PdV output revival hangs on debt swap, Opec action
OREANDA-NEWS. September 29, 2016. Venezuela's ability to stem declining oil production hinges on a proposed \\$7.1bn bond swap and the outcome of ongoing talks between Opec and non-Opec producers over how to strengthen oil prices.
PdV sweetened the terms of its voluntary bond swap offering this week in an effort to persuade skeptical bondholders to participate.
PdV initially offered to exchange two PdV 2017 bonds for a new PdV 2020 bond in a one-for-one ratio, collateralized with 50.1pc of Delaware-based Citgo Holding's equity, which PdV pegs at \\$8.3bn.
Under the revised terms, holders of a \\$3bn PdV 2017 bond that matures in April 2017 are now being offered a 1.17-to-1 swap ratio, which means that they would receive a new PdV 2020 bond worth \\$1,170 in exchange for a \\$1,000 of the maturing PdV 2017 bond.
Holders of the PdV 2017 bond maturing in November 2017, on which \\$4.1bn currently is outstanding including \\$2.3bn due on 2 November 2016, are now being offered a 1.22-to-1 ratio, a PdV 2020 bond worth \\$1,220 for a PdV 2017 bond worth \\$1,000.
"Still not good enough to warrant the risk, and the issues of Citgo Holding's collateral and Citgo's true market valuation still appear to be unsettled," a US-based bond trader said.
PdV said yesterday it expects the sweetened terms will attract bondholders willing to swap up to \\$5.32bn of the maturing 2017 bonds for the new PdV 2020 bond, equivalent to a 75pc participation rate. Holders of the two PdV 2017 bonds that choose not to participate will be paid on time, PdV says in the over 450-page bond swap prospectus.
A 75pc participation rate would reduce PdV's currently scheduled principal payments on the two 2017 bonds from \\$7.1bn to around \\$1.77bn in 2016-17. PdV in 2017 would also make the first of four annual principal payments of \\$1.33bn on the new PdV 2020 bond.
PdV expects to spend on its core operations practically all of the \\$5.32bn of savings resulting from a 75pc participation rate in the swap operation, energy ministry and company officials said.
Planned capital expenditures include paying for PdV's share of a \\$3.25bn contract to drill 480 new production wells at three Orinoco upstream joint ventures, and paying for imports of light crude for blending with Orinoco extra-heavy crude to yield export-grade 16°API Merey.
But it appears that cash-starved PdV could be forced to allocate some proceeds of its bond swap to cover payment of maturing principal to PdV 2017 bondholders that choose not to participate, reducing the proceeds for core investments and light crude imports.
The energy ministry confirmed the company is struggling to pay for light crude imports, including a recent BP cargo that was stuck for 100 days awaiting payment in Bullen Bay, Curacao, where PdV leases a refinery.
Three more BP tankers carrying light crude have also anchored near Bullen Bay since August awaiting payment, the ministry added.
As PdV courts bondholders, the company's chief executive and energy minister Eulogio Del Pino is among the delegates participating in an informal meeting in Algiers among Opec and non-Opec ministers.
Although sentiment is leaning toward action to stabilize the oil market, the delegates at the ongoing meeting have not determined what steps to take.
Venezuela reported to Opec that it produced 2.328mn b/d of crude in August, trending down from 2.5mn b/d in the first quarter of 2016. Argus estimates that PdV is producing around 2mn b/d.