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.”

Americas Society Panel Discusses What’s Next for Venezuela and PDVSA (VIDEO)

ascoa-venezuelaNEW YORK — The Americas Society and Council of the Americas hosted four leading experts who discussed Venezuela and PDVSA’s financial standing, as Venezuela and the state-owned oil company faces payments of more than $13 billion through the end of 2017 as part of bond obligations.

In recent weeks, PDVSA has come under intense scrutiny after it offered investors a swap deal in order to postpone payments as its oil output continues to decline. Russ Dallen, who is the head of Caracas Capital and Strategic Advisor to the Venezuela Opportunity Fund, led a discussion of expert panelists on economics and politics in Venezuela that included Lucas Aristizabal, Senior Director and Head of Latin American Energy at Fitch Ratings; Diego Ferro, Co-Chief Investment Officer of $1 billion fund manager Greylock Capital; and Francisco Rodríguez, Chief Economist at Torino Capital and former Chief Economist in the early days of the Chavez National Assembly.



Venezuela kifut az időből és pénzből

venz-flag-horse-wrongRuss Dallen, a Caracas Capital Markets vezető partnere szerint az ország utolsó tartalékait használja fel.

”Venezuela kölcsönvett időt használ. Embereit éhezteti, hogy kifizesse a Wall Streetet, de úgy tűnik ezzel a stratégiával is kifut az időből” – mondta.

Az ország egyre fogyó tartaléka a gazdaság krízishelyzetét tükrözik, amely miatt milliók nélkülöznek alapvető élelmiszereket és gyógyszereket. Miközben a bűnözés növekszik, a népet egyre inkább bosszantja a politikai zűrzavar.

CNN en Espanol: Otra cara de la crisis en Venezuela: el pago de las deudas a expensas de su gente

venz-flagEstán funcionando con lo mínimo, dice says Russ Dallen, socio de Caracas Capital Markets en Miami. Venezuela está “viviendo en tiempo prestado. Tiene a su gente con hambre para pagarle a Wall Street, e incluso parece que esa estrategia se va a agotar”.

Las menguantes reservas del país son un reflejo de su profunda crisis económica, que ha dejado a millones de venezolanos sin acceso a alimentos básicos y medicinas mientras el índice criminal sigue disparado y la convulsión política invade la vida nacional.

Otra cara de la crisis en Venezuela: el pago de las deudas a expensas de su gente

LatAm in Focus: Russ Dallen on Venezuela’s Not-Quite Breaking Point

$15 billion owed in bond payments. $11 billion of siphoned funds stashed in Swiss bank accounts. 2.1 million barrels of oil per day, down from 3.5 million almost two decades ago. From selective default to missing gold, the web of Venezuela’s collapse can be dizzying, says Managing Partner of Caracas Capital Markets Russ Dallen, who unties the many tangled threads to the situation in this podcast with AS/COA Online’s Holly K. Sonneland. If you needed any proof that Cuban-style Communism doesn’t work, Venezuela—which has more oil than Saudi Arabia—is the only example you need, he says.

All of that wealth from this huge oil boom and there’s nothing, nothing left.” 

russ-dallen-cropAnd yet, despite the collapse, the administration of Nicolás Maduro maintains its grip on power, thanks to political scales weighted completely in their favor and, on the economic front, an ability to make payments to its bondholders—although even those relationships are starting to fray. The government and its state-owned oil company, PDVSA, just pulled off a bond swap, but because the deal was made under the threat of default and put the country’s crown jewel, Citgo in play, few fears are assuaged, says Dallen, who also advises the Venezuela Opportunity Fund and owns the Latin American Herald Tribune. “We’re by no means out of the woods,” he says. “The probability of default is high.”

Yet while the government scrapes by in the short term, the challenges the country will face to rebuild in the long run are daunting. “The worst thing about all of this is that all of that money—billions and trillions of dollars, literally trillions of dollars—and they left nothing,” he says. “There’s no great projects, there’s no great highways, there’s no great buildings. Nothing.”

Russ Dallen will participate in the November 3 event “Venezuela and PDVSA: What to Expect,” part of our Venezuela Working Group series.

Zombie PDVSA Bonds and the Venezuela Reserves Crash

Zombie PDVSA Bonds and the Venezuela Reserves Crash


This past week a newspaper in Arkansas published an obituary for a popular (fictional) character on “The Walking Dead” – Glenn Rhee — who was killed in the premiere episode of the 7th season of the popular zombie apocalypse drama.


I must confess that I have watched the development of Zombie “lore” with fascination: From the original slow moving zombies of “Night of the Living Dead,” to mixing the medium with an attack on the foibles of modern consumer society in “Dawn of the Dead”, to taking the mythology further down the wormhole so that, in addition to “The Walking Dead,” we now have a series about a zombie detective who eats the brains (and gets the memories) of the dead victims to solve the crime that led to the victim’s death (“iZombie”) and another series (“In the Flesh”) about the partial cure, re-animation and re-entrance of zombies as productive members of society as mere sufferers of “Partially Deceased Syndrome” (PDS) — which also brought equality to zombies by including the first televised kiss between gay zombies.  Donald Trump would definitely build a wall.


Aside from being the Halloween issue of this Report, we wanted to alert you to the billion dollar fall in Venezuela’s reserves that coincided with the billion dollar payment of the PDVSA 5.125% on Friday — and how zombie bonds meant that PDVSA owned the majority of that debt.


Friday afternoon the Venezuela Central Bank reported that its international reserves fell $1 billion from $11.8 billion to $10.895 – the lowest since 2002 when there was a national strike against Chavez.  That is down $31 billion from the 2009 high of over $42 billion.


On Friday, Venezuela paid the maturity and interest on the $1 billion PDVSA 5.125% of October 28, 2016, an amount that roughly totaled $1.026 billion.


While Minister of Oil and Mining and PDVSA head Eulogio Del Pino warned earlier this month about not paying the PDVSA 2017s, he had always promised to pay the PDVSA 16s.  The reason for not including the PDVSA 16s in the threat or the swap was because PDVSA’s Pension Fund owned the majority of the PDVSA 16  and has since 2013, so he could easily pay the bonds and take the money out again.


In November 2013, rather than pay the full $1.2 billion of PDVSA 8% of 2013, PDVSA paid $705 million to the market but swapped the $440 million owned by the PDVSA Pension Fund into a newly created re-tap of $565 million of the PDVSA 5.125% of October 28, 2016, expanding the PDVSA 5.125% 2016 “Petrobono” from its original $435 million to $1 billion — making, not for the first time, the unpaid PDVSA 8% of 2013 a zombie bond that keeps living on.


In fact, the PDVSA 8.5% Citgo collateralized 2020 Swap Offering Circular  sloppily refers to those bonds as the PDVSA 8% of November 2016 – not once, but two times at separate points in the document.  Here is one:
(p.71, PDVSA 2020 Exchange Offering Circular, )


And then they carelessly drafted a different variation of the PDVSA 8% of November 2016 on another page:
(p.72, PDVSA 2020 Exchange Offering Circular,


I can’t tell you how much time we wasted searching for this mythical zombie half-a-billion PDVSA 8% of November 2016 before we realized that PDVSA and its lawyers had repeatedly made an error and meant the PDVSA 5.125% of October 18, 2016 instead.  Here is the original notice in Venezuela’s Official Gazette in November 2013 (and the Gaceta Oficial has a mistake in the ISIN to be consistent and compound the errors):





Our zombie hunting adventure aside, what the $1 billion fall in reserves and that paragraph excerpted above tells you is that PDVSA is running out of funds and is raiding the Central Bank as well as its Pension Fund for cash.  As we pointed out earlier this year and as that paragraph also reveals, PDVSA did the same thing with $900 million of the PDVSA 2015 bond last October, writing the PDVSA Pension Fund a promissory note rather than pay off the bonds, which are still unpaid to this day.  (By the way, PDVSA also reported that it paid the $90 million coupon due on its $3 billion of PDVSA 6% of 2022 on Friday, another bond that we helped discover when PDVSA secretly handed it to the Venezuela Central Bank in exchange for a loan).


Gold Reserve to Be Paid $600 Million Today?


As if the $1.026 billion paid on Friday and the $1.2 billion due on November 2 was not enough (down from $2.2 billion because of the swap), PDVSA contracted August 8 to pay Gold Reserve Inc. $600 million by today, with the remaining $169 million due by December 31, for the $769 million expropriation judgment that the World Bank International Center for the Settlement of Investment Disputes (ICSID) awarded in 2014.  Those of you who like us believe that PDVSA will not be able to make those payments can short the stock: GDZRF in the U.S. or GRZ on the Toronto Stock Exchange.  But beware, the stock has a very low daily volume and no puts and calls are generically available.  In addition, Del Pino was in China last week and an investment in this venture was a topic of discussion.


Venezuela in the U.S. Supreme Court on Wednesday


In addition to the $1.2 billion payment for the amortization of the PDVSA 8.5% of 2017 due on November 2nd, Venezuela will also be arguing a case before the U.S. Supreme Court on Wednesday.  The case concerns Venezuela’s expropriation of Oklahoma-based Helmerich & Payne’s drilling rigs and local company in 2010, but the Supreme Court discussion is really about a hair-splitting threshold procedural issue about sovereign immunity.  And the U.S. filed a brief in support of Venezuela’s interpretation, which calls for a return to the law of sovereign immunity as it was back in the early 19th century, which was also defined by an earlier U.S case involving Venezuela and its caudillo El Mocho — Jose Manuel Hernandez – which helped define the Act of State Doctrine back around the turn of the century.


Venezuela at the Council of the Americas on Thursday


Obviously it’s a big week for Venezuela, so on Thursday the always far-sighted Council of the Americas in New York has convened a panel to try to make sense of it all.  I will be moderating a brilliant group made up of some of the leading intellectual lights on Venezuela, including Torino Capital’s Francisco Rodriguez, Fitch’s Lucas Aristizabal, and Greylock Capital’s Diego Ferro, and I invite you to join us.  You can find out more here:


Financial Times: What now for Venezuela’s PDVSA after the bond swap?

venz-debt-ftHow much is Citgo Holding worth?

If only we knew. Citgo is not a publicly traded company and its value is a matter of conjecture. In its bond swap offer, PDVSA claimed a valuation of $12.5bn.

PDVSA previously said Citgo’s three refineries alone were worth $7bn. Russ Dallen of Caracas Capital says that, based on the earlier sale of another Citgo refinery, they would come out closer to $1.3bn. Mr Dallen puts the value of Citgo Holding, which includes pipelines and other assets, at between $4bn and $5bn.

But PDVSA says Citgo Holding has debts of $4.2bn. In addition, Citgo’s assets are already at risk of seizure from creditors of PDVSA and the government, as the ultimate owner of both companies.

Crystallex, another Canadian gold miner, sued the government for $2.8bn over expropriation of its assets and was awarded $1.4bn by ICSID, the World Bank’s dispute settlement system, in March this year. Rusoro, a Canadian-Russian gold miner, won $1.2bn from ICSID in August.

ExxonMobil, the oil major, was awarded $1.6bn, also for nationalisation, in 2014. ConocoPhillips, the oil exploration company, is seeking as much as $5bn in a similar case in coming months.

There are other awards against Venezuela that would put Citgo’s assets at risk of seizure by its creditors. Just those listed above add up to $4.2bn, without ConocoPhillips. Add in $4.2bn of debt, and there is little left over even if PDVSA’s unattributed valuation can be believed.

What’s more, some of Citgo’s debts would become payable within days of a default on the new 2020 bonds, as they are accelerated by a change of control (which would happen if the collateral were called on). Mr Dallen says some $2bn would be affected immediately.

Financial Times advierte sobre el peso de vencimientos de deuda venezolana

¿Cuánto vale Citgo Holding?

financial-times-600x293Citgo no es una compañía cotizante y su valor es relativo. En su oferta de canje de bonos, PDVSA asegura que su valuación es de u$s 12.500 millones.

PDVSA antes dijo que las tres refinerías de Citgo valían u$s 7000 millones. Russ Dallen de Caracas Capital sostiene que, en base a la venta anterior de otra refinería de Citgo, podrían salir a la venta por cerca de u$s 1300 millones. Dallen estima que el valor de Citgo Holding, que incluye oleoductos y otros activos, asciende a entre u$s 4000 y u$s 5000 millones.

Pero PDVSA afirmó que Citgo tiene deudas por u$s 4.200 millones. Además, los activos de la empresa ya corren riesgo de ser embargados por los acreedores de PDVSA y del gobierno, en definitiva el dueño de ambas compañías.

¿Por cuánto tiempo podrá Venezuela pilotear la situación?

Los analistas e inversores hace un tiempo que se vienen preparando para un default, pero el “Día D” todavía no llega. El Banco Central asegura que las reservas extranjeras totales ascienden a u$s 11.800 millones, menos de los u$s 35.000 de principios de 2015.

Morden de Nomura calculó el futuro ingreso neto fondos en dos escenarios: precios del petróleo al nivel actual para un crudo venezolano en cerca de u$s 38 el barril, y precios más altos en el futuro. Después del servicio de la deuda, la fuga de capitales y las importaciones relacionadas con el petróleo, ella estima que los ingresos netos provenientes de exportaciones de petróleo serán cercanos a u$s 8800 millones este año, subiendo a u$s 12.800 millones en 2017 si repuntan los precios.


FT: Los vencimientos de deuda ponen en jaque el futuro de Venezuela

venezuela-debtCitgo no es una compañía cotizante y su valor es pura conjetura. En su oferta de canje de bonos, PDVSA asegura que su valuación es de u$s 12.500 millones.
PDVSA antes dijo que las tres refinerías de Citgo valían u$s 7000 millones.


Russ Dallen de Caracas Capital sostiene que, en base a la venta anterior de otra refinería de Citgo, podrían salir a la venta por cerca de u$s 1300 millones. Dallen estima que el valor de Citgo Holding, que incluye oleoductos y otros activos, asciende a entre u$s 4000 y u$s 5000 millones.


Pero PDVSA afirmó que Citgo tiene deudas por u$s 4.200 millones. Además, los activos de la empresa ya corren riesgo de ser embargados por los acreedores de PDVSA y del gobierno, en definitiva el dueño de ambas compañías.