From Champs To Chumps: Latin America Oil Giants Owe $275B
(Bloomberg) -- The Latin American state-run oil companies whose largesse filled government coffers from Mexico to Brazil during the crude boom of the previous decade are quickly becoming dangerous liabilities as soaring debt levels spook investors.
Regional leaders are being forced to shelve plans to spend petro-cash on popular projects after oil prices plunged more than 50 percent in the past two years and are instead grappling with mounting bills at their state-backed champions. The burden is being amplified as local currencies crumble against the dollar, driving up the cost of to pay off foreign debt.
It's a universal concern. Brazil's state-run giant Petroleo Brasileiro SA is the world's most indebted oil company, while credit swaps show traders are betting there's a 68 percent chance that Petroleos de Venezuela SA, known as PDVSA, is heading for a default in the next 12 months. Both are weighing on the region's economy that's already expected to contract for a second straight year in 2016.
“It’s challenging, there’s no doubt about it,” said Alberto Ramos, Goldman Sachs Group Inc.'s chief Latin America economist. “Some of these companies racked up a fair amount of debt during the period that oil prices were high.”
While many say the implicit - and in some cases explicit - backing of the state makes a default by the companies unlikely, their financial health is still being seen as increasingly precarious. Bond risk measured in the credit default swaps market has surged for Latin American oil giants as Venezuela, Brazil and Mexico's crude producers all carry heavier dollar debt loads than the government that back them. Only Colombia's Ecopetrol SA has a smaller burden.
Petroleos Mexicanos, known as Pemex, which has the highest credit rating of the four, was already downgraded once by Moody’s Investors Service in November and is under review for another cut. The Mexico City-based producer, whose output has for tumbled for 11 straight years, is coming under increased pressure to shed assets. Last month, it pledged to shave 100 billion pesos ($5.6 billion) off its 2016 budget after reporting a record $32 billion loss last year.
Meanwhile, Brazil's producer is also dumping some assets and halting projects after years of investing more than $40 billion annually to tap giant oil fields deep in the south Atlantic and subsidize fuel imports for the government. Its debt load surged almost fourfold in the past five years.
The producer, known as Petrobras, which issued 100-year bonds last year, has more than $13 billion in bond principal coming due in the next 24 months. The company secured a $10 billion lifeline with China Development Bank Corp. last month.
Colombia's Ecopetrol plans to reduce annual investments in coming years and is increasingly focused on exploration and production. Meanwhile Venezuela’s cash-strapped company faces $13 billion of bond payments over the next two years and is considered at risk of non-payment as the government faces its own heavy load of upcoming sovereign maturities, Standard & Poor’s says.
While the range of problems has analysts warning against lumping Latin America's state oil companies together, they still add up to a collective threat for the region's economy.
- With assistance from Adam Williams, Andrew Willis, Sabrina Valle, Ye Xie, Pietro Pitts and Ralph Cope. To contact the author of this story: Benjamin Bain inMexico City at firstname.lastname@example.org To contact the editors responsible for this story: Victoria Stilwell at email@example.com Jessica Brice at firstname.lastname@example.org
WHAT DO YOU THINK?
Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.
Operates 34 Offshore Rigs
Manages 10 Offshore Rigs
- Exxon, Petrobras Form Alliance To Develop Oil, Gas Projects (Dec 14)
- Natural Gas In Petrobras Pipelines Up About 23% In 2017 (Dec 05)
- Petrobras CEO Says To Discuss Refining Partnership With CNPC CEO (Nov 15)
Company: PDVSA more info
Operates 14 Offshore Rigs
Manages 26 Offshore Rigs
- Algeria Sends More Oil To Cuba As Venezuelan Supplies Fall (Jan 10)
- Venezuela's PDVSA At Risk Of Losing Bonaire Terminal Over Maintenance Delay (Dec 19)
- Paralysis At PDVSA: Venezuela's Oil Purge Cripples Company (Dec 15)
Company: Pemex more info
Operates 45 Offshore Rigs
- Mexico Says Deepwater Oil Tender Doomed By Brazil Competition (Dec 08)
- Sources: Mexico's Pemex Declares Force Majeure On Isthmus Crude Oil (Nov 29)
- Mexico's Pemex Makes Biggest Onshore Oil Find in 15 Years - President (Nov 03)
Company: Ecopetrol more info
- Colombia's Ecopetrol Names New CEO, Echeverry Resigns (Aug 17)
- Colombia's Ecopetrol Rubiales Oil Output Hit By Protests (Jun 27)
- Rebel Bomb Attack Halts Colombia's Cano Limon Crude Pipeline (Jun 22)
Company: Petroleo Brasileiro SA more info
- From Champs To Chumps: Latin America Oil Giants Owe $275B (Mar 11)
- Brazil Oil Workers' Union Proposes Ending Petrobras Strike (Nov 13)
- Petrobras Seeks Funding Alternatives to Counter Junk Debt Yields (Nov 13)