Barron’s: OPEC – June Oil Production Rose, Except In Venezuela

Venezuela’s direct communication with OPEC indicated a production decline of 33,000 barrels per day. Russ Dallen, an attorney, publisher and head of Caracas Capital Markets writes:

” … Venezuela’s rig count had fallen to 49 in July 2016. Venezuela did try and get more rigs drilling over the last year, hitting a high of 56 in April, but guess what: the rig count for Venezuela is for June 2017: back at 49.

Based on its own estimates that its production was collapsing — estimates similar to ours –Venezuela agreed with OPEC to cut production to 1.972 barrels per day (in other words giving what was already a fait accompli). Venezuela has fallen through that cut and is now 34,000 barrels per day below its quota — while as OPEC notes, everyone else’s production is going higher. Worse, if you look at the 2015 column on the chart above, Venezuela was producing 2.375 million barrels per day just a year and a half ago in 2015. That means Venezuela is producing 437,000 barrels per day less than it was 2 years ago, which at Venezuela’s average 2017 oil price of $43.60 (so far), means that Venezuela is losing over half a billion dollars every month; $6.9 billion a year…”

Barron’s: What’s Next In Venezuela: Lopez Freed, Sunday Vote, Pdvsa Financials?

Russ Dallen, a lawyer, publisher and investor in Venezuela bonds via Caracas Capital, writes that there are two big things on the Venezuela agenda, including the possibility of more information on the finances and debt at state-controlled oil company Petroleos de Venezuela (Pdvsa):

“… Two big things on the Venezuela agenda for today. The first is for leaks coming out of PDVSA investor calls organized by BancTrust which are supposed to be held today — and the release of PDVSA 2016 financials cannot be far behind. The second big news of the day will be whether Venezuela pays Gold Reserve the $29.5 million installment on the $1.036 billion settlement. Previous agreements to pay Gold Reserve its $800 million International Centre for Settlement of Investment Disputes (ICSID) judgment have gone unpaid, until this latest agreement saw Venezuela cough up $40 million on June 16. … Crystallex — which has a $1.4 billion ICSID judgment — is getting a great deal more aggressive in its attempts to collect. They have filed a preliminary injunction on $710 million Venezuela credit linked notes at Nomura …”

Barron’s: Venezuela Selling Gold, Goldman Selling Venezuela Bonds?

In his missive today, Venezuela critic Russ Dallen, a publisher, lawyer and Venezuela bond investor through Caracas Capital, offers some background on the political stagnation under Maduro. In short, the escalating violence and civil strife in the country means an impending “inflection point,” Dallen says:

” …the Maduro regime has been unable to raise significant foreign capital – aside from the loan from Rosneft (ROSN.Russia) against 49.9% of Petroleos de Venezuela’s U.S. refining operation Citgo (a story which we first help break on December 21) and the “morally repugnant” cash injection from Goldman Sachs last month. The Maduro regime’s refusal to co-exist and/or negotiate with an Opposition-dominated legislature (a task of functioning democracies all over the world) has led Maduro to unleash his own weapon of mass destruction – the hydrogen bomb of calling a National Constituent Assembly (ANC) …

The government is using this wafer-thin veneer of constitutional legality for two reasons … One is to bring along the military rank-and-file. While the upper echelons of the military are “all in” as they are making money with various schemes … The second reason for the legal lipservice is an attempt to give legal surety to potential investors (namely Russia, China & others interested in investing in oil, gold and mineral mining ventures) that were put off by the lack of National Assembly approval or a legally solid workaround. … the Supreme Court takes over the right to approve any new oil, gold or mineral investments since the National Assembly is in “contempt.” But Russia and other investors felt that ground was too shaky to invest billions of dollars, hence the regime’s National Constituent Assembly is designed to replace the obstinate National Assembly and pave that legal path for investment more solidly …”

Barron’s: Venezuela Gasps On Capitalist Bond Buying – Goldman & Spin

Here’s what Venezuela bond investor and Latin American Herald Tribune publisher Russ Dallen doesn’t mince words on Goldman’s Venezuela bond purchase:

“… full-court press on the issue — the latest leg seems to be looking for Dinosaur SecuritiesJavier Perez-Santalla, who is thought to be the intermediary between the Venezuela Central Bank and Goldman, and wondering just how much the spread was on this transaction. Dinosaur Securities is an extremely small shop and does not have $900 million to buy these bonds. They merely broked [sic] the bonds to Goldman, making Goldman’s statement that they “bought the bonds in the secondary market and did not buy them directly from Venezuela” bull**** technical spin …”

Dallen also is questioning the numbers, based on previous reporting on size of the bond issuance. he adds;

” … if the WSJ is correct and Goldman bought $2.8 billion of the PDVSA 6% of 2022, what does [U.S. investment fund Fintech Advisory] have in repo, because according to the Reuters story last month Fintech got $1.3 billion of the PDVSA 6% of 2022 (at what looked to be a price of 23). The problem is that there are only $3 billion of these bonds — so either at least one of the stories is incorrect, or the Venezuela Central Bank recalled the Fintech repo early, or Venezuela and PDVSA made more than $3 billion of this bond …”

Barron’s: 2 Experts Question Venezuela’s Gold, Cash Stats

The latest data show Venezuela had  roughly $10.5 billion in reserves at the end of 2016 — most of it gold — with which it must meet this year’s debt obligations.

As Venezuela’s socialist economy suffocates under the weight of debt obligations, it is saddled with OPEC’s agreement to curb oil production — Venezuela’s major source of revenue. Analysts monitoring its montly debt and amortization payments note that April is a big month, with more than $2 billion due. Russia and China have helped shore up the nation’s balance sheet, with promises of future energy shipments and the use of U.S. Citgo refineries as part collateral, and for now no one is predicting default.

But the just-released data for the end of 2016 show Venezuela is struggling, with $7.7 billion in gold based on a 9-month trailing price of $1,272.42 per ounce, according to Caracas Capital. That’s down from $10 billion in gold reserves reported at the end of 2015 at a lower gold price, according to Russ Dallen at Caracas Capital.  He adds that the gold figure is nearly half of the reported $14.6 billion in gold Venezuela reported at the start of 2015, and he thinks the government  sold more than $2.3 billion in gold, as reported, to authorities in Switzerland last year.

Barron’s: Venezuela Debt Deadlines – Will Oil Cover February?

pdvsa-flamersThe government of Venezuela and state-controlled oil company Petroleos de Venezuela together face $10 billion in debt payments this year, though April deadlines could prove especially onerous and February’s burden is sizable.

The government is on the hook this year for $3.4 billion and Pdvsa, $6.6 billion — with $2.9 billion due mostly by Pdvsa in April, according to Caracas Capital. It puts the total debt burden of Venezuela, an oil producer and OPEC member, at $71 billion, not including a number of special arrangements including loans from China to be paid back with oil shipments.

Barron’s: Gartman On Gold – Venezuela’s A Seller

Gold BarsThe potential pressure on gold prices is reflected in what Venezuela has been doing. Oil is the country’s main export, and the United States imports some of it. (See our post on President Donald J. Trump plans to construct controversial energy pipelines.)  Caracas Capital emailed us Dennis Gartman’s subscription newsletter published Friday with comments on Venezuela’s sale of gold as it struggles to produce oil revenue and make bond payments.  Here’s the Gartman excerpt:

” … courtesy of our friend Mr. Russ Dallen of Caracas Capital … Venezuela sold $2.85 billion of gold last year, all of which was in the first 6 months of the year. According to the Venezuela Central Bank as of the end of November, Venezuela had $7.7 billion in gold remaining. Last year’s gold sales were not Venezuela’s first for we note that the Reserve Bank sold $4.58 billion worth of gold in 2015. It will sell more this year; it has no choice. Gold may be its only source of liquidity. Further, regarding gold, another friend in the industry, Mr. John Brimelow, informs us that the open interest in gold on the COMEX fell 4.3% Wednesday. This is not an unprecedented decline in the open interest, but certainly it is more than merely noteworthy. Finally, we remain of the mindset that the only rational way to be long of gold is via euros (EURs) and or via Yen, for the dollar remains strong and we ask again, “Why would one use rising dollars to buy gold when one can use falling EURS and Yen to do the same job? … ”

Barron’s: OPEC Oil Cuts? Iran Pumps, Saudi Arabia & Venezuela Down

opec-calc-production-oct-2016Russ Dallen, a publisher, investor and Venezuela expert who just launched a long-short fund, intends to capitalize on Venezuela’s imploding political reality. He said his fund investments could include $70 billion in outstanding Venezuelan bonds, both the sovereign and the state-controlled oil producer Petroleos de Venenezula, or other indirect assets that are tied to Venezuela, he said. More from Dallen:

“According to the volumes that Venezuela submitted to OPEC, Venezuela’s production fell another 17,800 barrels per day (bpd) in October to 2.316 million bpd … long before PokemonGo made augmented reality famous, PDVSA was using “augmented reality” in their production and financial numbers. To compensate for that, in addition to the numbers submitted by Venezuela, OPEC has their own statistics team that counts production. OPEC’s statistics say that while OPEC production went up, Venezuela barely produced over 2 million bpd – 2.067 million bpd – in October …

Venezuela’s continuing production crash aside, there are two other important things to note from the OPEC report. Iran led the gains in output. Over the weekend, Iran’s President Hassan Rouhani reported at a formal opening ceremony for the oil fields west of the Karoun River near the border with Iraq, that their North Azadegan, Yadavaran and Yaran field production rose to about 250,000 bpd from just 65,000 in 2013. Rouhani says they will get it to 1 million bpd with the investments they are now seeking under newly generated rules. France’s Total (TOT) became the first western oil company to sign a preliminary new agreement last week, seeking to develop a natural gas field, working with China’s CNPC. The South Pars natural gas complex is slated to be the largest of its kind in the world. No word yet on how a Trump administration’s threatened return to sanctions on Iran might affect developments there.

The second non-Venezuela takeaway from the OPEC statistics is that OPEC production is over 33.643 million bpd and rising at a time when OPEC is talking about cutting production down to 32.5 million bpd. At the same time, OPEC noted that it was pumping almost a million barrels more than next year’s expected demand.”

Barron’s: OPEC & China Stats On Venezuela – No Oil Cash Left?

Cash-strapped Venezuela did not publish oil production numbers for July.

But OPEC’s latest stats on Venezuela show two important things, according to lawyer, banker and editor Russ Dallen’s missive today. The head of Caracas Capital and editor of the Latin America Herald Tribune writes:

” … by Venezuela’s own submitted count, its oil production has fallen from 2.587 million barrels per day (bpd) at the start of the year to 2.364 million bpd by the end of June … an admitted decline of 223,000 bpd in 6 months. … OPEC calculates Venezuela’s fall in production from January to July as 259,000 barrels per day lost. Second, that OPEC calculates that Venezuela barely produced over 2 million bpd in July.

While 2.095 million bpd is nothing to shake a stick at for most countries, that is down from 3.5 million bpd when Venezuela President Hugo Chavez was elected in 1998. More importantly Saudi Arabia, which has lower oil reserves than Venezuela, is producing 10.477 million bpd…”

OPEC estimates for July oil production, based on secondary sources, show  big declines in Venezuela, Nigeria and Libya. (Larger image available.)

The monthly OPEC data based on direct communication with producer countries is incomplete, and shows increases for those countries that reported. The data from OPEC, using ‘secondary sources,” estimates Venezuela production slipped 40% in July, and that Nigeria’s oil production took a bit hit as unrest in the country’s oil-producing south shuttered facilities. Production in Libya was also lower, while that in Saudi Arabia, the United Arab Emirates and Iran was higher.

China is also in the mix, Dallen notes:

” … as PDVSA’s [state-run Petroleos de Venezuela] financials also reveal, Venezuela sent an average of 579,000 bpd to China in 2015 to repay the $65 billion that China has loaned Venezuela … China has already paid for that oil with $65 billion in loans to Caracas and Venezuela has already spent that money, … suddenly you have just 900,000 bpd to generate hard cash from export — the bulk of which (around 700,000 bpd) goes to the USA and Citgo in particular, making the USA Venezuela’s biggest customer). According to the Energy Information Agency, Venezuela’s exports to the USA netted Caracas just $4.3 billion for the first 6 months of the year … before the actual lift costs to Venezuela, which are between $10 to $23 a barrel, which is why there is not enough money to pay for food or medicine or bond payments …