Devaluation no guarantee of higher oil output

Caracas/New York: Venezuela's bolivar devaluation should increase cash flow for state-run oil giant PDVSA, but is unlikely to help South America's biggest oil exporter pump more crude.

A devaluation of the bolivar, whose value was cut on Friday by up to 50 per cent against the US dollar, may ease PDVSA's high costs. The dollar-earning exporter would have more bolivars to pay local bills and cut its reliance on debt issuance.

"PDVSA will get some breathing room, since its local-currency revenues should increase by more than half," Jose Luis Villanueva, an analyst at Fitch Ratings, said.

"But PDVSA's oil production is expected to remain flat or even follow a negative trend. The company's (oilfield) investments could be restricted in order to transfer more funds to the government."

Social spending

In theory, the devaluation could allow PDVSA to keep — or reinvest — more of its revenues. But analysts believe President Hugo Chavez will tap PDVSA funds for government and social spending instead, limiting the company's ability to boost oil output.

"A large amount of [PDVSA's] exploration and production costs are in dollars. The devaluation may give PDVSA room to manoeuvre and pay its service providers, but no substantial increase in (crude) production is expected," Abelardo Daza, a professor at the Instituto de Estudios Superiores en Administracion in Caracas, said.

Chavez's heavy reliance on PDVSA funds to finance social spending has limited PDVSA's oil and gas investments. Foreign companies, wary of Venezuela's nationalisation of oilfields, have been slow to pump in new funds.

PDVSA faced cash flow problems in 2009 after the price of its crude fell a third from 2008 levels. The shortfalls reverberated widely, prompting PDVSA to delay payouts to its partners in the private sector.

"PDVSA will emerge from the devaluation much less burdened," Patrick Esteruelas of Eurasia Group in New York, said. "It had been the most affected by the fixed exchange rate, which forced it to take on more debt to finance its current expenses."

Venezuela's government on Friday said PDVSA can now sell most dollars it receives for oil exports to Venezuela's Central Bank at a rate of between 2.6 and 4.3 bolivars, up from 2.15 bolivars per dollar over 2005 to 2009. Oil exports make up more than 90 percent of Venezuela's export earnings.

"The devaluation reduces PDVSA's bolivar costs, especially for new payroll contracts due to be signed soon, and for social spending and subsidies," Daza said.

During the first half of 2009 PDVSA said local costs reached $19.48 billion (Dh71.64 billion), while its international costs were $18.06 billion for the period.

The high costs prompted PDVSA to sell more than $6 billion in debt over the second half of 2009.