose staffing cuts and steered clear of privatisation. These were glaring weaknesses in the Lashley recommendations. Is it because Lashley assumed that both options would meet trade union resistance? The restructuring proposal would also prove inconsequential.

In September 2017 Cabinet had agreed that the company engage the recognised majority union to discuss cost reduction and survival strategies.

The Prime Minister claims he had formally invited Roget for discussions in an attempt to work out a way forward but the invitation was declined. The union was also apparently invited to sit on the board, and that too was declined. When Government hosted the Spotlight on the Energy Sector at the Hyatt Regency Trinidad, the union once again declined the Government’s invitation.

I seriously question the union’s motives in its unavailability to consult and participate in good faith in discussions to find workable solutions for such an important state-sector company. Was this the best representation the union could have made in the interest of its members and our citizens? Was there sufficient consultation to generate the best ideas given the real-time situation at Petrotrin?

At the worker level, we all should sympathise and offer our collective support as their lives will be altered due to decisions made by others. Given the vacuum created, and the absence of business suggestions to offer alternative opportunities, we would be left with higher unemployment and affected communities.

The Government has now made a bold poker move by “bluffing” the union when the PM publicly offered to sell Petrotrin’s refining assets to the OWTU. This offer should not have surprised anyone, as all reports dealt with the asset integrity of the company, given that the plant is close to 100 years old and carries little, if any, value on Petrotrin’s books. Mothballing the plant would simply not be a strategic economic option, and therefore its sale to a private operator was always on the cards.

The question then is, if the refinery is sold, would the successor company inherit the terms and conditions of the collective agreements? In other words, would any new refining company be viewed as a legal successor to Petrotrin.

This move I think is a well played one, as it now challenges the union to “put its money where its mouth is”. It also provides the Government with the public relations and politically defensive cover of being worker sensitive, while at the same time putting the union into the space to do what they have been calling on Government to make happen.

What is now very clear is that the Petrotrin refinery is not too big to fail, as we have survived both the dismantling of CL Financial, as well as the closure of Caroni Ltd. This too we will survive.

***

Bail out Petrotrin

(Trinidad and Tobago Newsday, Vashtee Achibar, 5.Sep.2018) — Industrial relations consultant Gerard Pinard wants to know whether Government considered every available option before it took the decision to close down the state-owned Petrotrin refinery. He said the decision was not a good one and will hurt the economy and the society because of the important role Petrotrin plays in the country.

Speaking with Business Day, Pinard a former chemical engineer with Trintoc, the predecessor of Petrotrin, said more information should have been made available for such an important development. He cited the announcement by the majority trade union in Petrotrin, Oilfields Workers Trade Union (OWTU) that it had taken them by surprise.

He said while everyone expected something to happen, no one expected it would be as drastic as sending home 2,500 people. He recalled OWTU leader Ancel Roget referring to a memorandum of agreement signed with the Government prior to the last general election, and a joint committee being set up to look into ways and means to make the company viable.

The IR consultant said Petrotrin is duty-bound to consult with the recognised trade unions and must engage them in matters that involve their future. He said the decision to close the refinery cannot be done unilaterally, and if this was the case then the employer (Petrotrin) could be found guilty of an industrial relations offence in the Industrial Court.

“I do not have the information. The union is saying that it came like a thief in the night. If that is so, then it was badly handled. If in fact there were discussions that it was going to happen the union is entitled to put forward alternative options and asked for continued discussions,” he said.

Continuing to press the point that the closure was not handled well, Pinard said it is not only about the workers who are to be sent home.

“There are over 6,000 retirees, over 5,000 contract employees, over 20,000 people who rely on the medical services mostly retirees and former employees and their families. The company runs a hospital and they provide medical benefits at subsidised rates for all these people. We do not know what is going to happen now to them. Will it continue? We don’t know.”

Apart from people directly connected to Petrotrin, Pinard said people in fence line communities of Petrotrin will feel the full impact of the closure.

“Tens of thousands of people from the southern communities, the whole of San Fernando, Pointe-a-Pierre, Marabella, Point Fortin, Santa Flora and Fyzabad depend directly or indirectly on Petrotrin for their livelihood. I don’t know how much thought has gone into that. You have to have job losses but we don’t have the information to say whether this was really the only alternative or the best alternative.”

Pinard said he was puzzled why a bailout, as was done in the case of Clico, was not used. “So my question really is whether TT, as an oil and gas based economy, did not think that our oil industry was strategically important enough to find some ways to save it.” He said Government could have considered writing off part of the debt or taking over part of the debt temporarily as was done in the case of CL Financial.

Pinard said he is not in agreement with Petrotrin chairman Wilfred Espinet that there must be a higher level of oil production to keep the refinery running.

“For the chairman to be talking about we only have 45,000 bpd production and saying the refinery needs 160,000 bpd and therefore you cannot run a refinery profitably, there are countries which have no oil at all and who have refineries operating because they have to import everything to process and refine. So that by itself could never be a reasonable conclusion. We are located right next to the country with the largest oil reserves in the world. Have they considered importing crude from Venezuela?”

He called on Government to explore every available option before taking such a drastic decision to send home workers. He said retrenchment and laying off should always be the last resort.

In an address to the nation on Sunday, Prime Minister Dr Keith Rowley Government had little choice but to close the refinery, stating Petrotrin would need a $25 billion cash bailout to stay alive. Petrotrin loses $2 billion a year, on a recurring debt of $11 billion.

He said the refining assets of would be placed in a new company for potential buyers, including the OWTU, while Petrotrin will focus on extraction and exportation of oil. The Prime Minister is due to meet trade unions, led by the OWTU, today, mostly likely to discuss the state of Petrotrin and the movement’s call for all workers to engage in a day of rest and reflection tomorrow in protest of Government’s economic policies.

***

Kamla Floats Guyana Help for Trinidad Refinery

(Stabroek News, 2.Sep.2018) — Trinidad Opposition Leader Kamla Persad Bissessar has raised the prospect of Guyana oil being used to rescue the beleaguered Petrotrin refinery but Prime Minister Keith Rowley last evening said the aged facility had no reasonable prospect.

Defending the decision by his government to close the over 100- year-old refinery, Rowley yesterday said he had no choice as the climbing debt was too much to saddle his country’s taxpayers with.

“Petrotrin was overburdened with debt. The net debt at financial year-end 2015 amounted to TT$11.4 billion,” Rowley told the twin-island nation in an address which was live streamed.

According to the Trinidadian Prime Minister, “Left as it is, Petrotrin will require an immediate TT$25 billion cash injection just to stay alive” and “there is no way that the company can find this money” as “no financier will lend it because the company simply will not be able to repay such an additional loan.”

He believes that it would be more feasible for the country to focus on exploration and production and export the 40,000 barrels of oil equivalent per day it produces and import the 25,000 barrels it needs for consumption.

“Today with a refining capacity of 140,000 barrels per day, the local production available for refining is 40,000 barrels. We really depend, mostly, on a daily importation of 100,000 barrels per day, which we refine at a significant loss.”

He would later add, “We consume less than 25,000 (barrels) of refined products. It makes far more sense to export the 40,000 that we produce and import what we need. Each barrel will be sold externally on the open market.”

Last week Tuesday it was announced that Petrotrin’s refining and marketing operations would be shuttered. With TT$8 billion in losses in the past five years and a bullet payment of US$850 million due in 2019, Petrotrin chairman Wilfred Espinet had said that terminating its refining and marketing operations and retrenching 1,700 permanent and casual employees was the only way to save the company after 100 years of operations in the industry. Petrotrin also owes the Trinidad Government more than TT$3 billion in taxes and royalties.

Rowley’s position last evening came even as that country’s former Prime Minister, Persad Bissessar called on him to pursue negotiations with Guyana to refine its oil there in order to save the company.

“I understand Guyana has found another well … can we not group in some way and find a way to work together as a CARICOM where we can help them refine their oil,”  she told reporters on Saturday at her Legal Clinic Siparia Constituency Office and which was reported by the Trinidadian newspaper Newsday. Guyana won’t begin pumping oil before 2020.

“I am calling on him to let good sense prevail to be very cautious in making such a drastic and dangerous move, this will have a ripple effect throughout the economy and the country…of course they (Guyana) will build their own refinery but we have one and many of the units in the refinery at Petrotrin are new, so a lot of money has been invested on the refinery side and now they are shutting it down. It is total nonsense,” she added.

Currently, it is still unclear what the Guyana Government would do with its share – 12.5%  – of profit oil from 2020 onwards, from its agreement with ExxonMobil but one government official said that several options are being explored.

One Minister yesterday said that it “Is an ongoing discussion and several workshops and engagements have been held. The options are to ask Exxon or to market, do our own marketing or take our share in kind and send it for refining somewhere. Several proposals have been received and the final decision-making process will be guided by the Department of Energy.”

Stake

Sources have told this newspaper that it has been suggested to the government that Guyana “takes a stake in the Petrotrin refinery and in this way acquire a strategic asset.” In that way, according to one source, Guyana could have its share of oil from the agreement with ExxonMobil and affiliates refined closer to home and secure jobs for persons in both countries.

But while it is still too early to tell what the Guyana and Trinidad governments will decide, a source said, “Guyana may gain a controlling or sizeable share and develop refining capacity and meet many of the outcomes from having a refinery without having to pay as much. Additionally, we can ensure that a percentage of labour is Guyanese who will have to be trained and also we can address some CARICOM integration goals.”

Last evening, the Trinidad PM  made no mention of Guyana or even hinted at restarting the refinery although he said that Petrotrin’s refinery assets would be placed in a separate company.

“We largely operate a business that is largely dependent on foreign oil inputs. All the other refineries in the region that had this same business model, Aruba, Curacao and St Croix have long since closed because they saw it as not a viable business,” Rowley said.

“Our Pointe-à-Pierre refinery is 101 years old and has reached the end of its commercially viable days it is now at a state where it is haemorrhaging cash and the cost of rehabilitating it is way more than its potential to ever be potentially viable, competitive or sustainable. The only commercially sound and viable option is to close the refinery, export Petrotrin’s oil and to import products,” he also noted.

The government of the US Virgin Islands last month approved a proposed US$1.4-billion operating agreement between itself and Arclight Capital Partners LLC, Boston, to restart the former Hovensa Refinery at Limetree Bay, St Croix. The refinery is scheduled for opening by the end of 2019. With an initial crude processing capacity of about 200,000 barrels per day according to the USVI government, the investment is expected to create 1,200 local jobs during construction and as many as 700 permanent jobs upon restarting the facility. The Hovensa refinery was a joint venture between Hess Corporation and Petroleos de Venezuela until it closed in 2012.

Rowley said that the Petrotrin model has outlived its usefulness and it was now time to accept that and equip the company to stand the test of the ever changing global economy.

“Petrotrin’s model has become obsolete and uncompetitive and its operating practices are inefficient. The company was nowhere in line with global industry standards and best practices. In fact the company’s operations are identified as being among the most inefficient in the world. The company if left as it is would continue to operate at a loss at a rate of aboutTT$2B a year. It is not a viable option, to do so is to saddle future generations with a huge debt burden. If not dealt with now, the negative effects will get worst and it simply cannot work. To break even would cost TT$7B and would involve significant staff cuts and an ultra-low sulphur refinery,”

He believed that the “Gross mismanagement of the national patrimony within the last decade” such as many cost overruns and delays in projects for the company  was part of the reason government is now saddled with the large debt.

A committee, headed by TT’s former Energy Ministry Permanent Secretary, Selwyn Lashley, had reported on the dismal state of the company since 2016 and the report showed that in addition to receiving huge subsidies from the state, Petrotrin was not paying its fair share of taxes collected to government.

“Taxes and royalties owed to Government amounted to $3.1 billion as at February 28, 2017. The company was not complying with the tax laws and even when it collected taxes from companies that paid their taxes to Petrotrin for onward transmission to the Ministry of Finance, Petrotrin was huffing and utilizing those monies in its own operations.”

“Money that should be turned over to the Ministry of Finance is held within the company and that is illegal,” he added.

***

Energy MoU Soon Between Guyana, Trinidad

(Stabroek News, Marcelle Thomas, 2.Sep.2018) — A long-delayed Memorandum of Understanding (MoU) between Guyana and Trinidad on energy cooperation is expected to be signed in the coming weeks, according to Trinidad and Tobago’s Minister of Energy, Franklin Khan.

“The Government of Trinidad and Tobago is due to sign a memorandum of energy cooperation in the coming weeks, most likely there in Georgetown,” Khan told Sunday Stabroek via telephone.

The minister did not go into the details of the agreement and said that would be disclosed after the signing. He, however, emphasised that his government is willing to offer its assistance as this country prepares for first oil. “When the Government of Trinidad and Tobago is in Guyana, yes we will offer help and advice to the Government of Guyana on your emerging oil and gas sector and obviously seek their concurrence…,” Khan said.

No official from government was available for comment or to give details on what the agreement would contain. Minister of State Joseph Harmon, who is the minister responsible for oil and gas matters, was out of the country and would not be back until next week, his office said. Several calls to the recently-appointed Head of the Department of Energy, Dr Mark Bynoe, went unanswered.

Since 2016, discussions commenced between Guyana and Trinidad on an MoU under which the latter would provide various forms of support to the oil and gas sector in Guyana. Initiated during a visit here in 2016 by a Trinidad and Tobago delegation led by the then Energy Minister Nicole Olivierre, the MoU was expected to be signed at the end of that year but that did not happen. At the time, Minister of Natural Resources Raphael Trotman had said that the pact would see Guyana receiving support in a range of areas, including advanced technical training for local personnel in the industry.

News of the proposed energy cooperation agreement between Georgetown and Port-of-Spain comes days after the Trinidad and Tobago government inked an agreement with Venezuela to import natural gas from the Spanish-speaking country. That agreement would see the twin-island republic purchasing some 150 million standard cubic feet of natural gas per day from Venezuela’s prolific Dragon Field.

Meanwhile, sources told Sunday Stabroek that it has been suggested to government that Guyana “takes a stake in the Petrotrin refinery and in this way acquire a strategic asset.” In that way, according to one source, Guyana could have its share of oil from the agreement with ExxonMobil and affiliates refined closer to home and secure jobs for persons in both countries.

Last Tuesday, it was announced that Petrotrin’s refining and marketing operations would be shuttered. With TT$8 billion in losses in the past five years and a bullet payment of US$850 million due in 2019, Petrotrin chairman Wilfred Espinet had said that terminating its refining and marketing operations and retrenching 1,700 permanent and casual employees was the only way to save the company after 100 years of operations in the industry. Petrotrin also has a TT$12 billion debt and owes the Trinidad Government more than TT$3 billion in taxes and royalties.

According to the Trinidad Guardian newspaper, the Oilfield Workers’ Trade Union (OWTU) leader, Ancel Roget, had warned that the refinery will be sold to private investors, but Espinet had dismissed this, saying, “There is no likelihood of that refinery being sold.”

Khan told Stabroek News that Petrotrin’s closure does “not really” affect the opportunity for Guyana to still look to T&T to refine its oil or look elsewhere. “We have decided to close the refinery because of its present configuration and cost structure. It is losing money and it’s not sustainable in its current form,” he said. “However, other business models could be proposed,” he added.

‘Mindful’

But while it is still early to tell what the Guyana and Trinidad government will decide, a source said, “Guyana may gain a controlling or sizeable share and develop refining capacity and meet many of the outcomes from having a refinery without having to pay as much. Additionally, we can ensure that a percentage of labour is Guyanese who will have to be trained and also we can address some CARICOM integration goals.”

A government official believes that Guyana has to be mindful of such a move, given the recent agreement Trinidad inked with Venezuela and this country’s longstanding border controversy with Venezuela. “We have to be mindful of a growing relationship between Venezuela and Trinidad and Tobago and won’t want to compromise our energy security by having the asset in a nation where the government grows uncomfortably close with our main detractor…Venezuela may try to influence the [Trinidad and Tobago’s] relationship with Guyana,” the official said.

Khan was asked about possible perceptions and future implications of his country’s agreement with Venezuela but would only say, “We know of all the geopolitics and so on and will answer those questions then.” As to whether the government of Guyana ever discussed acquiring a stake in the now defunct Petrotrin refinery with Port-of-Spain, Khan said neither him nor his government has ever had that discussion.

Currently, it is still unclear what government would do with its share – about 14 percent – of profit oil from 2020 onwards, from its profit sharing agreement with ExxonMobil. As of last year, before the Department of Energy was formed, Trotman had ruled out this country investing in an oil refinery.

“We have done some studies on the feasibility of an oil refinery. We have opened that study for public debate and discussions…  Government has concluded that it, as a government, cannot spend US$5 billion dollars in an oil refinery,” he had said.

The US$5 billion sum he referred to was the figure that Director of Advisory Services at Hartree, Pedro Haas, had told government it would cost to build a refinery here. Haas was hired by the David Granger-led APNU+AFC government to carry out a feasibility study for an oil refinery in Guyana. From his analysis, the cost to construct such a facility would be some US$5 billion, with at least half the invested amount lost upon commissioning.

ExxonMobil was asked by this newspaper if it has decided on a refining company to whom it would sell its share of crude. Through its Public and Government Affairs Officer Deedra Moe, the company responded: “We sell crude oil on the open market. ExxonMobil has an equity crude oil marketing group – an integrated operations, logistics and trading team – that operates around the world and is responsible for marketing ExxonMobil’s global production of crude oil and condensates.”

And while Guyana prepares for first oil in 2020, the government of the US Virgin Islands last month approved a proposed US$1.4-billion operating agreement between itself and Arclight Capital Partners LLC, Boston, to restart the former Hovensa Refinery at Limetree Bay, St Croix. The refinery is scheduled for opening by the end of 2019. With an initial crude processing capacity of about 200,000 barrels per day according to the USVI government, the investment is expected to create 1,200 local jobs during construction and as many as 700 permanent jobs upon restarting the facility. The Hovensa refinery was a joint venture between Hess Corporation and Petroleos de Venezuela until it closed in 2012.

Hess is one of the partners in ExxonMobil’s 6.6 million acres Stabroek Block operations, which last week announced its ninth oil discovery.

Moe was asked if ExxonMobil was looking at refining in St. Croix and responded, “I am not aware of anything regarding St. Croix.”

***

Petrotrin Severance to Cost at Least $1 Bln

(Trinidad and Tobago Newsday, Carla Bridglal, 31.Aug.2018) — Severance packages for Petrotrin workers will cost upwards of $1 billion, Energy Minister Franklin Khan estimated yesterday. But compared to the Pointe-a-Pierre refinery’s annual loss—estimated at $2 billion—that’s a small price to pay.

Khan said the company was still “crunching the numbers” but will offer early retirement for people over 55, as well as “exit packages” for young workers.

“That formula is still being worked out. The figure will be huge because the base salary at Petrotrin is big.”

While the wages at the refinery aren’t necessarily the highest in the company, he said that department did have the highest overtime bill, but overtime doesn’t come into play in the determination.

Khan acknowledged the human impact of the 101-year-old refinery’s closure, saying as a former employee, he empathised with them.

“The numbers did not stack up, otherwise we would have put the economy at risk. Having said that, no matter what spin you put on it there are approximately 3,000 families affected. I am very much conscious of it, and so is the Prime Minister. My entire career was at Petrotrin. I know most of those workers. I supervised some of them. I have a great deal of empathy for them. That is why we would be working out proper packages. We want a spin-off effect like what happened in Couva and Chaguanas after Caroni (1975) Ltd closed down.” Even if the refinery is closed, there will still be lots of activity in the exploration and production side. “I’m not too concerned about La Brea, Santa Flora and Point Fortin. The South Western peninsula is good. The major challenges are the communities of Marabella and Gasparillo, the catchment areas for the refinery.”

The refinery will initially be transformed into a terminalling facility to import fuel in bulk for onward shipping to the Caricom market.

Khan added that even though the company will have to now import fuel, there will be no change to the fuel subsidy. The fuel subsidy is estimated to be $900 million this fiscal year. There’s also a subsidy on liquefied petroleum gas (LPG) or cooking gas, for about $500 million. Petrotrin absorbs the LPG subsidy, but state-owned fuel distributor, National Petroleum, absorbs the fuel subsidy, so the change at Petrotrin will not impact the current subsidy model.

Khan also defended the government’s reticence to publicly comment on the decision to close the refinery. Dr Rowley is expected to address the nation on Sunday. “The announcement was made by the board of directors. Everybody in this country says it’s political interference that killed Petrotrin, so we empowered the board. We gave them the autonomy to act. They made a proposal, it was approved by Cabinet. We don’t have to be on a ball-by-ball commentary in that regard because the very thing the population is accusing the politicians of is what you are asking me to do.”

***

Lennox Petroleum to Take Legal Action Against OWTU

(Trinidad and Tobago Newsday, Yvonne Webb, 31.Aug.2018) — Lennox Petroleum Services Ltd has initiated legal action against members of the Oilfield Workers Trade Union (OWTU), one day after they protested inside the company’s Princess Margaret Street, San Fernando office. CEO Wayne Persad has also applied for an injunction to prevent the union from trespassing on his premises or continuing “their illegal actions.”

In a statement, Persad claimed that on Wednesday, about 40 members of the OWTU forcibly entered the compound, assaulted a security officer and then searched the compound. He said they shouted his name and asked him to come out.

Persad said, consistent with their company’s emergency policies and procedures, the police was notified of the “intrusion” and responded within minutes of the report being made.

OWTU’s chief labour relations officer Lyndon Mendoza, who led the demonstration, questioned the large complement of heavily-armed officers who arrived in about six or seven marked police vehicles, when all the workers did was hold hands, pray and sing union songs. He said they went to Lennox Petroleum, an off-shore company, to deliver a letter on behalf of workers who were owed retroactive payment dating back some three years ago. He said collective bargaining arrangements were signed to this effect. He said the union was there to show solidarity with the workers.

In his statement, Persad said the acts committed were extremely unwarranted and were designed to intimidate management and staff.

He explained that by letter, dated August 27, the company was informed by the OWTU that the dispute which gave rise to the protest was reported to the Ministry of Labour. Given that the company was invited by the ministry to meet with the union on September 11, Persad said Wednesday’s action showed disrespect to the Industrial Relations Act and its process. He said the protest action was a clear attempt to circumvent the procedures stipulated under the act.

“At present, our company is in a transitional period as our majority shareholder/director/founder, Pamela Persad passed away on August 18. The timing of the protest less than a week after the burial of Mrs Persad was extremely insensitive.”

Persad also denied that it employs over 250 workers or that any of their workers are members of the OWTU. He said none of the protestors were employees of his company, neither were they authorised to be on the compound.

***

Shut-Down of Historic Petrotrin Refinery

Petrotrin refinery. Source: Petrotrin

(Trinidad and Tobago Newsday, Carla Bridglal, 30.Aug.2018) — On the eve of the country’s 56th anniversary of Independence, the board of Petrotrin announced it was shutting down the state oil company’s refinery and marketing operations, choosing instead to focus on exploration and production.

Over 2,500 jobs will be affected, and all refining jobs — about 1,700 — will be terminated as the company begins its transition period on October 1.

The tragedy of Petrotrin goes beyond the immediate impact of job losses, though. One of the major casualties of this decision is the 101-year-old Pointe-a-Pierre refinery – once the crown jewel in a collection of state enterprises that has now lost its lustre, a beacon of nationalism whose light is now dulled.

“We are now 101 years old in the refinery business and the purpose of getting into it is no longer relevant, but we are holding on to it because there are emotional ties. And because it is there, what we’ve done now as a board is look at it hard and said, ‘Hey, let’s start from a clean sheet’,” chairman Wilfred Espinet told a media conference on Tuesday.

In the beginning

The Pointe-a-Pierre refinery has had a storied history. First set up in 1917, it was once the biggest in the British Empire. During World War II the refinery was identified as an asset to be “protected at all cost” as a major supplier of aircraft fuel for the Allied forces. In 1940, refining capacity in Trinidad and Tobago was recorded at 28.5 million barrels per year.

In 1956, US company Texaco acquired the refinery, and in 1985, the government, through Trintoc (1974) bought over Texaco’s assets except Trinmar. In 1993, Trintoc and Trintopec were incorporated into Petrotrin. The board had most recently claimed that as part of the restructuring, initiated on March 1, it would split the company’s operations into two arms — exploration and production and refining and marketing. The announcement to shut down the refinery, then, came as a surprise to most.

It’s a bold move, because the nostalgia surrounding Petrotrin and Pointe-a-Pierre is palpable — especially for south Trinidad. The livelihoods of thousands more than 5,000 direct employees of the company are intertwined with the refinery — from restaurants to the technical service providers who have had their base in and around the San Fernando/Marabella area, including Vistabella and Gasparillo.

“It’s a whole domino effect,” said president of the San Fernando Business Association, Daphne Bartlett.

Local historian Prof Brinsley Samaroo has likened the refinery’s end to the closure of Caroni (1975) Ltd, which also had rippling effects throughout local communities of south and central Trinidad.

“The refinery was crucial to the development of Trinidad, from Claxton Bay to San Fernando and beyond. The whole area was developed when the refinery was opened and the opportunities it provided,” he told Business Day.

It’s likely we’ll see a repetition of the economic displacement that happened after Caroni was shut down, and similar areas, like south and central, he said. This time may even be worse though — when Caroni closed, the refinery was still running, providing an economic buffer for the area.

“People in south depend directly on the oil industry. The whole economy hinged on the oil industry since the closure of the sugar factory and we haven’t been able to diversify the economy since then, so we continue to depend on oil. The closure of the refinery is not a good sign and I think we are in for a rough period for the whole country,” Samaroo said.

Many questions to answer

For the wider economy, though, there are still questions that need to be answered. The Petrotrin refinery provided cheap fuel for the local market. Now the country will have to import the equivalent of 25,000 barrels of oil per day to supply the economy, although the amount will hopefully be offset by the how much the company produces — about 40,000 barrels per day. Nonetheless, this will likely require some adjustment, most notably to the fuel subsidy. According to the TT Energy Chamber, over 90 percent of Petrotrin’s sales to the local market have been fuel — 46 per cent is from gasoline, 37 per cent from diesel, and 11 per cent from jet fuel. Five per cent is from liquefied petroleum gas (LPG or cooking gas), but the company has said it will continue to supply this.

“About 20 per cent of the refinery’s output is consumed locally. The refinery is our sole source of gasoline, diesel, and jet fuel. If we don’t have an operational refinery we will of course have to import fuel. Another 17 per cent is exported to Caricom with the main markets being Jamaica, Barbados and Guyana. These countries will have to source fuel extra-regionally,” former energy minster and now consultant and lecturer Kevin Ramnarine said.

He was also concerned about the uncertainty of the subsidy. “The fuel subsidy is based on the ex-refinery price. Since there will be no refinery there will be no ex-refinery price. So, what happens to the subsidy? The country will likely spend about $900 million this year subsidising liquid fuels to the population,” he said.

Rooting out debt ‘cancer’

Petrotrin’s lack of competitiveness has consistently been cited by the board as the fundamental reason for restructuring. In February, during a presentation to a joint select committee of Parliament, the board noted that the company’s key performance indicators, when placed against international benchmarks put the company at the “lowest of the low” in terms of competitiveness.

The refinery has a nameplate capacity of 140,000 barrels of oil per day — it therefore has to import 100,000 barrels a day to remain viable, making it a net consumer of foreign exchange.

“We had a continued programme of looking at all sorts of ways to make this work. We came to the conclusion that if we wanted to be able to pay back the debt, and if we wanted to be able to have a profitable company that could be sustained over time, we would have to take out what was the cancer of the operation and that would have been the refining and marketing.”

And the company has a lot of debt: over $10 billion — including $3 billion to the government. It requires a $25 billion cash injection to stay alive, and next year, a US$850 million bullet payment on a bond issue comes due. In dire tones on Sunday, Energy Minister Franklin Khan said the company had the potential to bankrupt the country.

Even some of the government’s biggest critics have agreed that something needed to be done to get the company back to profitability.

“Things definitely needed to be restructured,” said Bartlett. Ramnarine agreed, especially in the context of the debt burden of the company

Save the refinery

Despite the board’s claims then, that it needed to cut out the “cancer” of the refinery, though, Ramnarine and Bartlett believe the refinery could have been salvaged.

“I don’t think Petrotrin would have bankrupted the country. Petrotrin and its refinery are completely redeemable but there is a need to push for efficiency and cost reduction. US refineries are currently experiencing a ‘golden age’ and are running at record levels in response to robust domestic and international demand for gasoline and fuel oil. The paradigm in the refining business is competitiveness. Having said that we need to appreciate that the country spent US$1.6 billion on the refinery in the last decade and we have some relatively new plants there such as the continuous catalytic reforming plant (Cat Cracker), the iso plant and the acid/alkyl plant,” he said.

Bartlett said instead of shutting the refinery, the country should have instead looked towards improving it to take advantage of opportunities in places like Guyana, which is currently experiencing the first waves of an oil boom.

“We know it can be viable because of what’s happening in Guyana. State-owned companies do not belong to politicians. A decision like this should have been made with open discussion. It makes me wonder, did they think this decision through or did they just want to get rid of it?”

***

Petrotrin Concerned: Ramnarine and Seepersad-Bachan

(Trinidad and Tobago Newsday, Sasha Harrinanan, 29.Aug.2018) — Former energy ministers Kevin Ramnarine and Carolyn Seepersad-Bachan, both of whom served under the previous administration, are asking if Petrotrin’s board considered the wider impact of closing its refinery.

Ramnarine, in a statement after the board’s announcement yesterday, said “the closure of the refinery has to be considered against the impact it has on the economy, (including) the impact on hundreds of contractors and energy service companies who also employ thousands of people. There is the impact on the fence-line communities of Marabella, Vistabella, Gasparillo and San Fernando.”

Seepersad-Bachan, speaking with Newsday, asked if Petrotrin had “considered the possibility of other job cuts related to the refinery’s closure. What about all the other small contractors and spin-off service operations that support Petrotrin’s refinery at this point in time?” Expressing concern about how meaningful planned consultations can be in such a relatively short period – the refinery’s operations will start being phased out from October 1 – the Congress of the People (COP) political leader said her party will soon hold a series of “national conversations” on the matter.

Ramnarine highlighted the supply impact locally and regionally of the impending closure.

About 20 per cent of the refinery’s output is consumed locally. It is TT’s “sole source of gasoline, diesel, jet fuel et cetera. If we don’t have an operational refinery, we will of course have to import fuel.

***

Petrotrin Financials, Details About Pointe-a-Pierre Refinery

(Energy Analytics Institute, Ian Silverman, 29.Aug.2018) — It’s official: Petrotrin or the Petroleum Company of Trinidad and Tobago Limited will cease to operate its lone refinery located at Pointe-a-Pierre.

What follows are details about the company, as per its website.

OUR COMPANY

We are an integrated oil and gas company, engaged in the full range of petroleum operations including the exploration for, development of and production of hydrocarbons, and the manufacturing and marketing of a wide range of petroleum products.

Our position in the energy sector is strengthened by more than 100 years of predecessor experience in crude oil production and manufacturing in this country. (See Our History)

Our organization, Petroleum Company of Trinidad and Tobago Limited (Petrotrin) was incorporated on January 21, 1993 to consolidate and operate the petroleum producing, refining and marketing assets of State-owned enterprises: Trinidad and Tobago Oil Company Limited (Trintoc) and Trinidad and Tobago Petroleum Company Limited (Trintopec). In 2000, these assets were further extended with the acquisition of Trinmar Operations.

As a state-owned Company, Petrotrin is under the direct control of the Minister of Finance acting as Corporation Sole.

The Ministry of Energy and Energy Affairs is the line ministry that provides the specialized technical analyses and statutory approvals for the Company’s operations, while ensuring adherence to the Government’s policy guidelines. (See Governance)

Today, we are Trinidad and Tobago’s largest crude oil producers. We also have an interest in some natural gas production. Our operations and partnerships cover most of the island of Trinidad and much of the waters surrounding the island of Tobago.

We operate Trinidad and Tobago’s only petroleum refinery. Our refinery has a full conversion capacity of up to 168,000 bpd and average throughput of approximately 112, 974 bpd. Our petroleum products are sold locally and as well as to customers across the Caribbean, Latin America and the eastern seaboard of the United States of America. (See Our Operations)

We are one of the largest employers in Trinidad and Tobago with a dedicated workforce of more than 5,000 people. Our team is committed to optimizing our energy resources for the benefit of our stakeholders. As such, we are committed to operational excellence, personal accountability and sustainable practices throughout our operations. (See Sustainable Development)

Together, our people, rich history, extensive operations, sustainable practices, long standing relationships and strategic mid-Atlantic location have strengthened customer confidence in our position as a leading supplier of petroleum products.

Petrotrin’s Board of Directors

FREQUENTLY ASKED QUESTIONS

What is Petrotrin’s main business?

Petroleum Company of Trinidad and Tobago Limited (Petrotrin) is an integrated oil and gas company engaged in the full range of petroleum operations including the exploration for, development of and production of hydrocarbons, and the manufacturing and marketing of a wide range of petroleum products.

When was Petrotrin incorporated?

Petrotrin was incorporated in January 1993, merging selected assets of state owned Trinidad and Tobago Oil Company (TRINTOC) and Trinidad and Tobago Petroleum Company (TRINTOPEC).

Our roots can however be traced to the beginning of commercial oil production in Trinidad and Tobago through predecessors who were listed among the nation’s earliest prospectors in oil and gas.

Who owns Petrotrin?

Petrotrin is a limited liability company, wholly owned by the Government of the Republic of Trinidad and Tobago. The Company is under the direct control of the Minister of Finance as Corporation Sole. The Ministry of Energy and Energy Affairs is the line ministry that provides specialized technical analyses and statutory approvals for our operations while ensuring adherence to Government’s policy guidelines.

How many people are employed by Petrotrin?

Petrotrin has a combined workforce of more than 5,000 employees, the majority of whom are in the core operating areas. Indirect employment is also provided for thousands more.

Where is Petrotrin’s Refinery located?

Our Refinery is located at Pointe-a-Pierre, on the west coast of Trinidad on 2,000 acres of land, approximately 56 kilometres north of San Fernando along the coast of the Gulf of Paria.

What types of products are processed at Petrotrin’s refinery?

Our main refined petroleum products include Liquefied Petroleum Gas, Aviation Fuel, Motor Gasoline, Diesel and Fuel Oil.

Where are Petrotrin’s E&P operations located?

Petrotrin’s E&P operations are spread across the southwestern peninsula of Trinidad. The Company also has E&P operations offshore. Petrotrin operates several E&P offices located at Santa Flora, Point Fortin, Penal, Guayaguayare and Forest Reserve.

OUR PRODUCTS

Avjet Kerosene

Aviation Jet Fuel is a grade of kerosene intended for aircraft powered by turbine engines due to its high flashpoint.

Aviation Gasoline

Aviation Gasoline or Avgas is a grade of gasoline used in the internal combustion engines of aircraft. With a higher octane than Motor Gasoline, Avgas is highly refined so that it remains in a liquid state at low pressure in high altitude.

Diesel Heating Oil

Diesel is an important transportation fuel used in diesel engines found in vehicles, heavy machinery, boats and even power generators.

Fuel Oil

Heavier than diesel, fuel oil is typically used for heating, bunkering and other industrial purposes. Low and medium sulphur fuel oils are available at Petrotrin. Typically, the material is low pour, low metals with less than 8% asphaltenes.

Liquified Petroleum Gas

Liquefied Petroleum Gas or LPG is a group of gases, mainly propane and butane, that have been liquefied under high pressures. LPG is used in a variety of ways including heating, cooking and refrigeration.

Sulphur

At Petrotrin, pelletized sulphur is available for loading in bulk by conveyor belt.

Motor Gasoline

Lighter than Diesel Fuel, Motor Gasoline is the main transportation fuel used in cars and light transportation vehicles. Motor Gasoline has different grades with varying octane numbers that remark on a fuel’s resistance to knock.

We manufacture motor gasolines to customer specifications. We supply the local, regional, Latin American and US Gulf Coast markets.

LAST FINANCIAL REPORT

Petrotrin’s Balance Sheet and Income Statement

Petrotrin’s Cash Flow Statement

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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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1,700 Petrotrin Workers to be Fired, Refinery Closed

Petrotrin workers being addressed by OWTU president general Ancel Roget. Photo: Trevor Watson

(Trinidad Express, 28.Aug.2018) — It’s official. Petrotrin’s refinery is to close. And 2,600 workers will be impacted.

The Petrotrin Board of Directors met Tuesday August 28 with its employee representative unions and the Company’s management to announce plans to end Petrotrin’s oil refining operations at Pointe-a-Pierre and to redesign entirely its Exploration and Production business.

According to a statement from Petrotirn, the restructuring exercise is geared to curtail losses at the state owned oil company and get it on a path to sustainable profitability.

Approximately 2,600 permanent jobs will be affected – the redesigned Exploration and Production business will have approximately 800 workers and all 1,700 jobs in refining will be terminated. Petrotrin is committed to cushioning the effects of any fallout that occurs from the planned changes.

The announcement follows months of careful review and analysis by the Company’s Board of Directors, which was appointed last September to identify the problems at Petrotrin and take the steps necessary to make the Company self-sustainable and profitable.

Petrotrin has lost a total of about TT$8 billion in the last five years; is TT$12 billion in debt; and owes the Government of Trinidad and Tobago more than TT$3 billion in taxes and royalties.

The Company currently requires a cash injection of TT$25 billion to stay alive –– to refresh its infrastructure, and to repay its debt –– and even with that, if left as is, it is projected to continue losing about TT$2 billion a year.

Chairman Wilfred Espinet said: “With the termination of the refining operations and the redesign of Exploration and Production, Petrotrin will now be able to independently finance all of its debt and become a sustainable business.”

OWTU president general Ancel Roget. Photo: Trevor Watson

“Petrotrin is no longer producing enough oil to operate the Pointe-a-Pierre refinery efficiently: We are producing approximately 40,000 barrels of oil a day and the refinery operates at a capacity of 140,000 barrels a day, so we have to go to the market to buy about 100,000 barrels of oil to make up the shortfall. This results in a net loss in foreign exchange.”

The refining of oil will be phased out and the Company will import the refined products (gasoline, diesel, aviation fuels, etc.) that the country needs –– approximately 25,000 barrels of oil equivalent a day. All of the Company’s oil will be exported.

Espinet said: “Our goal is for Petrotrin be an internationally competitive and sustainably profitable leader in the local energy sector; and an employer of choice, that is a source of national pride.”

The period of transition will commence on October 1, 2018.

According to the company, the Board of Directors is taking all requisite steps to facilitate a smooth and efficient period of transition with safety and the security of the country’s fuel supply being its two priorities.

Petrotrin will be meeting with all of its stakeholders during the coming weeks to discuss how the proposed changes may affect them.

***

PetroTrin Refinery to Close

Petrotrin’s Pointe-a-Pierre refinery operations. Photo: Richard Charan

(Trinidad Express, Ria Taitt, 28.Aug.2018) — The Government has decided to shut down the refinery of State oil company Petrotrin.

The country can no longer afford to continue to refine oil and lose billions of dollars in this process, a senior Cabinet source told the Express yesterday.

The company will instead be expanding its operations in oil exploration and production, the source said.

The source said Oilfields Workers’ Trade Union (OWTU) president general Ancel Roget was told “in no uncertain terms that the major restructuring at Petrotrin will be that Trinidad and Tobago would be moving out of the refinery business because it does not have oil to refine”.

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Trinidad Imports 40% of Oil from Russia

(Energy Analytics Institute, Ian Silverman, 27.Aug.2018) —Trinidad and Tobago is relying on Russia as its main source of imported crude oil.

Between January and June 2018, the small twin-island country imported over 15 million barrels of crude oil from the [Petrotrin] refinery. Of that, 40% of the crude oil imports came from Russia, 29% from Colombia, 22% from Gabon, 8% from Canada and 1% from Barbados, announced Trinidad and Tobago’s Energy Chamber in a twitter post.

Caribbean Economist Marla Dukharan commented on the situation in the following twitter post.

***

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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MEEI Updates on Status of Trinidad Energy Infrastructure

(MEEI, 24.Aug.2018) — The Ministry of Energy and Energy Industries (MEEI) has been monitoring the impacts of the 6.9 magnitude earthquake which occurred on Tuesday 21st August, 2018 at 5:31 p.m. that reportedly caused some property damage across the country.

Reports from the energy sector companies have, so far, indicated that there have been no visible structural damage to offshore and onshore infrastructure, although assessments are currently ongoing.

Some companies, such has Shell, opted to shut-in offshore facilities to conduct such assessments.

In particular, with respect to Trinmar, some offshore installations have been minimally impacted, the most serious being structural damage to the Block Station Bridge on Platform 4 in the Main Soldado Field. A team of Construction Engineering personnel has since examined the damage with the aim of developing measures to rectify the situation. Plans for corrective measures to restore workmen facilities and other general utilities are also being finalized.

At the Petrotrin Refinery, there have been no reported disruptions, save and except impacts to the loading arm for loading vessels with petroleum products. As such, there is expected to be delays in loading vessels for the time being.

There have been reported impacts to office buildings in Port of Spain such as Albion Plaza, Shell House, NPMC Sea Lots, and Atlantic.

NP has assured that there is an adequate and available supply of fuel at its service stations.

The National Gas Company (NGC) has indicated that there was no damage to its facilities and infrastructure. Atlantic LNG’s facilities and infrastructure at Point Fortin were not affected and continue to produce.

Further, there have been no reported damage to any of the following organisations/facilities:

Petrochemical Plants

— Methanol Holdings Trinidad Ltd

— Point Lisas Nitrogen Ltd

— Yara & TRINGEN

— Caribbean Nitrogen Company & N2000

Natural Gas Liquids Facilities

— Phoenix Park Gas Processors Ltd Power Generation

— Trinity Power Ltd

— PowerGen

— Trinidad Generation Unlimited

The Ministry is awaiting responses from other stakeholders. As assessments continue the public will be advised on any further developments accordingly.

***

Petrobras to Start Replan Refinery Reopen in 48 Hours

(Reuters, 22.Aug.2018) — Brazil’s state-run oil company Petróleo Brasileiro SA may begin procedures to reopen its largest refinery, closed after an explosion and fire, in 48 hours, Gustavo Marsaioli, a spokesman for the oil workers’ union, said on Wednesday.

Marsaioli said Petrobras intends to reopen the Paulinia refinery, known as Replan, at half-capacity given the fire early on Monday that affected part of the facility. The unaffected part may go back into production a week after procedures for reopening are completed, Marsaioli said.

Petrobras did not immediately respond to a request for comment.

Replan accounts for about 20 percent of Petrobras’ refining capacity, processing the equivalent of 434,000 barrels of oil per day, according to the company’s website.

A Petrobras executive said the incident was serious but that the company had enough stocks to cover Replan halting operations for 15 days.

(Reporting by Roberto Samora; Writing by Tatiana Bautzer and Alexandra Alper; editing by Jonathan Oatis and Susan Thomas)

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Esmeraldas Refinery Stoppage Delayed Until March 2019

(Energy Analytics Institute, Ian Silverman, 22.Aug.2018) – A scheduled 54-day stoppage at the Esmeraldas Refinery for the maintenance of the Non-Catalytic 1 and Catalytic 1 units will be postponed until March 2019.

The stoppage, originally planned to commence on August 16, 2018, was postponed by PetroEcuador as the contractor in charge of supplying pipes for the VH1 Furnace of the Vacuum Plant has experienced procurement delays, announced Ecuador’s Hydrocarbon Ministry in a statement on its website.

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Petrobras Sees No Fuel Supply Shortage After Replan Fire

(Reuters, 20.Aug.2018) – A director at Brazilian state-run oil company Petroleo Brasileiro SA said on Monday a fire at the company’s largest refinery Replan, in the state of São Paulo, is not expected to compromise fuel supplies in the short run.

Jorge Celestino Ramos, the company’s refining and natural gas director, said fuel supplies are guaranteed for 15 days as other refineries may compensate any shortfall at Replan, where production remains halted since the early hours of the day.

(Reporting by Rodrigo Viga Gaier Writing by Ana Mano Editing by Chizu Nomiyama)

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Venezuelan Oil Assets to be Seized by Creditors

(Express, Simon Osborne, 16.Aug.2018) – Venezuela’s oil assets are being targeted by angry creditors after a US court granted a Canadian mining company permission to send in the bailiffs.

Firms owed billions by the beleaguered South American country and its state-owned oil firm PDVSA are now lining up to make sure they get a pay-out.

The Venezuelan economy is crippled by hyperinflation and the discredited regime of President Nicolás Maduro faces trade sanctions from the US, EU, Canada and Latin America’s biggest countries.

The country is essentially bankrupt and creditors see its oil assets as their best bet with the biggest target being Citgo, a Texas-based oil refiner that processes Venezuelan crude oil and is estimated to be worth roughly £3.15bn.

Oil tankers could also be targeted as US hedge fund Elliott Management did with an Argentine ship in 2012 after it won a US court ruling to collect on unpaid debts.

Venezuela, which is overdue on about £4.5bn in debt payments, is reportedly transferring oil cargoes to safe harbours including Cuba to avoid such risks.

Canadian mining company Crystallex won a key battle in its attempts to force Venezuela to pay £1.1bn in compensation for expropriation of a mining project when a US judge accepted its argument that PDVSA was an “alter ego” of the Venezuelan state and gave it the right to seize PDVSA assets in the US.

Francisco Rodriguez, chief economist of Torino Capital said the ruling could serve as a precedent.

He said: “This judgment is unambiguously negative for Venezuela, given its loss of an asset of significant value. In all likelihood the ruling will spur creditors to attempt to pursue PDVSA assets.”

ConocoPhillips has already won a £1.57bn arbitration award against PDVSA from the International Chamber of Commerce, the US oil major seized the company’s assets in the Caribbean.

The seizures left PDVSA without access to facilities that process almost a quarter of Venezuela’s oil exports.

To avoid the risk of other assets being taken, PDVSA asked its customers to load oil from its anchored vessels acting as floating storage units.

Citgo’s complicated ownership – half the company is security against more than £2.36bn of PDVSA bonds and half is collateral for a £1.18bn loan from Russian oil giant Rosneft – means any immediate plundering of its assets is extremely unlikely.

Robert Kahn, a professor at the American University and a former International Monetary Fund official, said: “The ruling is a win for Crystallex, no doubt. But I’m not convinced that it immediately marks a tipping point.”

Richard Cooper, senior partner at New York law firm Cleary Gottlieb Steen & Hamilton, said: “The Crystallex ruling doesn’t mean that every Republic of Venezuela bondholder can automatically assume that PDVSA assets are available to them.”

Venezuela also owes tens of billions of dollars to China and Russia but its sole foreign-exchange generating industry is in steep decline with oil output dropping below the 1947 levels of 1.3m barrels per day.

***

PDVSA Leaves Argentine Gas Station to Fend for Itself

(Reuters, Luc Cohen, 15.Aug.2018) – As Venezuela’s state-owned oil company PDVSA saw its finances devastated by low oil prices and mismanagement, it funneled millions of dollars to Petrolera del Conosur (PSUR.BA), a loss-making Argentine gas station operator it controls.

PDVSA decided to cut off the support payments late last year, according to a person familiar with Petrolera del Conosur’s operations, as the once-proud icon of Venezuelan oil production struggled with declining output aggravated by a worsening economic crisis.

The transfers had totaled $89 million between 2013 and 2017, according to a Reuters review of filings with Argentina’s securities regulator, years that coincided with a frustrated effort by Venezuela to extend the petro-diplomacy it employed in the Caribbean to the southern cone of Latin America.

Profitability was likely never the true goal of Venezuela’s Argentina foray, said David Mares, a political science professor at the University of California, San Diego. In 2006, late President Hugo Chavez unveiled a plan to transform PDVSA from a commercial company to a domestic and international political tool.

Before oil prices crashed in 2014, Venezuela’s government used PDVSA to fund social programs at home and provide countries in the region with cheap fuel to promote its socialist model and push back on United States influence.

The most well-known example is Petrocaribe, a program through which Venezuela sends crude and fuel to Caribbean countries on generous credit terms or through barter deals. But Chavez also signed deals with governments elsewhere in the region, including Argentina and Uruguay, to sell fuel and invest in energy infrastructure.

“The idea of having a series of gasoline stations in Argentina would fit in that context. It’s to show the Bolivarian revolution benefits people at the ground level,” Mares said. “The surprise is that they’ve lasted so long, because PDVSA is broke, the country is broke.”

PDVSA in 2006 purchased a 46 percent stake in Conosur from Uruguay’s ANCAP, which it boosted to a controlling 94 percent in 2010. PDVSA’s website still boasts of a goal to run 600 stations in Argentina to gain a market share of 12 percent in the country.

Conosur’s struggles come as some of PDVSA’s other overseas ventures, most launched through a wave of overseas expansion in the 1980s or as part of Chavez’s attempts to use “oil diplomacy,” have been scaled back or shuttered.

One of the most emblematic is Hovensa, a refinery in the U.S. Virgin Islands operated jointly with Hess Corp (HES.N), that filed for bankruptcy in 2015.

‘STRATEGIC ALLIANCE’

Since 2013, Conosur has posted hundreds of millions of pesos in annual losses. Fuel sales at its PDV Sur and Sol-branded stations have plunged 86 percent, as it struggled to compete with rivals like state-owned YPF (YPFD.BA), which produce their own crude and refine their own fuel.

PDVSA also strove to become an integrated player in Argentina, but efforts to acquire upstream and refining assets never worked out, the person said.

Neither PDVSA nor PDVSA Argentina, the subsidiary that owns the Conosur stake, responded to requests for comment.

And in a sign of how Venezuela’s economic crisis has derailed its ambitions to challenge U.S. diplomatic and financial power through regional energy integration, Conosur has not notified Argentina’s stock watchdog of any payments from PDVSA since Dec. 29, 2017.

The choice to cut off support amounts to a formal abandoning of the upstream goals in favor of strengthening the existing network as part of a restructuring of the company, said the person, speaking on condition of anonymity because they were not authorized to speak publicly.

“The supports were rational when the goal was the whole supply chain,” the person said, adding the company was in talks for a strategic alliance with a fuel supplier to access cheaper refined products, rather than depending on the spot market.

That deal could be necessary to keep the company alive without PDVSA’s support.

The company posted a 177.5 million peso loss in 2017, and warned on Dec. 20 that PDVSA’s transfers had helped it avoid being dissolved in accordance with the requirements of an Argentine corporate law for companies that run out of capital.

Since then, losses have accelerated, to the tune of 226 million pesos in the first half.

Conosur’s struggles have dashed many employees’ hopes that PDVSA’s takeover would signal a new era of prosperity at the chain, which had also struggled under Uruguayan ownership.

“We saw it as a panacea,” said one former employee, laid off earlier this year with around a dozen others. “But it was more or less the same.”

Additional reporting by Alexandra Ulmer in Caracas and Marianna Parraga in Mexico City; Editing by Bernadette Baum

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Ecopetrol Reports Higher Sales, EBITDA in 2Q:18

(Ecopetrol, 14.Aug.2018) – Ecopetrol S.A. announced the Business Group’s financial results for the second quarter and the first half of 2018, prepared in accordance with International Financial Reporting Standards applicable in Colombia.

The figures included in this report are unaudited. Financial information is expressed in billions of Colombian pesos (COP), US dollars (USD), thousands of barrels of oil equivalent per day (mboed) or tons, as noted where applicable. For presentation purposes, certain figures in this report have been rounded to the nearest decimal place.

In words of Felipe Bayón Pardo, CEO of Ecopetrol:

“During the second quarter of 2018, we saw significant operational and financial achievements for the Business Group. We posted an EBITDA margin of 51%, the highest in the business group’s history, and had the highest production of the past seven quarters, at 721,000 barrels of petroleum equivalent per day, up 2.8% from the first quarter of 2018. We were able to take advantage of the favorable environment for crude prices and at the same time confirm our technical, operational and financial capacity and our commitment to safe and environmentally responsible practices.

“Net profit in the first half of 2018 totaled 6.1 trillion pesos, with cumulative EBITDA of 15.8 trillion pesos. This achievement was possible thanks to the optimal operation of the different business segments and the financial discipline of the Group’s companies, combined with better crude prices during the period. At the close of the quarter, we succeeded in maintaining a solid cash position of 15.8 trillion pesos, even after paying out 2 trillion pesos as dividends on 2017 earnings. Risk rating agencies acknowledge our successes and have confirmed our investment-grade credit rating. Indeed, Moody’s upgraded our baseline credit assessment from ba3 to ba1.

“Our commercial strategy, announced in 2015, has succeeded in yielding tangible benefits. In the first half of 2018, we succeeded in maintaining levels close to those of the first half of 2017, even with the 35% increase in the price of Brent crude and challenging environment. For the first half of 2018, the spread on the crude sales basket was -7.7 dollars per barrel, versus -7.5 for the same period in 2017.

“Average production for the quarter totaled 721,000 barrels of oil equivalent per day, some 0.6% above the same period the previous year and 2.8% over the first quarter of 2018. We succeeded in recovering from the operational issues in the first quarter, thanks to the results of the drilling campaign in fields such as La Cira, Rubiales, Caño Sur, Dina, Quifa and Castilla. The increased activity will lead us to the path of growth and ensure meeting our annual production goal at a range of 715,000 to 725,000 barrels of petroleum equivalent per day. On the other hand, the pilot recovery programs are also advancing satisfactorily; currently 21 pilots are in operation, 16 of which are still in the expansion phase.

“In the exploratory campaign, we scored a success during the quarter by confirming the presence of dry gas and light crude at the Bufalo-1 well, in the Valle Medio del Magdalena basin. We have also completed drilling of the Coyote-2 and Coyote-3 appraisal wells, located in the Valle Medio del Magdalena, as well as Capachos Sur-2, located in the Piedemonte. These three wells are undergoing assessment to determine their commercial feasibility. We expect to drill at least 12 exploratory wells in 2018.

“As part of our Near Field Exploration strategy, in late May the Infantas Oriente field in Barrancabermeja (Santander) was declared commercial. This allowed us to incorporate in record time the reserves associated with the Infantas Oriente-1 discovery, the assessment of which was carried out at the start of the year.

“In the transport segment, I would like to note the resumption of operations on the Caño Limón – Coveñas oil pipeline in June and the stability of the transport system for heavy crudes with viscosity greater than 600 centistokes (cst – a measure of viscosity), thereby structurally reducing dilution requirements.

“The reversal strategy implemented since 2017 on the Bicentenario oil pipeline allowed for reducing the impact of the attacks and illegal valves affecting the Caño Limón – Coveñas oil pipeline, preventing deferred production in its surrounding fields. In the first half of 2018, 30 reversal cycles were completed on the Bicentenario oil pipeline.

“The Refining segment saw outstanding operational performance in the second quarter, achieving stable throughput of 374,000 barrels per day.

“In the second quarter of 2018, the Cartagena refinery continued to demonstrate the consolidation and optimization of its operations with average throughput of 153,000 barrels per day and throughput composition of 79% domestic crude and 21% imported crude, thus contributing significantly to reducing the Business Group’s cost of sales. In June, it achieved a record in the use of local crudes, at 83% of its diet. The gross refining margin for the Cartagena refinery during the quarter was USD 11.1/bl, up 44% over the same period the previous year (USD 7.7/bl), thus posting 10 consecutive months with gross margins in the double digits.

“Throughput and production at the Barrancabermeja refinery was up over 9% for the quarter versus the same quarter of 2017, thanks to the implementation of initiatives to segregate light and intermediate crudes, thus increasing their availability. The average refining margin for the quarter was USD 10.5/bl, affected primarily by the increase in the price of the crude basket versus Brent.

“In line with the Business Group’s Efficiencies strategy, in the second quarter of the year we incorporated efficiencies representing 429 billion pesos, up 17% over the second quarter of 2017. Thus, cumulative efficiencies in the first half of 2018 totaled 892 billion pesos, for a total of 8 trillion pesos since the launching of the Transformation Program in 2015.

“In addition to the above, we are particularly proud of our success in implementing operational and logistics adjustments in record time throughout the entire supply chain, in order for diesel deliveries to Medellin and its Metropolitan area to have a sulfur content of below 25 parts per million. This is in line with our commitment to the environment, thus contributing to the improvement of the city’s air quality.

“We have also committed to the massive transportation system Transmilenio S.A. to supply natural gas and B2 diesel with a maximum sulfur content of 10 parts per million for the renovation of the bus fleet of phases I and II, thus enabling the entry of EURO VI technologies.

“Together with the national and local institutions, Ecopetrol will continue to improve the quality of fuels for the whole country as set in the enhancement path established in the CONPES document for the improvement of air quality.

“In order to achieve a significant effect, it is not only necessary to improve fuels, but it is also necessary to carry out other actions such as improving the technology and age of the vehicle fleet, as well as promoting other initiatives related to road maintenance, mobility and the reduction of emissions in fixed sources, among others.

“Ecopetrol remains focused on operational excellence, value creation, a commitment to ethics and transparency, safety as a pillar of its operations and care for the environment. We are committed to profitable growth in production and reserves to deliver results that benefit the company’s sustainability and the country’s energy security.”

To review the full report please visit the following link:

https://www.ecopetrol.com.co/english/documentos/Ecopetrol%20-%20Reporte%202Q%202018%2013%2008%202018%20english%20VF.pdf

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Webinar Panelist Discuss All Things Guyana

(Energy Analytics Institute, Piero Stewart, 15.Aug.2018) – The three promised to return to discuss all things Guyana again in six months as the small South American country eyes first oil in 2020.

A three person panel — comprised of Guyana’s Minister of Finance, the Honourable Winston Jordan, Trinidad and Tobago’s Former Energy Minister Kevin Ramnarine, and hosted by Caribbean Economist Marla Dukharan — discussed issues related to Guyana included but not limited to oil, economics, finance, supply issues, infrastructure, and migration, among others (watch the full video below).

What follows are brief highlights as posted during the webinar under the Twitter hashtag #LatAmNRG:

From Kevin Ramnarine …

— “In Guyana, we have moved from 1 to 8 discoveries,” Ramnarine says. He continued: “With an 80% success rate, only 2 wells have been dry.”

— “The whole world is talking about Guyana,” Ramnarine says.

— “Oil production in Guyana is expected to come online at 120,000 barrels per day d in 2020 and peak at 750,000 barrels per day by 2025, according to Exxon,” Ramnarine says.

— “In the early years, Exxon will likely recover Capex. Then, by 2025 we could see an exponential rise in revenues [in Guyana],” Ramnarine says.

— “An infrastructure deficit in Guyana has slowed development in the interior of the country,” Ramnarine says.

— “You want a competitive oil and gas sector that supports that sector,” Ramnarine says.

— “The private sector should take the lead to develop [Guyana’s] infrastructure,” Ramnarine says.

From Winston Jordan …

— “ExxonMobil has put Guyana on the map,” Jordan says.

— “We see ourselves as the Dubai of the Caribbean,” Jordan says.

— “Guyana has infrastructure and human capital resources deficits,” Jordan says.

— “The Guyana tax system is expected to become more efficient in the future,” Jordan says.

— “We have a lot of challenges, but none are insurmountable,” Jordan says.

— “Guyana is putting together a migration policy to give certain benefits to those wanting to return home,” Jordan says.

— “Guyana will seek a loan with the World Bank to assist in the migration process,” Jordan says.

— “There is no definite word yet about a future refinery in Guyana,” Jordan says.

(With special assistance from Melissa Marchand, who moderated the Q&A session).

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Mexico’s Struggling Pemex Awaits New President’s Risky Fix

(Bloomberg, Amy Stillman, 14.Aug.2018) – By most financial measures, Mexico’s state oil company is seriously unwell. The country’s new leader is promising to revive it. But the treatment could end up killing the patient.

After borrowing more than $100 billion, Petroleos Mexicanos is one of the world’s most indebted oil majors. It doesn’t have much oil to show for it: Production has declined every year since 2004, and reserves are down more than half over the past six years. Its refineries lose money, and the more they refine, the more they lose.

Amid all this gloom, Pemex has managed to hang on to investment-grade credit ratings –- by cutting back on capital spending, and enlisting help from private companies to develop oil assets, in exchange for stakes in them. Investors and analysts worry that Andres Manuel Lopez Obrador will do the exact opposite.

The leftist politician won a landslide election victory on July 1, riding a wave of discontent with Mexico’s establishment parties and their austerity policies. AMLO, as he’s known, won’t take office until December. But he’s already busy outlining the change that’s coming, and filling key positions -– including in the oil industry, where his recipe is much the same as for the wider economy: Ramp up investment.

‘Risk Number One’

For Pemex, that means an additional 75 billion pesos ($4 billion) of spending on exploration and production, with the aim of boosting output by one-third over two years. There’ll be another 49 billion pesos to overhaul Pemex’s six refineries, currently producing 41 percent of their potential output. AMLO wants them operating at full capacity. And he may build new ones too.

Money to rehabilitate the refineries will come from the company’s budget, according to Lopez Obrador’s pick for energy minister, Rocio Nahle. And that’s the problem for investors who fear a return to the bad old days when the state company was saddled with outsized tax bills, tapped for spending projects that failed to generate new revenue, and steered toward less profitable areas such as refining rather than drilling.

“Risk number one for Pemex would be higher capital expenditure, from a company that is not generating that same amount in cash,’’ said Nymia Almeida, senior credit officer at Moody’s Investors Service, by phone from Mexico City.

Moody’s classifies Pemex debt as one step above junk. That rating could come into question if there’s a change in the trajectory of spending, Almeida said. While debt reached $104 billion in June, Pemex has actually been “on the right path’’ by gradually reducing the amount of new borrowing, she said. It currently plans to tap markets for $3 billion to $3.5 billion in the remainder of this year.

Bond Rout

The man chosen by Lopez Obrador to steer Pemex through these tricky waters is a longtime political ally — with zero experience in the oil industry.

Octavio Romero , an aide from AMLO’s years as Mexico City mayor last decade, was announced as the oil company’s next chief executive on July 27. The same day, Pemex reported a quarterly loss of $8.8 billion, the biggest since 2016. In the subsequent week, Pemex’s 2028 bonds posted their worst performance since they were sold.

One thing Pemex-watchers will be looking out for under the new regime is the interaction between Pemex’s finances and those of the general government -– and how sharply they’re distinguished.

Even specialists struggle to explain the formula under which Pemex pays taxes to its sole owner, the Mexican state. But whatever it is, the take amounts to a big chunk of the federal budget -– about 20 percent last year.

The figure has come down from 40 percent a decade ago. But, with crude edging back up again in the past year, tax payments are set to rise again -– and that will cancel out much of the benefit that Pemex reaps from the oil rebound, according to Sergio Rodriguez, an analyst at Fitch Ratings.

Gasolinazo

Lopez Obrador’s plans to refine more oil locally and freeze pump prices could add to the financial strain.

The cost of gasoline soared as much as 20 percent last year after the government stopped imposing a cap. The so-called gasolinazo, or price spike, triggered widespread protests. Lopez Obrador has said there’ll be no repeat under his administration, and that may require subsidies. It’s not clear whether any costs would be met by the Finance Ministry, or Pemex.

The latter would be “detrimental’’ to cash-flow, said Lucas Aristizabal, a senior director at Fitch Ratings. At the same time, if Pemex is expected to foot the bill for new refineries, “it’s a very high level of investment with a very low level of return,’’ he said. Lopez Obrador’s proposed new refinery in Tabasco, his home state, is estimated to cost $8.7 billion.

Pemex’s refining arm is making marginal financial improvements but analysts say its not enough. The company reduced its refining losses by about half last year, to a net loss of 31.6 billion pesos. Output hit the lowest level since 1990. The Salina Cruz refinery, Mexico’s largest, was out of operation for almost half the year due to flooding, fires and earthquakes, while others suffered maintenance delays.

The end of government-set fuel prices should allow Pemex to make some money from refining if ”they were competitive and if they were efficient,” said Almeida at Moody’s. ”The problem is that the company’s costs are too high.”

Pemex already spends less on the more profitable business of exploration and production than regional peers. Bringing in private cash to cover that gap was a key goal of the outgoing President Enrique Pena Nieto. His landmark measure in 2014 opened Mexican energy markets to competition after almost eight decades of state monopoly.

Lopez Obrador has a mandate to slow that process down, if not roll it back. His team is reviewing 105 already-signed contracts with private firms, looking for irregularities. Further auctions due in September and October, for exploration rights and contract-sharing with Pemex, have been postponed until February, by which time Lopez Obrador will be in office.

Stealing Fuel

One important Pemex file may land on the desk of AMLO’s police chief rather than his energy or finance ministers.

The practice of tapping pipelines has been around for decades, but it’s booming lately as drug gangs got in on the act. The result has been an increase in violence, and billions of dollars of losses for Pemex.

Lopez Obrador made the fight against corruption central to his campaign. He was often vague on the details.

“We haven’t heard much from AMLO in respect to the issue of fuel theft,’’ said Ixchel Castro, a senior analyst at energy consultant Wood Mackenzie in Mexico City. “But if you want to improve the operations of Pemex, if you want to reduce the losses of the company, this has to be one of the main priorities.’’

— With assistance by Justin Villamil

***

Mexico’s Fuel Plan Won’t Immediately Impact Texas

(Texas Tribune, Juan Luis García Hernández, 14.Aug.2018) – After a dramatic spike in gasoline prices incited widespread protests in Mexico last year, then-presidential candidate Andrés Manuel López Obrador made a promise that caught the attention of Texas officials and the state’s oil and gas industry: The veteran left-wing politician vowed, if elected, to halt the import of gasoline and diesel from the United States and other countries by 2021.

The promise — which López Obrador had previously mentioned and which he reiterated one week after winning in a historic landslide last month — was a key component of his national development platform in his third run for the presidency.

Mexican President-elect Andrés Manuel López Obrador has vowed to halt the import of gasoline and diesel from the United States and other countries by 2021.

During the race, he vowed to reverse policies pursued by his predecessor, Enrique Peña Nieto, that made the country more reliant on the international gasoline market prices. He told supporters it would result in cheaper and more dependable fuel.

“Refineries will be built, gas extraction will be promoted, and the electric industry will be strengthened,” López Obrador said in November 2016, more than a year and a half before the July 1 election. “All this to stop buying gasoline and other fuels abroad.”

Such a policy could have enormous implications for the Texas economy. The state’s refineries produce much of the gasoline and diesel imported to Mexico, where about three out of every five liters of gasoline consumed comes from the United States.

But Texas’ energy regulators, industry groups and experts downplay the potential impacts, casting doubt on López Obrador’s ability to keep his promise — at least immediately.

They say Mexico has a long way to go to wean itself off foreign fuel imports. And they also don’t see Mexico severing ties with a top trading partner.

There’s a sense that López Obrador’s promise was more political than practical, said Steve Everley, managing director of FTI Consulting. Ultimately, he said, economics — and a strong and established trade relationship — will win out.

“That doesn’t mean you don’t take it seriously,” Everley added. “You don’t look at something that’s threatening $14 billion of economic activity and just sort of whistle on past it. But I think we also need to be realistic about the interrelationship between Texas and Mexico and how valuable that is both for them and for us.”

López Obrador’s plan calls for the construction of a refinery in his home state of Tabasco in southeastern Mexico and the rehabilitation of six existing refineries to increase the amount of fuel they can produce. That would cost a combined $11.3 billion.

“It’s very optimistic,” said Texas Tech University economics professor Michael D. Noel. “I will say that in terms of Texas refineries the impact in the short term is likely to be very, very low, and the reason is that you can’t build a refinery overnight. Those things take a long time.”

Noel said Texas refineries could stand to benefit from increased Mexican energy production if it outpaces refinery construction, which may require the country to export fossil fuels to the United States for processing.

Mexico currently only meets one-third of its fuel demand domestically, said Texas Railroad Commissioner Ryan Sitton. Last year, the Mexican market consumed 797,100 barrels of gasoline per day and 365,500 barrels per day of diesel, according to data from Pemex, Mexico’s state-run oil company. Only 35 percent of that came from Mexican refineries.

The U.S. Energy Information Administration doesn’t keep track of how much of U.S. fuel exports to Mexico come from Texas refineries. However, Sitton — one of three elected officials who regulate the state’s oil and gas industry — said Texas refineries sell about 800,000 barrels of gasoline and diesel a day to Mexico, which would mean Texas provides Mexico with an overwhelming majority of its fuel.

“It’s a pretty big shot,” said Sitton. “That’s gasoline production from four or five large refineries.”

Asked a few days after the July 1 election about his ambitious three-year deadline to build a new refinery, López Obrador, who takes office Dec. 1, pointed out that India achieved a similar goal.

That country’s Jamnagar complex was able to nearly double its capacity to 1.2 million barrels per day between 2005 and 2008 by building a second refinery at a cost of $6 billion.

Experts say refinery repairs could prove to be the fastest way for López Obrador to achieve his goal.

“[Building] a refinery takes eight years to do well. A rehabilitation takes between 6 months and a year, costs much less and maybe can reach 60 percent capacity,” said Duncan Wood, director of the Mexico Institute at the Wilson Center in Washington, D.C.

Jorge Canavati, co-president of the International Affairs Committee at the San Antonio Hispanic Chamber of Commerce, said even if Mexico increases its production, market prices will ultimately dictate how much fuel it imports. “When Pemex was aggressively producing, Pemex also imported [gasoline],” he recalled.

Last year started for Mexicans with a rise in gasoline prices of 20 percent, a situation that sparked a series of protests in January.

Experts also say three years would be enough time for Texas refineries to find a new market for their products. With the lifting of a ban on most crude oil exports in 2015 and the enactment of various policies to boost natural gas exports, the United States is poised to become a top fossil fuel exporter to Asia and Europe.

Susan Grissom, chief industry analyst at American Fuel and Petrochemical Manufacturers, scoffed at the idea that the loss of the Mexican market would have a big impact on the United States.

“You know, the world adjusts,” she said.

But it would be a major hole to fill. More than half of the gasoline the United States exported in 2017 went to Mexico, according to the Energy Information Administration. And Mexico has been increasing its imports in recent years due to refining problems. Pemex, which also oversees refining in Mexico, decreased its capacity to make gasoline in the first quarter of 2018 to 220,000 barrels per day. That’s compared to 421,000 barrels per day in 2014.

Energy experts say domestic fuel production has dropped because Mexico has failed to invest in repairs to its aging refineries. Its last one was built more than 40 years ago. There are six refineries in total.

Everley said no fuel export market more sense for the United States — and Texas — than Mexico.

“The question is not whether products refined in Texas can find a market,” Everley said. “The question here is: Do we want to upset a strong trading relationship between Texas and Mexico?”

***

AMLO Pledges More Than $11 Bln for Refineries

(Reuters, 13.Aug.2018) – Mexican President-elect Andres Manuel Lopez Obrador said on Monday his administration will invest more than $11 billion to boost refining capacity in order to curb growing fuel imports.

Lopez Obrador, who will take office on Dec. 1, told reporters his government plans to invest $2.6 billion to modernize existing domestic refineries owned and operated by national oil company Pemex, and spend another $8.4 billion to build a new one within three years.

The $8.4-billion figure is higher than a $6 billion estimate provided by a key energy advisor during the campaign.

Lopez Obrador, set to become Mexico’s first leftist president in decades, did not detail how the projects would be financed or whether private capital would be involved, but he has often said he will not raise taxes or grow government debt.

Mexico is among Latin America’s largest crude exporters, but is also the biggest importer of U.S. refined products. The country’s next president has pledged to lift refining capacity, which he says has declined due to corruption and neglect.

Pemex, formally known as Petroleos Mexicanos, has six domestic refineries with a total processing capacity of some 1.6 million barrels per day (bpd), but the facilities are only operating at about 40 percent of capacity so far this year. Meanwhile, gasoline and diesel imports have sky-rocketed in recent months amid planned and unplanned refinery stoppages.

Pemex has posted losses in its refining division for years but Lopez Obrador aims to boost crude processing enough to halt imports within three years.

Lopez Obrador also said he plans to invest another $4 billion to drill new onshore and shallow-water oil wells in the states of Veracruz, Tabasco and Chiapas.

Pemex production has consistently declined in recent years to fall below 2 million bpd after hitting peak output of 3.4 million bpd in 2004.

President Enrique Pena Nieto passed a reform to open up Mexico’s state-run energy industry to private producers, which has led to a series of competitive auctions that have awarded more than 100 oil exploration and production contracts.

Lopez Obrador has said he will respect those contracts as long as an ongoing review does not find signs of corruption. He is widely expected to slow down the process of offering more contracts to private players.

Reporting by Ana Isabel Martinez; Editing by James Dalgleish

***

Venezuela’s Citgo Refineries At Risk Of Seizure

BOSTON, MA: People walk through the rain in front of the Citgo sign in Kenmore Square, Boston, July 18, 2016. (Photo by Timothy Tai for The Boston Globe via Getty Images)

(Forbes, Robert Rapie, 12.Aug.2018) – In 2007, following Venezuela’s expropriation of billions of dollars of assets from U.S. companies like ExxonMobil and ConocoPhillips, I suggested a potential remedy.

Since Venezuela’s state-owned oil company, PDVSA (Petróleos de Venezuela, S.A.) owns the Citgo refineries in the U.S., I felt the companies that had lost billions of dollars of assets could target these refineries for seizure as compensation.

These refineries have the same vulnerabilities as the U.S. assets in Venezuela that were seized. They represent infrastructure on the ground that can’t be removed from the country.

Citgo has three major refining complexes in the U.S. with a total refining capacity of 750,000 barrels per day. Recognizing the vulnerability from asset seizure, PDVSA tried to sell these assets in 2014, and valued them at $10 billion. But that value have been grossly overstated, considering that Venezuela subsequently pledged 49.9% of Citgo to Russian oil giant Rosneft as collateral for a $1.5 billion loan.

In recent years, PDVSA has lost a series of arbitration awards related to expropriations, and companies have been looking for opportunities to collect. In May, ConocoPhillips seized some PDVSA assets in the Caribbean to partially enforce a $2 billion arbitration award for Venezuela’s 2007 expropriation.

ConocoPhillips had sought up to $22 billion — the largest claim against PDVSA — for the broken contracts from its Hamaca and Petrozuata oil projects. The company is pursuing a separate arbitration case against Venezuela before the World Bank’s International Centre for Settlement of Investment Disputes (ICSID). The ICSID has already declared Venezuela’s takeover unlawful, opening the way for another multi-billion dollar settlement award that may happen before year-end.

MORE FROM FORBES

Last week, a court ruling opened the door for Citgo assets to be seized to pay for these judgments.

Defunct Canadian gold miner Crystallex had been awarded a $1.4 billion judgment over Venezuela’s 2008 nationalization of a Crystallex gold mining operation in the country. A U.S. federal judge ruled that a creditor could seize Citgo’s assets to enforce this award.

This ruling is sure to set off a feeding frenzy among those that have won arbitration rulings against Venezuela. Until the legal rulings are settled, it’s hard to say which companies will end up with Citgo’s assets. But it’s looking far more likely it won’t be PDVSA.

***

Is Venezuelan Oil Output Falling Faster Than Expected?

(OilPrice.com, Nick Cunningham, 12.Aug.2018) – The bad news from Venezuela continues.

In July, Venezuela’s oil production came in lower than PDVSA had targeted, according to Argus Media. While PDVSA had hoped that it, along with its joint venture partners, would produce as much as 1.65 million barrels per day (mb/d) in July, actual production came in at about 1.526 mb/d.

Argus says that production in the Orinoco heavy oil belt, where vast oil reserves are located, was a particular disappointment. The problem for Venezuela is that the Orinoco belt was supposed to hold up better than conventional oil production from elsewhere. The declines are a grave problem for the South American OPEC nation, and they pose an existential threat to the regime of President Nicolas Maduro, who avoided an apparent assassination attempt days ago.

But the production figure that Argus got its hands on, which came from an internal report from PDVSA, seem optimistic, even though they do point to shortfalls. After all, the June OPEC report suggested that output stood at just 1.34 mb/d – data that came from secondary sources, which includes Argus.

Against that backdrop, the 1.526 mb/d figure doesn’t seem credible. Indeed, sources from within PDVSA told Argus that officials from the company’s eastern and western divisions “systematically inflated” the data. “They play with the storage tanks and what they report is not reality,” a senior executive told Argus. In reality, production could have been as low as 1.25 mb/d.

The report is not entirely useless, however, as it does offer some clues into the company’s demise. Argus says that “scant maintenance, reservoir management, skilled labor flight and a lack of critical naptha and light crude for transport and blending” are all contributing to the steep decline in production. An estimated 1,191 wells stopped producing in July.

In a separate report from Argus, it appears that the island of Curacao is “scrambling for a lifeline to resuscitate” the century-old Isla refinery that PDVSA “has nearly abandoned,” due to the fact that ConocoPhillips moved in to seize the facility following an international arbitration decision earlier this year. Curacao says it has the capability to operate the refinery on its own, but it doesn’t have the capital nor the supply of crude oil needed as a feedstock. The refinery can theoretically produce up to 335,000 barrels per day (bpd), but in reality it can probably only produce two-thirds of that amount. For now, it is barely operational with PDVSA no longer supplying the refinery with crude oil.

From PDVSA’s standpoint, the loss of the refinery has only compounded the problems back in Venezuela since the facility was critical to blending and preparing oil for export.

The problems in Venezuela are so bad that even the Trump administration, no stranger to conflict, has decided that it does not want to kick the country while it is down. After having been on the verge of implementing sweeping sanctions – possibility targeted at Venezuela’s oil exports, or perhaps the export of diluent from the U.S. to Venezuela – the Trump administration has scrapped those plans.

In fact, the problems in Venezuela are so acute, that the attempted assassination of President Maduro barely moved the oil market, as the WSJ pointed out. That bears emphasis: There was an attempted coup in a country with the largest oil reserves in the world, a founding OPEC member and still a major oil producer, and the markets basically shrugged it off. And that is not because the oil market is oversupplied – there is a reasonable case to be made that the market could be short on supply at some point this year.

But Venezuela’s oil sector is in shambles, so oil traders are apparently already of the mind that it cannot possibly get any worse. A coup even leaves open the very remote possibility of a rebound, although, as Francisco Monaldi details, growing production by, say, 200,000 bpd per year would require a sustained effort, including investments of around $20 billion per year for a decade. Not to mention a radical change in the political context and a macroeconomic stabilization program. Needless to say, none of that appears to be in the cards anytime soon.

In any event, the coup did not succeed, so the losses are destined to continue. “The permanence of Maduro and his radical circle of collaborators is short-, medium- and long-term bullish for oil prices because the regime will fail to take the steps needed to turn production around,” Raúl Gallegos, a political analysts at Control Risks, and author of Crude Nation, told the Wall Street Journal.

Expect PDVSA to continue to miss its production targets.

***

Citgo Petroleum Company Profile

(Energy Analytics Institute, Aaron Simonsky, 11.Aug2018) – Houston-based Citgo Petroleum Corporation is the refining arm of Venezuela’s Petróleos de Venezuela, S.A. (PDVSA). What follows is a brief company profile.

Citgo, a Delaware corporation with headquarters in Houston, refines, markets, and transports gasoline, diesel fuel, jet fuel, lubricants, petrochemicals, and other petroleum-based industrial products. Citgo has 3,500 employees and is owned by Citgo Holding, Inc., an indirect, wholly owned subsidiary of PDVSA, the national oil company of the Bolivarian Republic of Venezuela, according to data posted to the company’s website.

Citgo owns and operates three highly complex crude oil refineries located in the following cities:

— Lake Charles, LA (425,000 barrels-per-day [b/d]),

— Lemont, IL (167,000-b/d), and

— Corpus Christi, TX (157,000-b/d).

These refineries process approximately 200,000 b/d of Venezuelan crudes, including supplies from Orinoco Oil Belt upgraders. The combined aggregate crude oil refining capacity of 749,000-b/d, positions Citgo as one of the largest refiners in the nation. The company owns and/or operates 48 petroleum product terminals, one of the largest networks in the country.

In 2016, Citgo sold approximately 13.6 billion gallons of refined products, including exports. The company markets quality motor fuels to independent marketers who consistently rate Citgo as one of the best-branded supplier companies in the industry. Citgo branded marketers sell motor fuels through more than 5,200 independently owned, branded retail outlets.

Citgo markets jet fuel directly to airlines and produces a variety of agricultural, automotive, industrial and private label lubricants which are sold to independent distributors, mass marketers and industrial customers as well as other clients. In addition, the company sells petrochemicals and industrial products directly to various manufacturers and industrial companies throughout the United States.

Citgo History

From the gasoline that helps your family take vacations to the advanced medical equipment at your community hospital, Citgo is fueling good, the company reported on its website.

It’s amazing the difference petroleum-based products make in our everyday lives. Based in Houston, Texas, Citgo is a refiner and marketer of transportation fuels, lubricants, petrochemicals and other industrial products. In addition to these products, there’s probably a Citgo in your neighborhood, a convenient place to fill up with gas and grab a quick snack.

The story of Citgo Petroleum Corporation as an enduring American success story began back in 1910 when pioneer oilman, Henry L. Doherty, created the Cities Service Company.

When Cities Service determined that it needed to change its marketing brand, it introduced the name CITGO in 1965, retaining the first syllable of its long-standing name and ending with “GO” to imply power, energy and progressiveness. The now familiar and enduring Citgo “trimark” logo was born.

Occidental Petroleum bought Cities Service in 1982, and Citgo was incorporated as a wholly owned refining, marketing and transportation subsidiary in the spring of the following year. Then, in August, 1983, Citgo was sold to The Southland Corporation to provide an assured supply of gasoline to Southland’s 7-Eleven convenience store chain.

In September, 1986, Southland sold a 50 percent interest in Citgo to Petróleos de Venezuela, S.A., (PDVSA), the national oil company of the Bolivarian Republic of Venezuela. PDVSA acquired the remaining half of Citgo in January, 1990 and the company is owned by Citgo Holding, Inc., an indirect, wholly owned subsidiary. With a secure and ample supply of crude oil, Citgo quickly became a major force in the energy arena.

Since 1985, Citgo has sold its various products through independent marketers. Our relationship with these individuals is really what makes CITGO different from other petroleum companies.

***

Crystallex Wins Right To Tap Citgo For Compensation

(OilPrice.com, Irina Slav, 10.Aug.2018) – Canadian gold miner Crystallex was ruled the winner in a long-running case against Venezuela, which it has sued for the forced nationalization of its assets by the Hugo Chavez government. A U.S. federal judge this week awarded the miner the right to approach Venezuela’s U.S. oil unit, Citgo, to seek its compensation of US$1.4 billion.

The Associated Press notes 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.

There is no reason to believe Crystallex will not seek to enforce the ruling as soon as possible after a decade-old legal battle. Should this happen, PDVSA, according to AP, might have to liquidate Citgo to get funds for the settlement. The company is worth a lot more than US$1.4 billion—it is valued at around US$8 billion—but cash-strapped Caracas does not have a lot of funding sources at the moment.

The judge has delayed the enforcing of the ruling for a week, possibly to give Crystallex and Caracas time to try and reach a payment agreement.

What could make matters worse for Venezuela is the fact that Crystallex is by far not the only company seeking compensation for the nationalization of its business in the country, and now more of those rulings could follow. ConocoPhillips is another one: the company earlier this year won a court order allowing it to seize PDVSA assets in the Caribbean as a way of getting US$2.04 billion in compensation for the nationalization of two projects by the Chavez government.

AP also quoted a broker from Caracas Capital Markets as saying bondholders could follow suit demanding their money, too. Bondholders are owed US$65 billion in bonds that Caracas stopped servicing a year ago.

“This was the most vulnerable low hanging fruit for debtholders to go after. It looks like Crystallex is the lucky lottery winner because they got there first,” Russ Dallen said.

***

Analysts: Only a Matter of Time Before Venezuela Loses Citgo

A tanker sails out of the Port of Corpus Christi in Texas after discharging crude oil at the Citgo refinery. Photo: Eddie Seal, Stf / Bloomberg

(Houston Chronicle, Jordan Blum, 10.Aug.2018) – Financially crippled Venezuela likely will lose control of its Houston refining arm Citgo Petroleum once a slew of lawsuits eventually are resolved, and it’s just a matter of when and to whom, finance and energy analysts said Friday.

A federal judge ruled late Thursday that a defunct Canadian mining firm can go after Citgo’s assets to collect $1.4 billion it allegedly lost from Venezuela when the government seized mining and energy assets more than a decade ago under the late socialist leader Hugo Chávez.

While the Canadian firm, Crystallex International, is unlikely to take control of Citgo’s refining and retail gasoline assets throughout the U.S., the ruling is expected to kick off an array of new legal claims against Venezuela and its state oil company – from Houston-based ConocoPhillips to other oil and gas firms – with the goal of winning Citgo as the prize, legal and finance experts said. After all, Venezuela owes a lot of money to a lot of different companies.

Whichever company eventually wins out could sell to refiners that might be interested, including San Antonio’s Valero Energy, Houston’s Phillips 66, Ohio-based Marathon Petroleum and New Jersey’s PBF Energy, said Jennifer Rowland, and energy analyst with Edward Jones in St. Louis.

“It’s not every day that a suite of refineries becomes available, especially along the Gulf Coast,” Rowland said. “Those assets would definitely fit in some companies’ portfolios.”

Citgo, which declined comment Friday, owns oil refineries in Corpus Christi, Lake Charles, La., and Illinois. The company employs about 4,000 people in the U.S., including 800 in Houston. Citgo has roughly 160 branded gas stations in the Houston area, and about 5,500 nationwide. The company is valued at nearly $8 billion.

Citgo is a U.S. company with a more than 100-year history. It was acquired by Venezuela’s state-run oil company three decades ago. The state oil company, Petroleos de Venezuela SA, is known as PDVSA.

The Citgo assets are seen as the crown jewel for companies targeting PDVSA legally because they’re the most accessible assets outside of Venezuela, said Craig Pirrong, a University of Houston finance professor specializing in energy markets. Thursday’s court ruling opened the door for many more claims made against Citgo by those owed money by Venezuela, he said, because the judge allowed Venezuela’s debts to extend to its U.S. refining assets as an “alter ego” of the government.

“It’s going to be like a feeding frenzy going after Citgo,” Pirrong said.

And now a series of complex legal battles will ensue, possibly dragging out into next year, said Franciso Monaldi, a fellow in Latin American Energy Policy at Rice University’s Baker Institute for Public Policy.

“I don’t expect PDVSA to immediately lose control of Citgo, but I think eventually it will happen,” Monaldi said. “It’s really just a matter of who will get it.”

Venezuela has suffered a financial and geopolitical freefall under Chavez’ socialist successor and current president, Nicolas Maduro. Many thousands of people have fled the country, fearing starvation and violence, including some PDVSA workers, as the country’s oil production has plummeted.

As he’s consolidated power in the destabilized nation, Maduro jailed an opposition lawmaker this week after a failed assassination plot that involved two flying drones with explosives.

Citgo has faced increasing uncertainty since November, when its acting president and five other Houston-based executives with dual citizenship were arrested in Venezuela on corruption charges.

Maduro installed Chávez’s cousin, Asdrúbal Chávez, as the new Citgo president. Although he remains in charge, the new Citgo leader was ordered in July by the U.S. State Department to surrender his U.S. visa amid an ongoing probe into PDVSA. Citgo said Chávez would continue in his role remotely for now.

The future of Citgo is further complicated because 49.9 percent of Citgo is pledged to Russian oil giant Rosneft as collateral for a $1.5 billion loan. The U.S. government would fight losing control of Citgo to Russian interests, analysts said.

As for Crystallex, Thursday’s ruling doesn’t actually hand Citgo over to the defunct firm. But it does position Crystallex to force a large settlement from Venezuela, Monaldi said.

He added that ConocoPhillips could make a stronger claim for Citgo because it’s already won a $2 billion ruling against PDVSA, and not just Venezuela as a whole. In the spring, ConocoPhillips won court orders to seize PDVSA assets on Caribbean islands, quickly taking action against refining and oil storage assets in the Caribbean islands of Curacao, Bonaire and Sint Eustatius.

But ConocoPhillips said it is still a good ways off from recouping the full $2 billion. ConocoPhillips also argued PDVSA has transferred some petroleum products to Citgo to prevent their seizure.

“It’s looking bleak for Venezuela,” Pirrong added.

***

Crystallex Court Win Against Venezuela Aided by Finding

(Reuters, Brian Ellsworth, 10.Aug.2018) – Crystallex’s victory in a legal battle with Venezuela that paves the way for it to collect a $1.4 billion award hinged on a finding that state oil company PDVSA is not separate from the Venezuelan government, court documents showed on Friday.

The U.S. District Court for the District of Delaware granted Crystallex’s request to take ownership of shares in PDVSA subsidiary of PDVH, which owns U.S.-based refiner Citgo, as part of a decade-long dispute over the 2008 nationalization of Crystallex assets.

“Crystallex has met its burden to rebut the presumption of separateness between PDVSA and Venezuela and proven that PDVSA is the alter ego of Venezuela,” wrote Judge Leonard P. Stark in the decision.

The issue has been closely watched by investors holding billions of dollars in Venezuelan bonds, which are almost all in default as the OPEC nation struggles under the collapse of its socialist economy.

Legal experts had generally believed that creditors of Venezuela, which has few foreign assets available to be seized by creditors, would have a difficult time pursuing claims against PDVSA because the two were considered separate.

Venezuela two years ago put up 49.9 percent of Citgo shares as collateral for a $1.5 billion loan from Russian oil major Rosneft. The remaining 50.1 percent was set aside as collateral for PDVSA’s 2020 bond.

Judge Stark said the court had not yet determined when it would issue a writ allowing Crystallex to assume ownership of the shares of PDV Holding Inc, or what mechanism should be used to sell those shares.

“The decision could make it more complicated if other courts ignore the boundary between the government and PDVSA,” said Mark Weidemaier, a professor at the University of North Carolina School of Law. “It expands the pool of creditors that could go after PDVSA and casts a shadow over its ability to keep its oil receivables safe.”

PDVSA did not immediately respond to a request for comment.

Information Minister Jorge Rodriguez, asked by a reporter about the decision during a press conference on Friday, declined to comment on it.

Legal counsel for Crystallex declined to comment.

PDVSA’s 2020 bond dropped 4.500 points in price to 85.500 on Friday

Bonds issued by PDVSA and Venezuela were down slightly, in line with a broad selloff in global markets on Friday.

( Additional reporting by Jonathan Stempel in New York, Editing by Paul Simao and Cynthia Osterman)

***

U.S. Judge Authorizes Seizure of Venezuela’s Citgo

(The Wall Street Journal, Andrew Scurria and Julie Wernau, 9.Aug.2018) – A U.S. federal judge authorized the seizure of Citgo Petroleum Corp. to satisfy a Venezuelan government debt, a ruling that could set off a scramble among Venezuela’s many unpaid creditors to wrest control of its only obviously seizable U.S. asset.

Judge Leonard P. Stark of the U.S. District Court in Wilmington, Del., issued the ruling Thursday. However, his full opinion, which could include conditions or impose further legal hurdles, was sealed. A redacted version is expected to be available at a later date.

The court order raises the likelihood that Venezuela’s state oil company, Petróleos de Venezuela SA, will lose control of a valuable external asset amid the country’s deepening economic and political crisis. The decision could still be appealed to a higher, federal court.

Attorneys for PdVSA weren’t available for comment. Citgo declined to comment.

Crystallex International Corp., a defunct Canadian gold miner that filed the legal action, is trying to collect on a judgment over lost mining rights involving Venezuela’s government. It has targeted Citgo, an oil refiner, because this is the largest U.S. asset of the cash-strapped and crisis-riven country.

Many other creditors of Venezuela are also circling Citgo, but Crystallex is the first to win a judgment authorizing its seizure. Crystallex had argued that Citgo was ultimately owned by PdVSA, which is an “alter ego” of Venezuela that is liable for the South American country’s debts. The judge’s decision in favor of Crystallex allows it to take control of shares of Citgo’s U.S.-based parent company, the first step toward a sale of the company.

Venezuela and its various state-controlled entities together have $62 billion of unsecured bonds outstanding, with approximately $5 billion so far in unpaid interest and principal. Analysts estimate that the government has approximately $150 billion total in debt outstanding to creditors around the world.

Venezuela and its state-controlled entities including PdVSA began missing bond payments last year and have since spiraled into a widespread default. U.S. sanctions bar creditors from engaging the Venezuelan government in any kind of restructuring or buying new debt.

For Venezuela, losing control of Citgo could jeopardize one of its only remaining sources of oil revenue, the U.S. At the same time, investors in Venezuela’s defaulted debt—as well at least 43 companies pursuing legal claims against the government—risk losing one of the few obvious assets in the U.S. that can be seized for repayment.

The only payment made this year by Venezuela was $107 million on its PdVSA bonds, due 2020, for which Citgo is pledged as collateral. That was a clear move by Caracas to protect that asset, analysts have said.

Without ownership of Citgo, investors worry PdVSA would have little incentive to continue to pay on the debt

Any sale of Citgo stock would require U.S. Treasury Department approval, and Crystallex needs to clear other legal hurdles before the shares could be sold.

In trying to lay claim to Citgo, creditors are following a familiar playbook. Hedge funds led by Elliott Management Corp. did something similar when they went after Argentine assets following that country’s 2001 default, the largest sovereign default at the time, on more than $80 billion in sovereign debt.

When Argentina refused to pay settlements arising from the default, the hedge funds sought out Argentine assets to seize and argued that everything from the assets of its central bank to its state-controlled oil company were an “alter ego” of the state.

Elliott in 2012 persuaded a Ghanaian court to impound a training vessel of the Argentine Navy, and in 2014 asked a California court to block Argentina from launching satellites into space. Argentina settled with the hedge funds in 2016, delivering gains of as much as 900% on some of their original principal investments.

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Crystallex Can Go After Venezuela’s US Refineries

(Associated Press, 9.Aug.2018) – A Canadian gold mining company on Thursday won the right to go after Venezuela’s prized U.S.-based oil refineries and collect $1.4 billion it lost in a decade-old take-over by the late socialist President Hugo Chavez.

Chief Judge Leonard P. Stark of the U.S. Federal District Court in Delaware made the ruling in favor of Crystallex, striking a blow to crisis-wracked Venezuela, which stands to lose its most valuable asset outside of the country – Citgo.

Chavez took over the gold mining firm and many other international companies as part of his Bolivarian revolution that’s left the country spiraling into deepening economic and political turmoil.

Venezuelans struggle to afford scarce food and medicine as masses flee across the border. In a sign of rising political tensions, current President Nicolas Maduro threw an opposition lawmaker in jail this week, charged in a failed assassination plot using two drones loaded with explosives.

The latest order by the U.S. judge could set off a scramble by a long list of creditors owed $65 billion from bonds that cash-strapped Venezuela has stopped paying within the last year, said Russ Dallen, a Miami-based partner at the brokerage firm Caracas Capital Markets.

“This was the most vulnerable low hanging fruit for debtholders to go after,” Dallen said. “It looks like Crystallex is the lucky lottery winner because they got there first.”

Chavez in early 2009 announced Venezuela’s take-over of the Canadian mining operations in Bolivar state, a mineral rich region with one of the continent’s largest gold deposits. He accused mining companies of damaging the environment and violating workers’ rights.

Crystallex spent years trying to negotiate a deal with Venezuela before making its case in 2011 to a World Bank arbitration panel, which sided with the Canadian firm, despite Venezuela’s vigorous fight.

U.S.-based Citgo, part of the state-run oil company PDVSA, has three refineries in Louisiana, Texas and Illinois in addition to a network of pipelines. If the order is carried out, Crystallex won’t get all of Citgo – valued at $8 billion – but Venezuela could be forced to liquidate it to make good on the court order.

Today, the gold mining region once operated by Crystallex is largely lawless and dangerous, run by rogue miners who blast the earth with water and mercury to expose gold nuggets and sell them to government forces, often leading to deadly conflicts.

The judge’s ruling is unique, because government assets, like PDVSA, are normally protected from lawsuits against a sovereign nation. But the judge found that Crystallex can attach Citgo’s parent because Venezuela has erased the lines between the government and its oil firm, now run by a military general.

Upon issuing the order, the judge delayed enforcing it for a week, which Dallen said could be a move to give Crystallex and Venezuela time to reach an agreement, such as returning to payment terms of an earlier resolution, Dallen said.

“This gives Venezuela the chance to honor its settlement agreement,” Dallen said. “Or they’ll lose Citgo.”

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Pemex’s Salina Cruz Refinery Halts Operations

Salina Cruz Refinery in Oaxaca. Source: Bloomberg

(Energy Analytics Institute, Ian Silverman, 9.Aug.2018 – Pemex’s Salina Cruz refinery halted operations Wednesday night due to a power outage.

The refinery, located in Oaxaca, is one of six refineries owned by Pemex, and is currently processing 238,000 barrels per day (b/d), reported the daily newspaper El Financiero. The refinery has a refining capacity of 330,000 b/d, the daily added.

The refinery “is in the process of being started,” reported El Financiero, citing a Pemex spokesperson. The name of the official wasn’t revealed by the daily.

Operations at the refinery are expected to resume shortly, the official added.

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Venezuela Dodges Oil Asset Seizures

(Reuters, Marianna Parraga, Mircely Guanipa, 7.Aug.2018) – Reuters) – Venezuela’s state-run oil company PDVSA has limited the damage from an unprecedented slump in crude exports by transferring oil between tankers at sea and loading vessels in neighboring Cuba to avoid asset seizures.

But the OPEC member nation is still fulfilling less than 60 percent of its obligations under supply deals with customers.

Venezuela has been pumping oil this year at the lowest rate in three decades after years of underinvestment and a mass exodus of workers. The state-run firm’s collapse has left the country short of cash to fund its embattled socialist government and triggered an economic crisis.

PDVSA’s problems were compounded in May when U.S. oil firm ConocoPhillips began seizing PDVSA assets in the Caribbean as payment for a $2 billion arbitration award. An arbitration panel at the International Chamber of Commerce (ICC) ordered PDVSA to pay the cash to compensate Conoco for expropriating the firm’s Venezuelan assets in 2007.

The seizures left PDVSA without access to facilities such as Isla refinery in Curacao and BOPEC terminal in Bonaire that accounted for almost a quarter of the company’s oil exports.

Conoco’s actions also forced PDVSA to stop shipping oil on its own vessels to terminals in the Caribbean, and then onto refineries worldwide, to avoid the risk the cargoes would be seized in international waters or foreign ports.

Instead, PDVSA asked customers to charter tankers to Venezuelan waters and load from the company’s own terminals or from anchored PDVSA vessels acting as floating storage units.

The state-run company told some clients in early June it might impose force majeure, a temporary suspension of export contracts, unless they agreed to such ship-to-ship transfers.

PDVSA also requested the customers stop sending vessels to its terminals until it could load those that were already clogging Venezuela’s coastline.

Initially, customers were reluctant to undertake the transfers because of costs, safety concerns and the need for specialist equipment and experienced crew.

But PDVSA has managed to export about 1.3 million barrels per day (bpd) of oil since early July, up from just 765,000 bpd in the first half of June, according to Thomson Reuters data and internal PDVSA shipping data seen by Reuters.

That was still 59 percent of the country’s 2.19 million bpd in contractual obligations to customers for that period, and some vessels are still waiting for weeks in Venezuelan waters to load oil.

There were about two dozen tankers waiting this week to load over 22 million barrels of crude and refined products at the country’s largest ports, according to Reuters data.

“We are not tied to one option or a single loading terminal,” PDVSA President Manuel Quevedo said on Tuesday of the company’s exports. “We have several (terminals) in our country and we have some in the Caribbean, which of course facilitate crude shipping to fulfill our supply contracts.”

CUBAN CONNECTION

PDVSA has also used a route through Cuba to ease the impact of the Conoco seizures. That route is for fuel rather than crude.

The Venezuelan company has used a terminal at the port of Matanzas as a conduit mostly for exporting fuel oil, according to two people familiar with the operations and Thomson Reuters shipping data. Venezuela’s fuel oil is burned in some countries to generate electricity.

Two tankers set sail from the Matanzas terminal for Singapore between mid-May and early July, Reuters data showed. Each ship carried around 500,000 barrels of Venezuelan fuel, Reuters data shows.

In recent months, Venezuela has been shipping fuel to Matanzas in small batches, according to the data.

PDVSA and Cuba’s state-run oil firm Cupet have used Matanzas to store Venezuelan crude and fuel in the past but exports from the terminal to Asian destinations are rare.

That is in part because vessels that use Cuban ports cannot subsequently dock in the United States due to the U.S. commercial embargo on Cuba.

Cupet did not respond to requests for comment.

PDVSA has also used ship-to-ship transfers to fulfill an unusual supply contract it has with Cuba’s Cienfuegos refinery.

The refinery dates from the 1980s – when Cuba was a close ally of the Soviet Union during the Cold War – and the facility was built to process Russian crude.

PDVSA typically uses its own or leased tankers to bring Russian crude from storage in the nearby Dutch Caribbean island of Curacao to Cienfuegos. But it is now discharging the imported Russian oil at sea in Cayman Islands’ waters via these seaborne transfers.

ConocoPhillips last month ratcheted up its collection efforts by moving to depose officials from Citgo Petroleum, PDVSA’s U.S. refining arm, arguing it had improperly claimed ownership of some PDVSA cargoes.

Citgo declined to comment.

ConocoPhillips is also preparing new legal actions to get Caribbean courts to recognize its International Chamber of Commerce arbitration award. If it succeeds in those efforts, it would be able to sell the assets to help satisfy the ruling.

Reporting by Marianna Parraga in Houston and Mircely Guanipa in Punto Fijo, Venezuela; additional reporting by Marc Frank in Havana; Editing by Simon Webb and Brian Thevenot

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US Abandons Sanctions to Avoid Owning Venezuela Collapse

(S&P Global Platts, Brian Shield, 7.Aug.2018) – Just more than a year ago, it was not a question of ‘if’, but ‘when.’

As Venezuela’s leftist leader Nicolas Maduro consolidated power in an election derided as a fraud by the international community, the Trump administration readied exacting sanctions on the South American nation’s oil sector.

“All options are on the table,” said a senior administration official during a July 2017 briefing with reporters, adding that sanctions could be imposed in a matter of days. “All options are being discussed and debated.”

Analysts widely expected sanctions on diluent the US was exporting to Venezuelan refineries first, followed by a prohibition, perhaps phased in over a matter of months, on imports of Venezuelan crude into the US. It was unclear if US refiners, who had long imported Venezuelan crude, would be allowed to continue under an interim “grandfathered” arrangement, but analysts mostly agreed that sanctions were coming.

At the time, the US was importing about 800,000 b/d of Venezuelan crude and the administration was mostly concerned about the impact an import embargo would have on US Gulf Coast refineries, which would need to look for new sources of heavy crude.

Oil sector sanctions from the US seemed so likely that then-US Secretary of State Rex Tillerson told reporters that the administration was looking at ways to soften the impact of the sanctions once they were imposed.

“We’re going to undertake a very quick study to see: Are there some things that the US could easily do with our rich energy endowment, with the infrastructure that we already have available – what could we do to perhaps soften any impact of that?” Tillerson, the former CEO of ExxonMobil, said.

A year later, the US is importing less crude from Venezuela (about 530,300 b/d in July, according to preliminary US Customs data), but Gulf Coast refiners, particularly Valero, continue to rely on these imports.

In fact, US refiners may be importing even more, if Venezuela’s oil sector was not seemingly in a death spiral. Roughly one if every five barrels of oil imported by US Gulf Coast refiners comes from Venezuela.

The EIA forecasts Venezuelan oil production to fall below 1 million b/d by the end of this year, down from 2.3 million b/d in January 2016 as joint ventures fall apart and PDVSA, the state-owned oil company, struggles to feed, let alone pay, its workers. PDVSA has notified international customers than it cannot fully meet crude supply commitments and the country’s active rig count has fallen below 30, according to Baker Hughes International Rig Counts.

By the end of 2019, Venezuelan crude oil output is expected to plummet to 700,000 b/d, making it likely that it will produce less than the US state of New Mexico.

“We’ve never seen an industry or a country collapse this fast and this hard,” said EIA analyst Lejla Villar in a recent interview with the S&P Global Platts Capitol Crude podcast. “We’ve never seen anything like this.”

Industry collapse

The downfall of Venezuela’s chief industry, coupled with International Monetary Fund predictions that inflation in the country will skyrocket to 1 million percent by the end of this year, have created an unusual scenario, in which Maduro may even welcome US sanctions on its oil sector. As Venezuela’s economy continues to unravel, leading to surging prices and rampant hunger, Maduro could try to pin the blame on sanctions.

“If you break it, you buy it,” said George David Banks, a former international energy and environment adviser to President Trump. “The White House doesn’t want to own this crisis.”

The US has sanctioned individuals in Venezuela, including Maduro; prohibited the purchase and sale of any Venezuelan government debt, including any bonds issued by PDVSA; and banned the use of the Venezuela-issued digital currency known as the petro. But oil sector sanctions are viewed as the most powerful penalty remaining and one the Trump administration is more hesitant than ever to use.

“There’s already a humanitarian crisis, but we don’t own that, the Maduro government owns that,” Banks said. “We don’t want to lose the people of Venezuela and you don’t want to pursue a policy that jeopardizes that.”

David Goldwyn, president of Goldwyn Global Strategies and a former special envoy and coordinator for international energy affairs at the US State Department, speculated that it would take extreme action, such as a military assault on a civilian rebellion, for the US to now impose oil sector sanctions. “The system is collapsing and this administration does not want to own the collapse,” Goldwyn said.

The path ahead for Venezuela’s oil sector has, likely, never been less certain. And it remains to be seen what a full collapse of an economy looks like. It is clear, however, that the US wants to avoid blame for accelerating that collapse and has abandoned, at least for now, consideration of oil sanctions.

When Venezuela’s oil sector hits rock bottom, the US does not want to be accused of dragging it there.

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Pemex Has or Doesn’t Have Money?

(Energy Analytics Institute, Aaron Simonsky, 1.Aug.2018) – If Mexico’s Pemex doesn’t have the necessary funds to invest in deep water or shale activities, how is it the state oil company will have funds to invests in new refineries as proposed by President-elect Andrés Manuel López Obrador?

Join the discussion below or on Reddit:

 

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Citgo Raises $$750,000 for Muscular Dystrophy Association

The Plasman family with MDA and Jim Cristman, CITGO Vice President of Refining, thank Diamond Sponsor Midwest Tankermen for their dedication to the golf outing and the MDA. Source: Citgo

(Citgo Petroleum Corporation, 31.Jul.2018) – The Muscular Dystrophy Association (MDA) depends on partnerships to fulfill their mission, and as their largest corporate sponsor, Citgo Petroleum Corporation hosts the annual MDA Driving for a Cure golf outing for employees and contractors from the Citgo Lemont Refinery.

This year, on June 26, 2018, more than 450 golfers raised a record-breaking $755,542 for the MDA. Held at the Cog Hill Golf and Country Club in Lemont, Illinois, the event included 18 holes of golf and a special dinner reception where an MDA family is traditionally asked to share their story and talk about the role the MDA plays in their fight against the effects of muscle-debilitating diseases.

“The Driving for a Cure Golf Outing is truly a special event because of the MDA family represented. They are what this is all about and it’s an honor and a privilege for Citgo to contribute to the cause for a cure through this fundraiser,” said Jim Cristman, Citgo Vice President, Refining.

One important and unique characteristic of the MDA is its policy requiring all locally-raised dollars be spent locally. As a result, life-saving research programs at Lurie Children’s Hospital, Northwestern University and the University of Illinois will benefit. One example of the impact of this policy is former MDA Goodwill Ambassador for Illinois Lizzie Chamberlain who annually kicks off the golf outing by singing the national anthem.

“This was the first year that Liz was not able to attend and sing at the outing because she is receiving a new treatment that the FDA recently approved for her form of muscular dystrophy. It was the MDA that helped fund the beginning stages of the research that brought this treatment to fruition,” said Amanda Konopka, MDA Director of Distinguished Events.

About the Citgo Lemont Refinery

For more than 90 years, Citgo Lemont Refinery has employed more than 750 Chicago area residents on a full-time and contract basis in support of the local economy. In addition to producing high quality fuels for a large portion of the network of more than 5,200 locally-owned Citgo stations across the country, Lemont Refinery employees also make a major positive impact on the community. Each year, more than 2,500 volunteer hours and thousands of dollars are given in support of community programs such as Muscular Dystrophy Association, United Way and a variety of environmental and preservation programs. Operations at the Lemont Refinery began in 1925 with a major expansion, doubling the facility, in 1933. Over the years, new units were added to meet the demand for a better quality of gas for automobiles, aviation fuel for WWII, and the production of asphalt. Petróleos de Venezuela,S.A., PDVSA, acquired 100% ownership of the refinery in 1997 and began operations as Citgo Lemont Refinery. For more information, visit www.citgorefining.com/Lemont

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Mexico Oil Output to Trend Upwards in 2027

(Energy Analytics Institute, Aaron Simonsky, 31.Jul.2018) – Mexico’s oil production will cease to decline in 2025.

That’s according to details of a report published by S&P Global Platts Energy Analyst and Consultant Manager Javier Díaz during an energy forum.

Díaz announced details of projections for Mexican crude oil production until 2040 that showed national crude production stabilizing in 2025; starting to rise in 2027, and reaching 2 million barrels per day through 2035, according to the daily newspaper El Financiero.

Reaching these goals, said Díaz, will depend to a large extent that in the “new era” the following will occur in the energy sector: foreign investment will continue to flow into Mexico, and the tendency to reverse the fall in production and continue the liberalization of the markets will also continue to improve market efficiency.

“These are the focal points that we see that can make the energy market more effective for Mexico,” said Díaz during an interview.

When questioned about the profitability of the possibility that Mexico’s President-elect Andrés Manuel López Obrador would build two new refineries and modernize the existing infrastructure, Díaz said that in the first instance a technical and financial study should be done regarding the possibility to modernize the infrastructure taking into consideration the age and conditions of the refineries.

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PetroTrin Refinery Importing Shortfall

(Energy Analytics Institute, Ian Silverman, 31.Jul.2018) – That’s according to reports in a local newspaper.

“The refinery at PetroTrin has a capacity of 140,000 barrels of oil per day (bopd); the company produces about 42,000 bopd – a shortfall of about 100,000 bopd, which must then be imported,” reported the daily newspaper Trinidad and Tobago Newsday.

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Wheatley Falls: Latest Casualty of Energy Scandal

(Jamaica Gleaner, Edmond Campbell, 31.Jul.2018) – The ongoing scandal that began at the state-owned oil refinery Petrojam has claimed its latest casualty with the resignation yesterday of Andrew Wheatley as minister of science and technology. This follows several weeks of allegations of nepotism and cronyism that triggered investigations from several state watchdog agencies.

Responding to Wheatley’s departure, two powerful groups that had previously called for him to step aside as Cabinet minister yesterday welcomed his resignation. They declared that his departure should signal the beginning, and not the end, of the establishment of systems to reduce the recurrence of corruption at agencies under his watch.

“We regard his resignation as appropriate, but belated. It should have happened some time ago. It vindicates the tradition recently established and sustained by successive administrations to have ministers either resign or tender their resignations in a context such as we have in relation to Petrojam,” Professor Trevor Munroe, head of National Integrity Action (NIA), told The Gleaner.

President of the Private Sector Organisation of Jamaica (PSOJ), Howard Mitchell, also expressed the view that Wheatley’s resignation was welcomed, albeit too late.

Mitchell said that Wheatley’s resignation would now clear the way for a proper investigation to be conducted into the agencies under the energy portfolio.

“This is not the end; it is the beginning, and it should be used as an example of a point of departure for the wider society for us to understand that we cannot build a nation, we cannot have the development that we so badly need, and the growth, without all of us living by the rules, not only the public sector,” Mitchell asserted.

He noted that the PSOJ was not picking on any political party, noting that over the years, the rules have been broken by respective administrations.

The PSOJ boss contended that the country could not achieve economic growth in the midst of corruption, adding that they were inimical to each other. On June 28, the NIA had issued a statement indicating that the principle of individual ministerial responsibility, which is part of Jamaica’s Constitution, as well as code of conduct for ministers, required that Wheatley either tender his resignation or the prime minister ask him to resign.

The NIA said that had Wheatley not resigned, this would have ruptured the tradition of individual ministerial responsibility.

In a release yesterday the People’s National Party (PNP) said it also welcomes “the long overdue removal of Dr Andrew Wheatley from the Cabinet of Jamaica”. However, it has sounded a note of caution that his resignation would not be the end of the matter.

It says the criminal investigations by the Major Organised Crime and Anti-Corruption Agency, the Financial Investigations Division, the auditor general and Integrity Commission into the activities at Petrojam and National Energy Solutions Limited must be pursued to their final conclusions “and let the chips fall where they may”.

The PNP said that the prime minister has a duty to ensure that these agencies receive the necessary resources to complete their investigations and provide their reports in a timely manner to the people of Jamaica.

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Hold It Right There, Petrotrin!

Source: Jamaica Observer

(The Sterling Report, Yanique Leiba-Ebanks, 29.Jul.2018) – Petroleum Company of Trinidad and Tobago Ltd (affectionately known as Petrotrin) is the state-owned oil company in Trinidad and Tobago. Its crude oilfields are located across the south-western peninsula of Trinidad, off the east coast of Trinidad, and in Point Fortin. The country’s economy primarily emphasises oil and petrochemicals, with oil contributing 40 per cent of GDP.

This is what contributed to Trinidad’s enormous wealth as measured by its Net International Reserves which stand at 9.4 months of imports (Dec. 2017) vs. 19.8 weeks for Jamaica (June 2018).

This also led to the country having “A” rated debt as compared to single “B” for Jamaica.

All this changed when oil prices started to decline and their debt was downgraded to BBB+ which is still investment grade, but after further deterioration of the economy, S&P moved its outlook to negative in April.

WHY DO WE CARE ABOUT PETROTRIN?

Petrotrin issued a US$850-million bond that matures in August 2019. While the company has issued other bonds, this was the most attractive to investors. The bond is/was one of the most popular bonds in the market.

The reasons were simple: firstly, everyone in Jamaica was familiar with Trinidad, secondly, the bond has a very short maturity — it matures in 2019, and thirdly, the coupon rate is fixed at 9.75 per cent.

In many ways it was a no-brainer, and given the importance of oil to Trinidad, it was assumed that it was implicitly guaranteed by the Government.

SO WHAT WENT WRONG?

Investors became jittery when the financials showed that the company recorded a massive loss of TT$2.2 billion in 2017. According to a Moody’s report, the cash flow (as at September 2017) was woefully inadequate for repaying the debt maturing in 2019.

The updated figure shown in the financials as at June 2018 shows approximately US$200 million of cash against total debt of US$1.728 billion and a current ratio that is much less than one.

Furthermore, it was announced that Petrotrin was going to split operations and reorganise in February 2018. This was against the backdrop of a deteriorating economy in Trinidad where real GDP growth contracted by 6.0 per cent in 2016 and 2.6 per cent in 2017.

Real GDP growth (Annual percent change) 2014 2015 2016 2017 2018

Trinidad and Tobago -0.3% 1.5% -6.0% -2.6% 0.2%

Source:IMF

LATEST DEVELOPMENTS

  • Petrotrin has recorded an after-tax profit of TT$85.6 million for the quarter ended June 30, 2018. This compared to a loss of TT$517.5 million in the previous quarter.
  • Petrotrin was given the green light to terminate contract with A&V Oil amidst a scandal where the company paid $100 million to A&V Drilling, for oil which was not supplied. In addition, findings showed that the reservoir was incapable of producing the volumes in question.
  • IMF stated that oil output is improving due to exploration and refinery upgrades by Petrotrin. It added that Trinidad & Tobago’s growth may be flat or somewhat negative this year but the economy “may be starting to turn a corner as a result of a projected recovery” in the energy sector.
  • Local and global banks are already in talks with Petrotrin about restructuring the bonds and general liability management.

As a result investors are concerned about the refinancing options available to Petrotrin, especially in light of a recent announcement that the Government will not be guaranteeing any new debt and low cash flows. However, as listed under the latest developments, talks are underway regarding the restructuring of the bonds.

In addition, Petrotrin is a significant contributor to Trinidad and Tobago’s GDP and as such, it would be financial suicide to let it fail, but if you hold this bond, keep a track of the developments and act accordingly.

Yanique Leiba-Ebanks, CFA, FRM is the AVP, Pensions & Portfolio Investments at Sterling Asset Management. Sterling provides financial advice and instruments in U.S. dollars and other hard currencies to the corporate, individual and institutional investor. Visit our website at www.sterling.com.jm Feedback: If you wish to have Sterling address your investment questions in upcoming articles, e-mail us at: info@sterlingasset.net.jm

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Trafigura Seeks to End Ricardo Eliçabe Conflict

(Energy Analytics Institute, Ian Silverman, 28.Jul.2018) – Negotiations continue to advance to overcome a labor related conflict at the Ricardo Eliçabe refinery in Bahía Blanca.

The refinery, acquired last May by the Dutch group Trafigura, has been paralyzed for almost two months, reported the daily newspaper Clarin.

The labor conflict stems from a decision by Trafigura in early June of 2018 to no longer acquire crude for processing. The decision affects an estimated 200 workers.

Recently, in a move to prevent layoffs, the union of Petroleum, Gas and Biofuels Workers has started to accept offers related to voluntary departures and retirements.

“If we can confirm the list of workers who would leave the refinery and it’s accepted by the company, we would close the conflict,” reported the daily, citing union official Fabio Pierdominici.

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Pemex Lets Contract for Tula Refinery

(Oil and Gas Journal, Robert Brelsford, 11.Jun.2018) – Mexico’s Petroleos Mexicanos (Pemex), through its processing subsidiary Pemex Transformacion Industrial (formerly Pemex Refinacion), has let a contract to a partnership of Saipem SPA and Mexican subsidiary Saimexicana SA de CV for works to be carried out on the heavy oil (H-Oil) plant at Pemex’s 215,100-b/d Miguel Hidalgo refinery in Tula, Hidalgo state.

As part of the contract—valued at $39.23 million—Saipem will perform rehabilitation and commissioning works at the H-Oil plant, which currently processes amounts of pure diesel and produces hydrodesulfurized diesel with low sulfur content that are sent in bulk to the catalytic plants, as well as obtaining other products, like diesel, sour gas, dry gas, and acid, Pemex said.

The proposed rehabilitation project will upgrade the H-Oil plant to increase production of ultralow-sulfur gasoline in compliance with environmental regulations and expand handling of crude oil for production of other fuels, such as diesel and jet fuel, the operator said.

Upon launch of the tender seeking bids for the project in March, Carlos Trevino Medina, Pemex’s chief executive officer, said he expected the rehabilitated H-Oil plant to be completed by yearend.

Broader transformation

The H-Oil rehabilitation project comes amid the ongoing reconfiguration of the Tula refinery Pemex began in 2014 (OGJ Online, Nov. 18, 2015).

First announced in 2013, the two-phased Tula refinery reconfiguration project is intended to generally modernize crude oil processing, increase efficiency with which vacuum residue is converted into high-value fuels, expand production of higher-value products, increase refining margins, and reduce fuel-oil handling problems at the site, Pemex said in its latest annual report.

While Phase 1 of the project was about 27% completed by yearend 2016, certain works were delayed and rescheduled—including construction of an 86,000-b/d delayed coking plant and associated installations necessary for its operation—due to budgetary constraints.

As of Mar. 31, construction of the coker plant was 60% completed, and Pemex currently is evaluating funding alternatives through alliances and strategic partnerships to complete construction, the operator said.

With Phase 1 of Tula’s reconfiguration now scheduled to be completed by 2020, Phase 2 of the project—which covers construction of additional processing installations as well as modernization and integration of existing units—is slated for completion in 2022, Pemex said.

Once completed, Pemex said it expects modernization of the Tula refinery will enable the site to increase production of refined products to 220,000 b/d from 154,000 b/d, increasing the refinery’s overall performance by more than 40%.

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PDVSA Installs Stripper Unit at Puerto La Cruz Refinery

(Energy Analytics Institute, Piero Stewart, 28.May.2016) — PDVSA successfully installed a separator or sour water stripper unit, also known as Unit 84, at the Puerto La Cruz refinery in Anzoátegui state. The unit is part of the deep conversion project at the refinery, reported PDVSA in an official statement on its website.

The D-8406 NH3 stripper unit weighs 341 tons, has a diameter of 9 meters and rises 52 meters into the air. The unit is designed to process 1,881 gallons per minute of sour water and generate 1,802 gallons per minute of stripped water, 19,095 pounds per hour of hydrogen sulfide and permit the controlled burning of 9,450 pounds per hour of ammonia. The objective of the unit is to remove diluted hydrogen sulfide and ammonia from the currents of the sour water that come from the following units: Vacuum Distillation (VDU), Sequential Hydro-Processing (SHP), Residual Processing (RWU), Amine Regeneration (ARU), Sulfur Recovery and Tail Gas Treatment (SRU), Hydrogen Recovery (HRU) and Gas Recovery (GRU).

Work at Unit 84 is classified as 21.50 percent complete, according to PDVSA.

Electric Sub-Station Unit 52

The principal electric sub-station, which corresponds to Unit 52, is classified as 40.08 percent complete. Work at the unit includes installation of the heavy equipment and installation of four principal transformers (230/34.5 kilowatts) and with potential of up to 150 mega-volt amperes (MVA) each.

The deep conversion project will require demand of 200 to 220 MVA. The sub-station will have an installed capacity of 600 megawatts, according to PDVSA.

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Venezuela Seizes Helmerich & Payne Rigs

(TulsaWorld, Rod Walton, 2.Jul.2010) – The action comes amid a payment dispute in which the company left the equipment idle.

Helmerich & Payne’s 52-year business relationship with Venezuela came to at least a temporary end Thursday as President Hugo Chavez’s government seized 11 rigs owned by the Tulsa contract drilling company.

The conventional drilling rigs have been idle since last year because Petroleos de Venezuela SA, the national oil company, has not paid Helmerich & Payne Inc. for work, H&P has said.

The company says PDVSA owes it about $43 million. The amount owed once exceeded $100 million.

Venezuela had threatened to seize the rigs since last week, saying that “forced acquisition” was necessary because Helmerich & Payne would not put the equipment back to work.

H&P’s “long-lived” assets in Venezuela are valued at about $67 million, the company’s spokesman Mike Drickamer said in an e-mailed response to the Tulsa World.

The seized rigs make up all of H&P’s equipment in Venezuela.

CEO Hans Helmerich and other company executives initially downplayed the impasse, saying they simply wanted to be paid for past work. Venezuela’s National Assembly and Chavez followed through with the threat by issuing an official decree earlier this week.

Venezuela has been a financial thorn in the side of several companies in recent years.

Williams Cos. Inc. of Tulsa, a natural gas producer, lost two joint-venture compression plants to seizure last year and also was forced to take a $241 million write-down on its books because of nonpayment.

ConocoPhillips, the integrated oil giant with significant offices in Bartlesville, lost multibillion-dollar joint venture projects to seizure by PDVSA. The Houston company later sought international arbitration over the compensation offered by Venezuela.

Citgo, a Houston marketing and retail company once based in Tulsa, is the U.S. wing of the Venezuelan state oil industry.

Helmerich & Payne had no further comment.

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