An oil refinery in Venezuela. Rosneft has stakes in five onshore oil projects in Venezuela, which it co-owns with Petroleos de Venezuela SA, as well as two offshore gas projects. Image Credit: Bloomberg

London, Moscow: As US sanctions against Venezuela’s state oil company ripple through the market, there’s one company with more at stake than most: its Russian counterpart, Rosneft.

Rosneft CEO Igor Sechin has personally spearheaded Russia’s support for President Nicolas Maduro’s government and over the past five years, the Russian oil company has funnelled more than $7 billion in Venezuela, largely through loans to be repaid in future crude deliveries. Rosneft is “one of the largest international investors in the Bolivarian Republic of Venezuela,” according to its annual reports.

3.14m

Rosneft’s share of oil from Venezuela projects (in tonnes)

President Donald Trump’s National Security Adviser John Bolton in a tweet Wednesday advised the financial community not to trade in Venezuelan gold, oil or other commodities. As the Trump administration ratchets up economic pressure on Maduro, Rosneft’s big oil bet is under pressure.

Russia’s Deputy Prime Minister Dmitry Kozak, who has responsibility for the energy sector, said Wednesday. “It would be silly to deny the risks.”

$1.9b

Value of oil supplied by PDVSA to Rosneft against its loans

Russian Energy Minister Alexander Novak told reporters in Moscow Wednesday that the U. sanctions against PDVSA were “ illegal” and “violating international law and interfering in the economic activity” of companies operating in Venezuela.

Upstream stakes

Rosneft has stakes in five onshore oil projects in Venezuela, which it co-owns with Petroleos de Venezuela SA, as well as two offshore gas projects. The oil projects produced 8.06 million tons in 2017, of which Rosneft’s share was 3.14 million tons, or about 60,000 barrels a day — around 1.3 per cent of the Russian company’s crude production.

1.3%

Share of Rosneft’s crude oil production from its assets in Venezuela

The loans Rosneft gave Venezuela’s state oil company are much more financially significant to the Russian company. In 2014, Rosneft made $4 billion in prepayments to PDVSA in exchange for future oil deliveries; in 2016-17, the Russian company added a further $2.5 billion to the total.

To be sure, Rosneft’s business in Venezuela has so far been profitable. It invested in the country at a time when most other oil companies didn’t dare. The company’s investments in the country so far have reaped returns far exceeding its internal target rate.

PDVSA supplied Rosneft with oil worth $1.9 billion against the loans in 2017, according to the Russian company, and cut the principal outstanding under the deals by a further $1.5 billion in the first nine months of 2018. Analysts estimate that the total currently outstanding is about $2.5 billion-$2.6 billion.

“While concerns around Rosneft’s exposure to Venezuela are likely to persist as long as the political uncertainty continues, it is much less critical for the company than even 18 months ago given the significant repayments made since then,” said analysts at UBS Group AG in a note.