Venezuela's PdVSA Chalks Up $16B In Debt In 2007

Petroleos de Venezuela, or PdVSA, closed 2007 with $16 billion in outstanding debt, a large portion of it in bonds.

The debt figure includes $1.2 billion in dollar-denominated debt held by two of the country's heavy-oil upgrading ventures in the Orinoco region, namely Petrozuata and Sincor, according to PdVSA's latest debt review performed by KPMG and made public by PdVSA in a local newspaper.

The company's overall financial statements aren't yet available. KPMG noted it continues to prepare PdVSA's financial statements for future release.

Sincor had $236 million in debt as of Dec. 31, according to KPMG. The debt was made up of a line of credit with a variable interest rate of LIBOR plus 5.53% and 6.97% a year, which matures between 2007 and 2012, the report said.

For Petrozuata, its $977 million in outstanding debt included a loan that pays a variable interest rate of LIBOR plus 1.25% and 1.5% a year with an expiration range between 2009 and 2011. Petrozuata also holds bonds paying interest rates ranging from 7.63% and 8.37% a year. The dollar-denominated bonds mature in 2009, 2017 and 2022.

The Orinoco venture bonds were originally issued in the international capital markets.

In December, PdVSA paid off roughly $501 million for the outstanding bonds of the Cerro

Negro heavy oil venture, as well as an additional $129 million to pay off loans that Sincor owed to various banks.

PdVSA and Chevron Corp. (CVX) also paid off the $740 million in outstanding debt for the Hamaca upgrading venture. PdVSA paid 70% of that debt.

Venezuela's decision to pay off the debt of some key oil ventures came months after President Hugo Chavez decided to take majority control of these projects and leave partners with minority stakes. Exxon Mobil Corp. (XOM) and ConocoPhillips (COP) rejected the new terms and are now seeking compensation.

Last year was important for PdVSA in terms of debt. In February 2007, the state-owned oil company sold $7.5 billion in dollar-denominated bonds with 10-, 20- and 30-year maturities to local investors. Buyers could purchase the debt using bolivars at the official exchange rate of VEB2,150 per dollar.

The Chavez administration said the issue was meant to cover future investment expenses, but critics said the sale signaled a need for cash and was meant to alleviate pressure on the parallel market for the U.S. dollar in Venezuela. Chavez's decision to impose capital controls in 2003 spawned an active black market for the U.S. currency.

Early in the year, the company also secured a $1.12 billion rotating line of credit from a group of banks led by BNP Paribas.

Similarly, in February 2007, a group of banks led by the Japan Bank for International Cooperation extended PdVSA a $3.5 billion loan payable in 15 years, paying a rate of LIBOR plus 1.13% a year. In this case, PdVSA can pay in cash or with oil shipments. As of Dec. 31, PdVSA had net outstanding debt with the JBIC loan of $3.327 billion, according to the report.

At the end of the year, Citgo also held $2.34 billion in debt outstanding, KPMG figures show.

KPMG noted that PdVSA's overall debt figure doesn't include the $269 million in obligations of the recently nationalized power company Electricidad de Caracas, which is now under PdVSA's control.

Chavez launched a nationalization campaign in early 2007 that included nationalizing the entire electricity sector, the country's top telecom company and gaining controlling stakes in the Orinoco river ventures.

Under Chavez, PdVSA has continued to expand its reach beyond the realm of oil production. Last year, the company created seven new business units, including a construction company and an urban development business. It also continued to spend generously on social programs.

PdVSA has relied on hefty oil price gains to fund Chavez's spending initiatives. In 2006 - the last available figures - PdVSA reported $99.3 billion in sales and a net profit of $5.5 billion. That year the company spent $13.8 billion on social programs, more than double the $5.8 billion in its capital expenditure budget. PdVSA critics accuse the company of paying little attention to its core business. They also say PdVSA's transparency is limited, particularly concerning oil-production figures.

The Andean country claims to produce 3.2 million barrels of crude a day, a figure that contrasts with secondary sources and international analysts who say it is closer to 2.4 million barrels a day.

Copyright (c) 2008 Dow Jones & Company, Inc.