Venezuela's state oil company reportedly moved to protect its assets from Exxon Mobil Corp.'s legal reach Monday as experts speculated that the South American energy giant may be suffering a severe cash shortage.
Petroleos de Venezuela, or PDVSA, instructed its traders to deposit oil receipts with UBS bank in Switzerland, the Reuters news agency reported Monday. The move follows Exxon Mobil's victory last week persuading U.S., British and Dutch courts to freeze PDVSA bank accounts and other assets worth $12 billion. Efforts by The Times to reach PDVSA executives for comment Monday were unsuccessful.
Exxon Mobil sought the asset freeze as part of its effort to recover the value of its investment in the Cerro Negro heavy oil project in eastern Venezuela, which the government of President Hugo Chavez nationalized in June.
Irving, Texas-based Exxon Mobil is seeking restitution for the project before a World Bank tribunal, a process that could take years. Because the $12 billion in frozen PDVSA assets far exceeds the $2 billion to $4 billion that analysts estimate Exxon Mobil's investment was worth, analysts said the American oil company was employing tough tactics designed to make Chavez agree to its terms.
The Standard & Poor's debt rating agency said Monday that the asset freeze would have no immediate effect on its ratings of billions of dollars in PDVSA debt, although it warned the action may cause lenders to tighten credit terms, increasing PDVSA's cost of doing business.
Economist Jose Guerra, a former director of Venezuela's central bank, said Monday in Caracas that PDVSA was in the midst of "a profound crisis" and is "mortgaging" its oil reserves because of a cash crunch. As evidence, he cited a $4-billion loan he said PDVSA was negotiating with the Chinese government, to be paid back in oil.
Ex-PDVSA executive Ramon Espinasa, now an economist with the Inter-American Development Bank in Washington, said cash problems may have prompted PDVSA's recent moves to sell future oil production to two Japanese banks and renegotiate some loans packaged by BNP Paribas of France.
On Sunday, Chavez threatened to retaliate for Exxon Mobil's legal maneuver by cutting off all oil shipments to the United States, a threat he has made repeatedly in the past. Few in the industry take him seriously because the United States buys half of Venezuela's oil output and the Citgo network of U.S. refineries that PDVSA owns are best suited to refine his crude.
In June, Chavez forced several U.S. oil companies that had invested billions in the so-called Orinoco Belt heavy oil field to cede operating control and majority ownership to PDVSA as a condition of staying in Venezuela. Chevron Corp. agreed, but Exxon Mobil and ConocoPhillips declined and abandoned operations in the country.
Although it wrote off the $4.5-billion value of its Venezuelan projects, ConocoPhillips continues to "amicably" negotiate with the Chavez government for a settlement, Venezuelan Energy Minister Rafael Ramirez said last week. Exxon Mobil's actions, on the other hand, were tantamount to "judicial terrorism," he said.
It is difficult to glean a clear picture of PDVSA's finances because it discloses limited information to the public. However, the company seems to have the wherewithal to stay current on debts totaling about $16 billion, of which $2.1 billion is due in 2008, said Standard & Poor's sovereign analyst Richard Francis.
"Exxon Mobil is going to court not because it fears PDVSA can't pay, but because it fears it won't pay," Francis said.
But others Monday painted a darker picture of PDVSA's financial condition. Guerra said the company was paying Total of France in oil for the value of its nationalized field in the Orinoco region "because it doesn't have any cash."
"PDVSA is in a very deep crisis, both in terms of its management and its oil production, which has declined for 10 quarters in a row," Guerra said. "The Exxon Mobil court action is damaging because it affects the credibility of PDVSA."