Venezuelan oil exports priced below market for regional clients or shipped to meet long-term loan commitments to China and Russia
According to PdV's newly released audited financial report for 2016, PdV exported a combined 628,000 b/d of crude and refined products to China and Latin America/Caribbean in 2016, or almost 29pc of its total exports of 2.189mn b/d, to pay oil-backed loans from Beijing and fulfill preferential regional supply agreements led by PetroCaribe.
But PdV oil exports earmarked for debt payments last year appear to have actually jumped to about 828,000 b/d or almost 38pc of its total deliveries when shipments to Russian state-controlled company Rosneft are added in, energy ministry and company officials confirmed to Argus.
PdV's audited financial report omits any mention of oil deliveries to Rosneft in 2016, noting only that the company received cash advances from the Russian company totaling almost $6.5bn from May 2014 to April 2017, including $4bn in 2014, $1.48bn in 2016 and $1.01bn in April 2017.
These cash advances from Rosneft were structured as future oil sales contracts with variable interest rates, delivery timelines and front-end grace periods that are not specified in the financial report, which was released just before midnight on 11 August.
In May 2016, PdV started oil deliveries to Rosneft that were booked as payment for the cash advances received in 2014 – meaning they generated no revenue for PdV last year, a PdV marketing executive said. Initial shipments of around 70,000 b/d rose to almost 200,000 b/d by the end of last year. But at the end of first quarter 2017, PdV was in arrears on over 3mn bl of oil owed to Rosneft, the executive said.
Rosneft is selling the oil it receives from PdV as payment for its cash advances, mainly in the US and India, the executive added.
In 2015, before the deliveries to Rosneft began, PdV's total off-market exports to China and other preferential clients such as PetroCaribe averaged 764,000 b/d, accounting for 31.5pc of that year's total exports of 2.425mn b/d. And in 2014, PdV exported 727,000 b/d in this off-market category, or almost 31pc of that year's total exports of 2.357mn b/d, the company's financial report says. PdV did not make any oil payments to Rosneft in 2014-2015 for cash advances received in 2014.
PdV exported 505,000 b/d of crude and refined products to Chinese state-owned oil companies through the oil-backed loan mechanisms, mainly with China Development Bank. PdV's exports to China in 2016 were 74,000 b/d lower than the previous year's exports of 579,000 b/d, but 33,000 b/d higher than the 472,000 b/d exported in 2014.
PdV booked the value of last year's exports to China at $5.8bn, but said it received only $3.8bn from Venezuelan state development bank Bandes, which manages the Chinese oil-back loan accounts. It is unclear if the gap was remitted back to China or spent by another Venezuelan state entity.
PdV's financial report omits mention that PdV as of April 2017 owed state-owned CNPC and PetroChina over 10mn bl of overdue crude and refined products shipments because of a shortfall in production, which was confirmed by the energy ministry.
PdV exported 123,000 b/d of crude and products in 2016 to Latin American and Caribbean clients, compared with exports of 185,000 b/d in 2015 and 255,000 b/d in 2014. These exports were channeled mainly through the PetroCaribe oil supply initiative launched in 2005 by late president Hugo Chavez to win regional support for his Bolivarian revolution.
The decline in regional supplies reflects PdV's falling output and weaker oil prices that offset the potential benefits to recipient states of financing a portion of their outstanding oil invoices for up to 20 years, the ministry says.
PdV has limited flexibility in structuring its exports to maximize revenue. While the company has cut supplies to PetroCaribe countries such as Jamaica and the Dominican Republic and close ally Cuba, the terms of the oil-backed loan agreements that Venezuela's central government has negotiated with Beijing since 2007 are more rigid. Overall, the central government and PdV have borrowed over a combined $60bn since 2007 from China, of which the finance ministry says some $20bn remains outstanding.
There is little indication that Venezuela can increase its domestic production to offset the revenue lost to oil-backed loans and preferential deals.
PdV's financial report indicates that production, including crude, NGLs and condensates, fell by 328,000 b/d to 2.571mn b/d in 2016, compared with 2.899mn b/d in 2014. Output dropped in all three PdV operating divisions over the period.
PdV's eastern division, comprising mainly the states of Anzoategui, Monagas and Sucre, fell from 903,000 b/d in 2014 to 709,000 b/d in 2016, a decline of 194,000 b/d of mostly light and medium grades.
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