Latin America's hobbled oil giants
Plagued by debt, low oil prices and political turmoil, times have been troubled for Latin America's state-run energy firms
The quiet rivalry among Latin America's three largest national oil companies (NOCs) continues to rage, though none has covered themselves in glory lately. Venezuela's
PdV is mired in the country's economic and political crisis and has been on the brink of defaulting on its international debt obligations for the past 18 months. Brazil's Petrobras has been at the centre of the largest corruption scheme the nation has ever seen and been forced to dramatically curtail its world-beating growth plans. The closest thing to a bright spot for the region's big three NOCs has been Mexico's Pemex. The nation's energy reforms are opening new avenues for the company to bring in badly needed capital and technology, though it continues to struggle with falling output.
For now, Pemex holds bragging rights as the region's top producer. Its 2.29m barrels a day of liquids output edges out Petrobras's 2.26m b/d, though Petrobras is likely to overtake its rival by the end of the year. PdV has seen its output plummet by 0.55m b/d since the start of 2015 to 2.16m b/d (according to its own figures—secondary sources put it lower) and the collapse shows little sign of letting up. Combined, the three companies have shed around 0.9m b/d since the start of 2015. The fallout from the oil downturn has ravaged their investment plans.
PdV: debt and decline
PdV has dug itself into a deep well of trouble. It's hard to see the way out. For years, the Hugo Chávez and Nicolás Maduro governments raided PdV's coffers to pay for social programmes that bolstered their own bases of support. This was damaging enough when oil prices were high. Then they collapsed and the company had almost no buffer to deal with the sudden loss of revenues. It plunged PdV into a vicious cycle of falling investment leading to production declines, which further ate away at spending power to compound the production problems. The difficulties go deeper too: PdV has to sell about 25% of its output to a domestic market where fuel is practically free and another 25% to
China and Russia to repay oil-for-loan deals.
The cash crunch has put PdV at perennial risk of defaulting on its international debts. The next test will come in October and November this year, when the company faces around $3bn in payments. Missing the deadline would lead to a chaotic and damaging clash with creditors that Venezuela is desperate to avoid. The central bank says it has around $10bn in reserves that PdV could tap, making default unlikely. Still, a failure of that kind in the coming months, which would roil oil markets and send Venezuela even deeper into crisis, can't be ruled out.
Brazil's Petrobras has been re-shaped by a crisis of its own. The fallout from the multi-billion dollar Lavo Jato—Carwash—scandal and low oil price has forced the company to rein in its output-growth ambitions and focus on rebuilding its financial base. The company once talked of rolling out dozens of new projects over this decade with the aim of producing more than 5m b/d of crude by 2020. Today, the target is 2.84m b/d by 2021, and even that looks somewhat ambitious. However, chief executive Pedro Parente spends much more of his time talking about getting his company's debt under control and regaining it's prized investment-grade credit rating. There has been some progress on this front. Debt is down from a peak of $140bn to around $117bn thanks to aggressive cost-cutting and asset-sale programmes. The company's leverage ratio (net debt/earnings before interest, depreciation, taxes and amortisation) is down from a peak of 5.4 to 3.1 and Parente wants to bring this down to 2.5 by next year. If successful, it would provide Petrobras firmer ground on which to grow.
Pemex: recovery in sight?
Pemex has also seen its balance sheet take a battering from the low oil price, although chief executive Jose Antonio Gonzalez Anaya looks to have at least steadied the ship. The forced austerity programme needed to turn things around has left output languishing. But the company's prospects look brighter than its rivals thanks to Mexico's energy reforms. Changes to the nation's energy laws are allowing Pemex for the first time to bring foreign partners into its projects. This process should bolster the company's capabilities. Although the slow pace of Pemex's opening up to the outside oil world has frustrated many of the country's reformers, there are signs that the process is gathering steam. Pemex signed a deal with
BHP Billiton earlier in the year to help it develop the deep-water Trion discovery, which the company didn't have the capital or deep-water prowess to pull off on its own. It has put another three fields on the block—the shallow-water Ayin-Batsil, the onshore Cardenas, and the deep-water Nobilis-Maximinos fields. Finding partners for these and other fields will be crucial to putting Pemex on a more lucrative path.
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