Page 5 - LatAmOil Week 12 2020

LatAmOil COMMENTARY LatAmOil
 Mexico’s government is heavily dependent on oil revenues, but it has downplayed the impact of the decline in crude prices. Earlier this month, it claimed that it would be able to cover its expenses this year, thanks to its decision to hedge a significant portion of production at a price of $49 per barrel.
Earlier this week, though, industry experts told Reuters that the country was heading for trouble. Low oil prices are likely to complicate efforts by the national oil company (NOC) Pemex to pay bondholders their due of $30bn in 2024, they said. This could lead credit ratings agencies to follow Fitch Ratings and downgrade the company’s securities to junk status, they added.
If so, Pemex will have even more difficulty shedding its status as the world’s most indebted oil company. The company’s portfolio of finan- cial obligations amounts to around $105.2bn.
Guyana
Further south, Guyana is in the unfortunate position of having terrible timing. That is, it entered the ranks of the world’s oil producers just last December – just in time to see the price of its most valuable export commodity crash and burn.
This is bad news for Guyana’s government, which has been counting on oil revenues to push its budget revenues up to $200mn this year. These projections are no longer plausible, which means that the tone of the dispute between incumbent President David Granger and oppo- sition leader Bharrat Jagdeo is likely to become sharper in the near future.
Granger has declared that he won another term in office in the election held on March 2, but Jagdeo has disputed his claim. As of press time, the country is still waiting to hear the results of a recount of votes.
At the same time, low oil prices will also com- plicate the government’s plan to auction off the right to act as marketing agent for its share of production from Liza, an offshore oilfield within the Stabroek block. Guyanese authorities had originally hoped to launch the bidding process on March 12 but later pushed the target date back, first to March 24 and later to April 21.
The winner of the bidding contest will be tasked with selling at least five cargoes, each containing about 1mn barrels of crude oil, on Georgetown’s behalf in 2020 and 2021. As a
result of the delays, Guyana’s government will have to wait that much longer to collect payment for these barrels. It might also have to wait to see ExxonMobil and its partners bring Liza Phase 1 production up to peak levels of 750,000 barrels per day (bpd). The US giant had said previously that it expected to see yields reach this level by the end of 2020.
Venezuela
Meanwhile, Venezuela has not been immune to the crash on world oil markets either.
Traditionally, the South American state has been hugely dependent on oil revenues. But the amount of money coming in from crude sales and exports has fallen dramatically over the last year – that is, ever since the US government imposed additional sanctions on Caracas that targeted the oil industry in general and PdVSA, the NOC, in particular. (It is also coming in pri- marily from spot sales and not from long-term contracts.)
In turn, this fall has had profoundly negative effects on the oil industry. Without sufficient revenue, state-owned PdVSA has not been able to carry out the repair and maintenance work needed to keep its production and processing facilities running. As a result, Argus Media reported last week, the country’s oil output has dropped to about 500,000 bpd. This is down by 28.6-37.5% on the levels of 700,000-800,000 bpd that were prevailing in late 2019 – and nearly 80% down on the 2015 figure of 2.4mn bpd.
Meanwhile, the decline in output may not be finished. Industry sources told Argus Media last week that PdVSA might have to shut in another 150,000 bpd in the Lake Maracaibo region because production was no longer economically viable.
Officials in Caracas have often blamed the US sanctions regime for PdVSA’s travails, argu- ing that the NOC could easily stay afloat if only the trade restrictions were lifted. This seems unlikely, though. If Venezuela were able to sell heavy crude on the open market, it would prob- ably not be able to command a high price – and not just because oil is looking bearish and energy demand weak across the board, but also because supplies of all types of crude are so ample that PdVSA would face stiff competition.
In short, Venezuela, rather like Mexico and Guyana, appears to be heading for a tough time thisyear.™
“ Guyana and
Mexico appear to be heading for a tough time this year
Venezuela,
Tanker on Venezuela’s Lake Maracaibo, where oil production is sinking (Photo: Monga Bay)
Week 12 26•March•2020 w w w . N E W S B A S E . c o m
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