Caracas Chronicles

PDVSA has been very active as of late.

On May 15th, it signed an agreement (“un acuerdo”) with China’s CNPC, to increase its production in the Carabobo area of the Orinoco oil belt. The agreement was for $4 billion.

Then, it signed a $1.5 billion “agreement” with Russia’s Rosneft – same type of deal, apparently, and in the same geographical area as the previous deal.

Finally, it announced an “agreement” with Chevron (headquartered at El Empereo Mejmo) to increase production in the Boscán oil fields of Zulia. The deal this time is for $2 billion.

What do all these have in common?

Well, for one, we don’t really know the details of what’s being signed. We do know, however, that in all of these PDVSA is, in theory, a majority shareholder. We also know the deals involve the minority partners forking over huge amounts of cash, and PDVSA forking out very little.

Here is what I think is happening: the “acuerdo” means the minority partner (CNPC, Rosneft, Chevron) forks over two large sums of cash: one, the total amount required to increase production; the other, to give to PDVSA so that it can say that it put its share of the investment as well. PDVSA turns around and buys toilet paper and gasoline with that cash. In the meantime, the minority shareholder is responsible for the entire investment required to increase production at the field.

When the investment is done, PDVSA has a huge bill to pay, and the minority shareholder is not happy. PDVSA then says: here, take all the oil you want. Instead of getting 40%, which is your share of the company, take all of it. Thanks for lending me way back when, partner.

Of course, the devil’s excrement is in the details, but we’ll never know about those, right? Right… unless, that is, three years from now President Capriles decides to turn back the clock and expropriate all these “investments,” signed under the shade of corruption by violating the open-bidding laws and trampling on the Constitution, because they amount to a virtual privatization of our oil wealth.

Still, the CNPC, Rosneft, and Chevron are obviously factoring in the risk in their accounting. Though PDVSA seems to be serious about focusing on drilling this time around, as witnessed by Schlumberger’s extension of credit to the company, it also has a long history of failing to meet commitments to increase output. It would be interesting to see what changed this time around to convince its partners to fork over their cash.