LatAmOil Week 10

Issue 604 15•March•2016 Week 10

�� Galuccio to leave YPF Argentina’s new conservative government has asked Miguel Galuccio to step

down as CEO of state-run YPF.

�� Colombia’s downward spiral A peace accord is unlikely to revive exploration in Colombia, which has

fallen away with the oil price crash.

�� PDVSA’s default risk Concerns about PDVSA’s ability to service its debts have led to a downgrade

by Moody’s and raised the spectre of a default this year.

�� Petrobras protests Millions of Brazilians have taken to the streets to protest against corruption

at Petrobras and to demand President Dilma Rousseff ’s removal from office.

P2 Week 10 15•March•2016 w w w. N E W S B A S E . c o m

LatAmOilLatAmOil LatAm Oil

NewsBase Special Reports

US LNGSpecial Briefing

November 2014 £129

Importer to exporter The US is set to shake up a fragmented, unresponsive global LNG market

Faster approvals The government is in favour of LNG and has sped up the approvals process.

Developers have applied to export 298 million tonnes per year of LNG

Buyers line up The emerging TPP trade agreement between the US and Asia could dictate

how US LNG exports develop

New market structures US LNG will generate new market structures, breathing life into a

fragmented market. The effect on prices will also be felt at home

Next steps US exporters must balance the risks posed by unknown variables, both

political and economic, with the evolving market opportunities on offer

\NewsBase

Insight, detail and analysisNewsBase’s Special Reports and Briefings offer in-depth intelligence on key sectors, developments and trends in the global energy industry.

To find out more, click here or call +44 131 478 7000 for further information and introductory discounts.

�� Fate of the nationBurdened by years of international sanctions, Iran is in dire need of foreign investment, particularly in its energy sector.

�� Land of opportunityHome to the world’s fourth and second oil and gas reserves respectively, Iran presents unique opportunities to firms throughout the oil and gas value chain.

�� Stiff competitionInvestors from China and Russia lead the queue, but Tehran is also keen to attract players from Europe, the Americas and elsewhere in Asia.

�� Contract overhaulTo make the terms of carrying out E&P work in Iran more lucrative, a new model has been developed, the Integrated Petroleum Contract (IPC).

Iran Investment Special Report

£1,000 May 2015

�� North AfricaCircle Oil and Petroceltic are making progress in opening up new frontiers, even while conditions are tough.

�� East AfricaThe under-explored region has made great strides in recent years but questions over regulatory and political barriers remain.

�� North SeaThe area has been hit hard by the oil price downturn but there are substantial resources still to be exploited.

�� KurdistanOil is plentfiul in the breakaway northern area of Iraq but payment issues, and instability, loom large.

EMEA Investment Targets

Special Report£440 August 2015

Insight, detail and analysis – NewsBase’s Special Reports and Briefings offer in-depth intelligence on key sectors, developments and

trends in the global energy industry.

To find out more, go to www.newsbase.com or call +44 131 478 7000 for further information and introductory discounts.

South China SeaSpecial Briefing

February 2015 £129

Legal challenge As the South China Sea’s territorial claimants entrench their positions, the chances of a legal resolution become increasingly slim.

A numbers game South China Sea resource estimates will remain uncertain until further drilling can be carried out in the region.

Danger in the deep China’s geopolitical, military and technological rise has left many of its neighbours ill at ease.

Two’s a crowd Though joint developments could speed up the exploitation of contested resources, claimants remain wary of each other.

NewsBaseSpecial Reports

P3Week 10 15•March•2016 w w w. N E W S B A S E . c o m

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LatAmOilLatin America Oil & Gas Monitor

w w w. N E W S B A S E . c o m

C O M M E N T A R Y

Have a question or comment? Contact the editor – Ryan Stevenson [email protected])Copyright © 2015 NewsBase Ltd. All rights reserved. No part of this publication may be reproduced, redistributed, or otherwise copied without the written permission of the authors. This includes internal distribution. All reasonable endeavours have been used to ensure the accuracy of the information contained in this publication. However, no warranty is given to the accuracy of its contents

C O N T E N T S

Argentine government forces Galuccio’s departure from YPF 4Default risk looms large for PDVSA 6

N E W S B A S E R E S E A R C HDelayed Colombian peace deal unlikely to kick-start oil industry 8

P I P E L I N E S & T R A N S P O R TExmar drops Caribbean FLNG plans 10Mexico’s CFE launches new gas pipeline tender 10

I N V E S T M E N TPDVSA offers heavy oil stakes 11Venezuela seeks to renegotiate terms of China loans 12

P E R F O R M A N C ESAExploration sees Latin American revenue dive 12Bleak outlook for Pacific E&P 13

P O L I C YOil producers’ meeting postponed 14Brazil unveils new oil incentives 14Jail sentence for Odebrecht chief as pressure builds on Rousseff 15

P R O J E C T S & C O M P A N I E STotal poised to drill off Uruguay 16

N E W S I N B R I E F 17


LatAmOilLatAmOil

MIGUEL Galuccio will step down as the CEO of YPF after rebuilding Argentina’s state-run energy company into a thriving business and the first to produce shale oil outside North America.

Argentine Energy Minister Juan Jose Aranguren announced the decision to remove the 47-year-old petroleum engineer as CEO and chairman on March 9, saying in a statement that his last day would be April 30. That is when the next shareholder meeting will be held to discuss the decision.

Galuccio said in a separate statement that he would help the board of directors find and make the transition to a new leader.

“It’s been a very intense four years in which we changed the course of YPF to re-convert it into the engine of the country’s energy develop-ment, creating value for shareholders,” Galuccio wrote. “I am proud of what we accomplished with all Ypefianos [YPF workers], but it’s time to let others continue the path that the company is walking. YPF is the best company in the country and I am convinced that it will remain that way.”

Why?The initial response of many in the industry after hearing the news was to ask why.

Galuccio has run the company since for-mer president Cristina Fernandez de Kirchner brought it under state control in April 2012 by expropriating a 51% stake from Spanish major Repsol.

Galuccio, who had just turned 44 at the time, moved back to Argentina from London, where he was a director of production manage-ment for Houston-based oilfield services giant Schlumberger.

This marked his return to YPF, as well. Galuc-cio had started his career at the company in the 1990s before widening his experience at Schlum-berger for 12 years.

Back at YPF, he faced the huge task of turning around a decade-long decline in oil and gas pro-duction at a time when government-imposed

price caps were depressing revenue in the sec-tor. Argentina was – and still is – unable to bor-row abroad because of a failure to fully settle a US$100 billion default from 2001, jacking up borrowing costs for companies doing business in the country.

Furthermore, double-digit inflation and limits on importing machinery and exporting product as well as on paying dividends abroad also deterred investment. The government was trying to stem a decline in dollars to keep on top of debt payments.

Through all of this, Galuccio managed to turn around a 6% annual decline in oil and natural gas production to growth, with the recovery starting in 2013. Total hydrocarbon production grew by 13.5% year on year in 2014, before slowing to 3% growth in 2015, as low global oil prices started to depress investment. This year, Galuccio said he anticipates that production will be flat on the 576,700 barrels of oil equivalent per day level recorded in 2015. The firm intends to cut its cap-ital expenditure this year by 20% to 25% com-pared with 2015.

With the recovery, Galuccio was able to find partners to develop Argentina’s Vaca Muerta shale play, which has been compared to the Bakken and Eagle Ford shales in the US.

The first bite came from US-based Chev-ron, which agreed to a US$16 billion develop-ment project in Vaca Muerta. The super-major’s investment in the Loma Campana field has funded the lion’s share of YPF’s 424 shale wells that are now in production as part of their part-nership. YPF was producing more than 50,000 boepd from Vaca Muerta in the fourth quarter, most of it from the Loma Campana area. That is up from the 38,000 boepd in recorded in the same period last year

The rise in output and the potential of the shale resources has attracted other partners. US-based Dow Chemical is working with YPF to develop a field in the shale gas window of Vaca Muerta, and Malaysia’s state-run Petronas

W H AT:Miguel Galuccio will step down as CEO on April 30.

W H Y:The new government wants its own people in key positions at state-run enterprises.

W H AT N E X T:Former banker Miguel Angel Gutierrez will take over as YPF’s chairman, while the government conducts a global search for a new CEO.

Argentine government forces Galuccio’s departure from YPFIn a surprise move, Argentina’s new conservative government has asked Miguel Galuccio to step down as CEO of state-run YPF, writes Charles Newbery in Buenos Aires

Galuccio managed to turn

around a 6% annual decline

in oil and natural gas production to growth, with the recovery starting

in 2013.

C O M M E N TA RY

ARGENTINA

Miguel Galuccio is stepping down as CEO of YPF, as the new government mobilises its own people into key positions


LatAmOilLatAmOil

in the black oil window. Another partnership is in play for developing tight gas resources with Argentina’s Petrolera Pampa, part of the coun-try’s biggest electricity group, Pampa Energia. And another is poised to start with US-based American Energy Partners (AELP) lined up to invest more than US$500 million in Vaca Muerta starting as soon as the second quarter.

Galuccio has also slashed shale drilling costs to US$7.5 million per well for verticals and US$13 million per well for horizontals, and stepped up production capacity at refineries, taking the company’s share of diesel and gaso-line sales to nearly 60% from less than 55% pre-viously. With his ability to build up the business and attract investors to such a complex market as Argentina, why oust Galuccio?

Carlos Germano, a political analyst in Bue-nos Aires, believes it was his association with the Kirchner administration that brought about his downfall. This is in line with changes in many state companies and entities, where Argentina’s new conservative president, Mauricio Macri, is planting people that share his beliefs, such as at the central bank and attorney general’s office.

“In spite of being a leader in the industry, Galuccio’s ouster is part of this process of change,” Germano told NewsBase. “I see it as a normal change within a change in the government.”

What next?Macri’s strategy is to split the leadership role at YPF in two. While Galuccio ran the show as chairman and CEO, now two people will hold these positions.

The new chairman will be Miguel Angel Gutierrez, a career banker. Gutierrez, 56, was named a director of YPF in December, shortly after Macri took office.

Gutierrez brings experience as a former chairman of Telefonica de Argentina, a leading telecommunications company, and of toll road operator in Argentina. And like other senior officials in Macri’s government such as Finance Minister Alfonso Prat-Gay and Finance Sec-retary Luis Caputo, Gutierrez comes from 21 years of working at JPMorgan Chase & Co., a US-based investment bank.

The government is appointing “the people who can best interpret what it wants to do,” Ger-mano said.

The next step is to find a CEO, and Mac-ri’s cabinet chief, Marcos Pena, said the search would be global “for the most qualified person for the role.”

The new CEO, he added, will handle the day-to-day running of the company, while Gutierrez will focus on broader issues, he said. “It’s healthy to renew and make a change,” Pena said.�

C O M M E N TA RY

Galuccio has driven the rapid ramp up of drilling activity in the Vaca Muerta shale

The government is appointing the people who can best interpret

what it wants to do.

Carlos GermanoPolitical analyst


LatAmOilLatAmOil

FEARS are mounting about PDVSA’s ability to service its debt after Moody’s Investors Service lowered its outlook on the company’s bonds to negative from stable. The move followed similar action the ratings agency took on Venezuela’s sovereign debt.

Moody’s refrained from downgrading PDV-SA’s debt, which maintained its junk bond rating of Caa3. The company’s baseline credit assess-ment (BCA) was lowered to Caa3 from Caa1.

“Moody’s rating actions were triggered by the sharp decline in oil prices that put pressure both on the company’s credit profiles and the finances of the government, hindering their abil-ity to provide extraordinary support to its com-pany and heightening risks for creditors” Nymia Almeida, a senior credit officer at Moody’s, said in a statement.

Moody’s went on to say that “the lowering of PDVSA’s BCA to Caa3 from Caa1 reflects Moody’s view of a higher probability of default or debt restructure in the next 12 to 18 months, on the back of low cash generation related to depressed oil prices and lack of visibility regard-ing the company’s investing and refinancing plans over the short to medium term.”

According to Moody’s, PDVSA has bonds worth US$5.6 billion maturing this year, and an additional US$7 billion in 2017.

The credit rating agency also underlined the dependency between the company and the Ven-ezuelan government, and the intermingling of their finances. Moody’s suggested that Venezuela will become even more dependent on PDVSA in the future for its financial survival, while PDVSA’s ability to sell fresh debt will be hurt by concerns over Venezuela’s sovereign debt. The negative outlook effectively ends PDVSA’s ability to sell fresh bonds at competitive rates.

Venezuelan President Nicolas Maduro, who is facing a possible recall, said earlier this year that the country and PDVSA would have to make about US$14 billion in debt repayments this year. The government made an earlier pay-ment of US$1.5 billion last month, easing fears of an immediate default. But with oil prices

remaining weak, questions remain about the country’s ability to make other payments.

Debt loadingPDVSA’s precarious financial situation is largely a result of the government’s interference in its operations. In 2007, the company’s debt was about US$3 billion. That quickly rose as the gov-ernment used PDVSA as a cash cow. It also took advantage of its sound financial footing to load up the company with debt, ostensibly to fund its capital expenditure in its key oil and natural gas industries. Some of the bonds sold carried maturities of up to 30 years (coming due in 2037). Many of the funds were seemingly used to finance the government’s socialist programmes or underwrite campaign expenses of Maduro’s United Socialist Party of Venezuela (PSUV).

PDVSA’s debts, excluding domestic creditors including the Central Bank, currently stand at about US$43.8 billion, a slight improvement over the US$45.7 billion recorded in 2014. The company’s borrowing spree and where that money ended up is likely to be the focus of a National Assembly investigation.

The state of the company’s worsening finances has been known for months. PDVSA’s president Eulogio del Pino said late last year that the com-pany was seeking to refinance bonds coming due this year and next for new notes coming due in 2018 and 2019. Del Pino said earlier this month that the company was in talks with international banks but gave no details.

The lack of movement on refinancing was cited by Moody’s as one of the reasons for its rat-ings downgrade.

In spite of the downgrade, the government has not yet defaulted, and has slashed imports to meet debt payments. This has come at a cost to the government, though, with popular unrest about growing shortages eroding support for Maduro further.

The government is desperate to avoid a default so its creditors do not go after valua-ble PDVSA assets, such as its US affiliate Citgo Petroleum.

W H AT:PDVSA’s debts currently stand at about US$44 billion.

W H Y:The government has used the company as a cash cow to provide hand-outs to its supporters.

W H AT N E X T:Without a major oil price rally, PDVSA and Venezuela look likely to default.

Default risk looms large for PDVSAConcerns about PDVSA’s ability to service its debts have led to a downgrade by Moody’s and raised the spectre of a default this year, writes Peter Wilson in Caracas

The lack of movement on

bond refinancing was cited by

Moody’s as one of the reasons for its ratings downgrade.

C O M M E N TA RY

VENEZUELA


LatAmOilLatAmOil

What nextPDVSA’s financial woes look like they are just beginning. The company’s prospects are, as Moody’s pointed out, inextricably tied to those of the government, which is facing lower revenues this year because of low oil prices.

The value of Venezuela’s oil exports this year is forecast to fall by 40% over 2015 levels, with revenue from oil sales estimated to total about US$22.1 billion.

The price of Venezuela’s oil basket, which is heavily tilted toward extra-heavy and heavy crude, averaged US$44.65 in 2015, down from US$88.42 in 2014. The price of the market basket this year has averaged US$24.91.

This means revenue from oil sales – which provide the country with 95% of its hard cur-rency income – will fall dramatically in 2016 just as the country is facing the burden of making debt payments.

The government’s policy to deal with the sit-uation so far has been to slash imports and hope for a rally in oil prices.

Maduro appears politically paralysed, unable

to make any decisions to reverse the economic decline, especially regarding state control over the economy.

The president devalued the currency in Feb-ruary, and raised domestic petrol prices. But those isolated steps have done little to hold back inflation, which is forecast to top 700% this year.

Maduro has also failed to use extraordinary economic powers that the country’s Supreme Court granted him after the opposition-con-trolled National Assembly refused to. Last week he requested that the powers be extended for another two months. The Assembly is likely to reject that plea, though the Supreme Court will probably approve it again.

NewsBase believes PDVSA will continue to sell non-strategic assets to raise cash to meet its debt obligations. But those assets have limited value and appeal to investors, given the political risk in the country.

The outlook is not bright for PDVSA. With-out a major rebound in oil prices, a debt default by PDVSA – and Venezuela – may be inevitable later this year.�

Maduro appears politically paralysed,

unable to make any decisions

to reverse the economic

decline.

C O M M E N TA RY


LatAmOilLatAmOil

THE March 23 deadline set last year as the sign-ing date for a peace accord between Colom-bia’s government and the FARC looks likely to be missed. With talks in Cuba entering their final delicate stages, the government is wary of rushing through a weak agreement that could unravel in the future. The process is being watched closely by oil companies in Colombia whose operations have been blighted by insecu-rity for decades.

These companies hope a peace deal could open up new areas to exploration and produc-tion (E&P). But there is growing scepticism about how much of an impact a deal would have on Colombia’s dwindling reserve numbers and struggling oil sector.

Deadline delayUnited Nations Secretary-General Ban Ki-moon last week appointed UN envoy Jean Arnault of France to head the organisation’s political mis-sion in Colombia. It will monitor and verify the peace deal once it is struck and Arnault’s appointment is evidence that the finish line is in sight for talks that began in late 2012.

The March 23 deadline is unlikely to be met, though, with Colombian President Juan Manuel Santos saying he was unwilling to sign off on an accord that did not satisfy the government’s requirements. He said the administration would extend negotiations if necessary. “After all this effort, all this time, if we haven’t reached a good deal by the 23rd, I’ll propose to the other side to create another deadline,” Santos said. “I will not sign a bad deal to meet a deadline.”

A peace deal was previously flagged up as being a potential game-changer for oil compa-nies in that it would open up virgin territory to E&P. This is highly unlikely to happen, though, with low oil prices decimating capital expendi-ture (capex) on exploration work in the country, and the bulk of the most prospective acreage already well-explored.

A steep decline in exploration investment saw the number of wells drilled across Colombia fall by 74% between 2014 and 2015, according to a report by the Colombian Petroleum Associ-ation (ACP) late last year. Only 19 exploration wells were drilled during the first nine months of 2015, ACP figures showed, down from a record 131 in 2012. Furthermore, regardless of a peace deal, production costs will remain high

owing to Colombia’s poor infrastructure, which is frequently attacked by guerrillas, and also the fact the majority of output is heavy crude that is trickier to extract and process.

State-run Ecopetrol has already started shut-ting in some fields to conserve cash. It said it had “temporarily suspended” operations at the Akacias CPO-9 field and Cano Sur well in Meta Province, taking around 9,000 bpd of produc-tion offline. (See LatAmOil, Week 09, Issue 603)

“The trend in Colombia has been for com-panies to prioritise cash flow to maintain pro-duction and to focus their investments and capital on production,” ACP’s vice president of economic affairs, Alexandra Hernandez, told NewsBase last month. “This implies sacrificing investments in exploration. To reduce produc-tion costs companies have reduced exploration, which started more than a year ago with the fall of oil prices.”

Reserve revisionThe price collapse and exploration slowdown have taken their toll on Colombia’s reserves. New estimates released by the Colombian Chamber of Oil Goods and Services (Campetrol) in Feb-ruary showed that oil reserves currently stood at 1.7 billion barrels based on a crude price of around US$35 per barrel. “Our oil reserve esti-mates are based on what is economically viable for companies to extract oil based on today’s prices,” Campetrol head Ruben Dario Lizarralde told NewsBase at the time. This is 600 million barrels less than the upstream regulator’s (the ANH) reserve estimate of 2.3 billion barrels of oil, though this was based on a price of US$50-60 per barrel.

Campetrol’s reserve estimate would give Colombia around 4.5 years of remaining oil production at current development levels, with the ANH number allowing for around 6.5 years.

Colombia already has one of the lowest reserves to production ratios of any major pro-ducer, and the collapse in exploration means the situation is unlikely to change soon.

Misplaced hopeIn this context, it was hoped a peace deal could reinvigorate exploration activity in areas that were previously locked in by FARC activity. This hope appears misplaced for two key reasons.

First, as NewsBase reported last week,

W H AT:The March 23 deadline for a deal looks likely to be missed.

W H Y:The government would rather extend negotiations than commit to a bad deal.

W H AT N E X T:A peace accord is unlikely to revive exploration in the country, which has fallen away with the oil price crash.

Delayed Colombian peace deal unlikely to kick-start oil industryNewsBase Research assesses how an accord might shape Colombia’s oil industry

There have not been any major

finds in Colombia arguably since the Cupiagua

discovery in the eastern Casanare Province in 1993.

N E W S B A S E R E S E A R C H

COLOMBIA

Colombian President Juan Manuel Santos wants a peace deal to be part of his legacy, though he said he would not rush through a weak accord.


LatAmOilLatAmOil

Colombia’s second largest guerrilla group, the ELN, is moving into areas where FARC activity has reduced. (See LatAmOil, Week 09, Issue 603)

The government has not yet started peace talks with the ELN, despite hints of willingness from both sides, so there will still be security issues irrespective of what happens with the FARC at the negotiating table in Havana.

Second, and more important, is the fact that there appears to be a fundamental lack of viable exploration targets in the country, regardless of whether there is a civil war on or not. There have not been any major finds in Colombia argua-bly since the Cupiagua discovery in the eastern Casanare Province in 1993.

At the start of the decade a common assump-tion was that as the Colombian military pushed the guerrillas back, new previously unexplored areas would be opened up, which would sustain the country’s oil supply growth. But analysis by NewsBase Research (NBR) challenges this theory. Colombia’s largest and most prolific basin, the Llanos Orientales, covers nearly 200,000 square km and accounts for around 75% of the coun-try’s entire output. Almost all production and all major oilfields are located in the western half of the basin, which is well-explored, as it has typi-cally been more accessible and easier to secure.

It has been speculated that the eastern half could be similarly prolific, should the FARC and ELN be purged from the area and exploration start in earnest. The situation on the ground is complex, however, and even peace accords with the major guerrilla groups would leave the prob-lem of paramilitary and criminal gangs, often involved in the drugs trade, as well as kidnap-ping, theft and extortion.

Geology also seems to suggest such initi-atives would be unlikely to bear much fruit. Geological cross-sections show that the basin shallows steeply towards the east, where base-ment outcrops at the surface. Combined with a lack of source rock, sufficient burial and strati-graphic traps, this implies low hydrocarbon prospectivity.

Analysis by NBR suggests that, though there may be some undiscovered fields in the central Llanos, the eastern edge of the basin is unlikely to produce any significant amounts of liquids. Oil is produced in seven other smaller Colombian basins (four of which yield 10,000 bpd or less), but their remaining potential also appears to be limited. The oil industry is of course hopeful a peace agreement can be struck. As Campetrol’s Lizarralde told NewsBase: “We trust that with the signing of the peace deal, it will be easier to work in a calmer environment and boost activity.”

But any such deal is unlikely to save the oil industry.

Colombia’s oil production has remained around the 1 million bpd mark for the last three years, and remained at that level in December, according to the energy ministry’s latest data. But the government expects output to fall this year and recently lowered its 2016 target from 955,000 bpd to 944,000 bpd. With reports of field shut-ins and spending cuts, even this level may be optimistic. The Colombian finance ministry is now saying output could go as low as 921,000 bpd – a level which is in more line with our own forecast of 925,000 bpd.

Longer-term, there seems to be no way back for the Colombian oil industry. Our analysis suggests that output will fall below 800,000 bpd in 2018, and is likely to continue falling unless there is a strong oil price rally before the end of the decade and a resultant pick-up in exploration activity. We anticipate output being comfortably below 700,000 bpd by 2025, without any ramp up in exploration driven by the availability of previ-ously locked in acreage. New production from previously unexplored areas (assuming investors can be attracted to develop these) could par-tially offset the sharp declines occurring across Colombia’s maturing oilfields for a period, but will not be enough to revive the industry.

With or without a delayed peace deal being done, there is a good chance that Colombia will never achieve output of 1 million bpd again.�

The Colombian finance ministry

is now saying that output could

go as low as 921,000 bpd this

year.

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N E W S B A S E R E S E A R C H

For an in-depth geological analysis of Colombia’s basins by NewsBase Research, please click here, provide your contact details and we will email you the information package.


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MEXICO’S Federal Electricity Commission (CFE) has launched a new natural gas pipeline tender. The commission is seeking bids for a 10-km pipeline with a pumping capacity of 248 million cubic feet (7 million cubic metres) per day and diameter of 24 inches (610 mm) to supply two planned gas-fired thermal power plants (TPPs) in the Pacific coastal city of Topolobampo.

The new branch pipeline will be backed by a 25-year contract and must link to a line from El Encino to Topolobampo – a US$1 billion project due to come on stream this year – which is part of a much larger network that the CFE is building to connect Puerto Libertad on the Gulf of Cali-fornia with the port of Mazatlan in the state of Sinaloa, on the Pacific.

The CFE still has to set dates for site visits, meetings and bids, but has determined that there will be one pitch on technical standards followed by a pitch on price for firms that make the cut. The tender is only open to companies that have

already operated natural gas pipelines of 16 inches (406 mm) in diameter or above.

The CFE has begun a process of building its own pipelines to supply TPPs with natural gas imported from the US. It is now competing with state-owned Pemex for retail customers under the terms of Mexico’s energy reform, which was finally enacted in August 2014.

The two-year process of implementing this reform has caused much more elaborate bar-gaining in the tender process. The CFE has bounced terms and conditions back and forth with possible providers many more times than under previous arrangements before commit-ting to a final tender document.

While doubts remain about the specifics of individual pipelines, the CFE has made it clear it is committed to natural gas dominance for many years. In 2015, it committed to adding 10.6 GW of combined cycle natural gas capacity over the next 15 years, nearly five times as much as from any other technology. �

EXMAR has dropped its plans to send its Carib-bean FLNG vessel, which is under construction in China, to Colombia, as market conditions mean the project is no longer economic.

In March 2012, Exmar and Pacific Explora-tion and Production (PEP) agreed to a 15-year deal to deploy the floating LNG (FLNG) vessel to Colombia. The two parties have agreed to a settlement whereby PEP will make payments to Exmar in monthly instalments until June 2017.

Exmar intends to redeploy the vessel to other markets, particularly to companies working “in West Africa and the Middle East”, according to the company’s CFO, Miguel de Potter.

De Potter told LNG World Shipping that Car-ibbean FLNG was “96 to 97 percent completed and will be commissioned one month from now”. Interest is now focused on Equatorial Guinea and Iran. The vessel has a liquefaction capacity of approximately 500,000 tonnes per year of LNG.

By virtue of the settlement agreement, as of March 3, 2016, any and all obligations in

connection with the tolling agreement have been terminated.

The cancellation of the project appears to have been driven by PEP’s overall financial dif-ficulties. Suffering in a weak market, PEP had made multiple announcements throughout the end of 2015 and into 2016 that it was “actively working” with its noteholders, lenders, and legal and financial advisors to restructure and extend repayments.

The FLNG market has also deteriorated. Car-ibbean LNG is just one of a number of projects that have fallen through in recent months as a result of the commodity price downturn. In Feb-ruary, Malaysia’s Petronas announced it would defer the delivery of its planned PFLNG 2 unit as part of a US$12 billion-plus budget cut.

Oslo-based Hoegh LNG Holdings also announced in February that it was putting its FLNG business on hold, allocating its resources and capital to its floating storage and regasifica-tion unit (FSRU) work, owing to the oversup-plied LNG market.�

Exmar drops Caribbean FLNG plans

Mexico’s CFE launches new gas pipeline tender

P I P E L I N E S & T R A N S P O R T

COLOMBIA

MEXICO


LatAmOilLatAmOil

CASH-STRAPPED PDVSA is offering minority partners the opportunity to increase their stakes in at least two Venezuelan extra-heavy oil joint ventures that are already up and running.

State-run PDVSA could sell shares in its Petropiar and Petrolera Sinovensa joint ventures.

US super-major Chevron has a 30% stake in the former, while China’s state-run CNPC has a 35.75% holding in the latter.

Under Venezuelan law, PDVSA must main-tain at least 60% in all oil ventures, giving for-eign companies the chance to boost their stake by small margins. Both Petropiar and Petrolera Sinovensa were nationalised by the late Presi-dent Hugo Chavez in 2007, when PDVSA took a majority stake.

NewsBase estimates that such sales could raise at least US$150 million. But we also doubt that CNPC and Chevron will be interested in increasing their stakes given the myriad uncer-tainties in the country.

The offers are similar to a sales agreement that PDVSA signed with Rosneft under which the Russian company paid US$500 million to raise its participation in Petromonagas to 40% from 16.67%.

In most of its other extra heavy joint ventures, PDVSA has a 60% stake.

PDVSA is scrambling to raise money to meet debt obligations coming due this year and in 2017. PDVSA’s debt servicing bill – including both principal and interest payments – is about US$5.2 billion this year, of which most comes due in the last quarter of the year.

The company has more than US$9.2 billion in debt servicing in 2017.

The above sums exclude PDVSA’s domestic obligations, including those to the country’s Central Bank. PDVSA’s president, Eulogio Del Pino, who is also Venezuela’s oil minister, has repeatedly said the company is seeking to refi-nance debt coming due this year and next.

Bondholders could be asked to exchange the notes for instruments coming due in 2018 and 2019 when PDVSA’s debt servicing payments are less.

Del Pino said the company was doing everything in its power to avoid a debt default, which looks increasingly likely.

PDVSA, like Venezuela, is facing a cash crunch brought on by weak oil prices, which have reduced its ability to service debt taken on after 2007. That year, the company’s finan-cial debt was about US$3 billion but the com-pany subsequently went on a borrowing spree to finance government programmes and cam-paigns. Earlier this year, PDVSA said its bank debt had fallen to US$43.8 billion as of last year, down from US$45.7 billion in 2014.

President Nicolas Maduro has said that Ven-ezuela and PDVSA need about US$14 billion to service their combined debt obligations this year. So far, the country has been able to avoid any late payments by slashing imports and draw-ing down international reserves, which fell to 13-year lows last month after a debt repayment.

NewsBase believes PDVSA will try to sell more assets to raise funds to meet its debt obli-gations. But low oil prices have diminished the value of many of its assets, limiting its pricing flexibility. Potential buyers will also be wary of the growing political risk in the country.�

PDVSA offers heavy oil stakes

PDVSA is scrambling to raise money to meet debt obligations

coming due this year and in 2017

I N V E S T M E N T

The heavy oil upgrader at the Petromonagas, in which Russia’s Rosneft recently increased its stake to 40%.

VENEZUELA

PDVSA’s president Eulogio Del Pino said the company was doing everything in its power to avoid a debt default


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GEOPHYSICAL services provider SAExplora-tion (SAE) saw revenue from its Latin American activities plummet in the fourth quarter of last year. The US firm reported US$6.74 million in revenue in the fourth quarter of 2015, compared with US$80.2 million in the same period a year earlier.

The Houston-based company said that this was because of a slowdown in Peruvian seismic activity, as well as regulatory issues in Colombia that inhibited the flow of government approvals. It was also the result of the “general deterioration of the broader commodity price environment and its distinct impact on smaller producers in the region,” the firm said in a conference call last week. There was a “meaningful decrease in exploration activity in South America” during the fourth quarter of last year, said Brent White-ley, the company’s CFO.

Activity in the region during 2015 was “below historical levels,” added Brian Beatty, the compa-ny’s CEO. “However, we did gain more visibility towards the end of the year. And we currently

have crews operating in Bolivia and Colombia,” he said.

The firm has “additional programmes in backlog” which are scheduled to take place in mid-2016, he said. The company is also receiving and reviewing other bid opportunities that may take place this year, he added.

The effect of lower commodity prices has also been felt at a national level in a number of countries in the region, where governments are heavily dependent on oil revenue.

Peru has been particularly hard hit, where the oil price situation has been exacerbated by con-tinuing delays in companies securing govern-ment approvals and by frequent environmental opposition. SAE has operations in Peru, Colom-bia, Bolivia and Brazil.

In January, the firm said it had been awarded two new projects for onshore logistical support and seismic data acquisition services in Latin America. It said the projects would take place in the rainforest region, but did not specify in which country.�

PDVSA is seeking to make changes to the terms of loan deals it arranged with China that are repayable in oil. The company’s president, Eulogio del Pino, confirmed that talks had com-menced, though he provided few further details other than to say they were ongoing.

The Venezuelan press reported earlier that PDVSA was seeking a two-year grace period dur-ing which it could rebuild its tattered finances. China has reportedly rebuffed the request.

Since 2007, China has advanced more than US$50 billion in loans repayable in oil, of which a little more than US$20 billion has been repaid. Terms of the agreements have never been released. Venezuela’s National Assembly, which is controlled by opponents of President Nicolas Maduro, has promised to investigate the loans. Critics of the accord say the Chinese are receiv-ing price discounts on the crude they receive to defray the cost of shipping.

Venezuela has counted on financing from China in the past to ease the economic crisis that is threatening the political stability and surviva-bility of Maduro.

NewsBase forecasts that the country’s GDP will contract 8% this year and its inflation rate will be above 700%. The country has had the world’s highest inflation rate for the last three years.

Shortages of basic foodstuffs, medicines and spare parts are already grave and have led to a series of lootings of supermarkets, threatening to ignite a social explosion.

PDVSA delivered about 650,000 barrels per day of crude to China last year, of which two-thirds was in repayment for the loans. The state-run company does not receive any funds for the transfers. Furthermore, statistics from Beijing suggest that up to half of the Venezuelan crude being sent to China is actually sold on the spot market. NewsBase does not anticipate that China will make major changes in terms of restructur-ing the loans.

Facing its own economic problems, Beijing is wary of advancing new credits. China’s position is also being shaped by growing doubts about Maduro’s ability to fight off moves by the opposi-tion to force him out of office.�

P E R F O R M A N C E

Venezuela seeks to renegotiate terms of China loans

SAExploration sees Latin American revenue dive

I N V E S T M E N T

VENEZUELA

PERU

Activity in the region during

2015 was below historical levels.


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QUESTIONS have once again emerged about the solvency of Pacific Exploration and Produc-tion (Pacific E&P), Colombia’s largest private oil producer. The company has been struggling with low oil prices and state-owned Ecopetrol’s deci-sion to cancel its lease for the Rubiales oilfield.

Colombian brokerage Casa de Bolsa reported last week that the largest group of creditors in the South America-focused company was due to meet on March 11 to discuss whether the com-pany was in default.

Pacific E&P received a request from the Colombian Financial Superintendency on March 10 asking if it would clarify reports in the media of a qualified restructuring. The company demurred. But a source familiar with the nego-tiations told NewsBase that one or more parties with credit default swaps relating to the 2025 notes have asked the International Swaps and Derivatives Association (ISDA) for a ruling that a credit event has occurred. This would allow the parties to collect under the credit default swap. The ISDA ruled on March 11 that there had been a “failure to pay credit event” at the company, according to a release on its website.

The 30-day grace period on Pacific’s January interest payment expired on February 10 but the company was able to get an extension with the support of 42% of 2025 bondholders, as well as 34% of the holders of 2019 bonds. It is some of that remaining 58% of holders who are now making their disapproval known. According to the bond prospectus, investors need the support of 25% of a series of notes to accelerate the secu-rities. The association was due to meet again on March 15 to rule whether there would be a credit default swap (CDS) auction.

The source NewsBase spoke to said that other than the potential for a change of creditors, the decision should not have any impact on the 2025 notes. This seems disingenuous, however. Credit default swaps act as insurance against non-pay-ment. The fact that the CDS buyers are moving to collect suggests that the concern of default now outweighs the potential benefits of the swaps. Under the swap, the buyer is entitled to the face value of the bond from the seller, in the event that the issuer defaults.

Default riskThe ISDA ruling also establishes that Pacific E&P has already defaulted on its debt, which will have

an impact on the company’s creditworthiness. Pacific E&P has until March 31 to meet its com-mitments under an extension to payment dates, and the company is remaining characteristically tight-lipped on its plans. A representative said the company could not comment at this time.

CEO Ronald Pantin said last month that the extension to the payment period would allow Pacific E&P “an additional period to continue working toward a consensual and comprehen-sive reorganisation of the company’s balance sheet”.

Ratings agency Standard and Poor’s believes the company is likely to default and investment firm EIG Partners is also counting on the alleged insolvency of the company. EIG subsidiary Har-bour Energy made a takeover bid for Pacific E&P in January, subsequently extending the deadline for shareholders to vote on the offer to March 24. Harbour also amended the terms, reducing the amount it was willing to pay bondholders to C$0.16 (US$0.12) per bond as the company’s financial situation had “deteriorated”.

With the firm refusing to comment on its plans, the market is waiting for decisions from the ISDA on March 15 and from Pacific E&P’s own shareholders on March 24. They have pre-viously shown themselves reluctant to be bought out, with a proposed deal from Harbour and Alfa falling apart last year because of shareholder opposition. Though Pacific E&P’s shareholders are likely to deem Harbour’s bid to be too low, with just two weeks to come up with the money to avoid a default, the company may be running out of options.�

Bleak outlook for Pacific E&P

The company has been

struggling with low oil prices

and state-owned Ecopetrol’s decision to

cancel its lease for the Rubiales

oilfield.

P E R F O R M A N C E

COLOMBIA


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NEW oil incentives unveiled by Brazil could unlock US$120 billion in investment, according to the country’s energy minister, Eduardo Braga.

The measures authorised by the National Council of Energy Policy include authorising the extension of licences for oilfields that were auc-tioned off in the country’s inaugural oil round in 1998, the extension of the special customs regime for oil equipment (known as Repetro) and incentives for operators to restart produc-tion in fields where activity has halted.

The council said the measures were in response to the drop in the oil price which “makes the economic viability of investments difficult”.

The council authorised the oil regulator to inform concession holders that they have 12 months to restart activity in fields where there has been none for the last six months or else the concessions will be transferred to another company.

The ability to extend concessions granted in 1998 only applies to fields considered econom-ically viable beyond the original terms of the contract signed with the regulator and can only extend to 27 years, seven more than the 20 that

were originally agreed to.The measures are part of a government effort

to end dormant concessions. “There are fields with the capacity to produce but find themselves paralysed, compromising the rational use of resources, the generation of jobs and royalties for the country,” said the council in its statement announcing the changes.

A senior official in the energy ministry said the government also was intending to hold an auction round next year of reserves linked to areas that have already been auctioned off.

Braga did not provide further detail of how the measures would generate US$120 billion in investment. The amount seems fanciful, given the chaos in the country’s oil sector caused by the oil price crash and scandal at Petrobras.

The new incentive scheme is indicative of the policy shifts under way in Brazil’s oil industry, as the government belatedly realises that radical action is required to attract new capital expend-iture and reassures existing investors. But with the IEA’s latest report saying Brazilian output plunged by 180,000 barrels per day in January, to 2.45 million bpd, it looks like a case of being too little too late.�

A much-anticipated gathering of Latin Ameri-can oil producers planned for March 11 has been postponed until the end of the month.

The meeting, which was due to take place in the Ecuadorian capital of Quito, was delayed owing to conflicting schedules, the country’s oil minister Carlos Pareja Yannuzelli said last week.

“One of the problems is that the agendas of the ministers are very complicated,” Pareja said. “I think it could be the end of March or early April,” he added, when asked when the meeting could now be held.

Ecuador is the smallest member of OPEC, which produces around 40% of global oil.

The region’s main exporting countries – Ven-ezuela, Colombia, Ecuador and Mexico – were expected to discuss co-operation ahead of an OPEC meeting that is scheduled to take place later this month.

Last year, OPEC made the controversial deci-sion not to cut output to prop up prices, despite months of plummeting crude oil prices.

In December members of OPEC met again in Vienna to discuss potential production cuts, fol-lowing calls by several member nations includ-ing Ecuador to cut output for several months

leading up to the meeting. But the group decided to keep producing at the same level.

Pareja said on local radio before the meeting was cancelled last week that the aim was to freeze the production ceiling.

“There is talk of an OPEC, non-OPEC meet-ing in Russia from March 20 or 21,” he said. “Our proposal is to unite in a decision aimed at bet-ter prices and stabilising the market,” he said, according to Reuters.

Ecuador has been one of the Latin American countries hardest hit by sliding global oil prices. International crude prices have dropped by 70% since mid-2014.

Quito’s plummeting oil revenues have left the government further in debt to Chinese creditors and have forced it to raise taxes.

The slowdown in the South American coun-try’s economy has put pressure on the govern-ment to seek external financing for energy and infrastructure projects.

The development of the giant Ishpingo, Tam-bococha and Tiputini (ITT) oilfields is currently the country’s biggest priority. State-run Petroe-cuador has said that development is going ahead regardless of the plunge in crude prices.�

Oil producers’ meeting postponed

Brazil unveils new oil incentives

Ecuadorian Oil Minister Carlos Pareja Yannuzelli says the meeting will now be held in late March or early April

P O L I C Y

ECUADOR

BRAZIL

Brazilian Energy Minister Eduardo Braga claims the new incentives could unlock investment


LatAmOilLatAmOil P O L I C Y

THE Petrobras scandal took another twist last week when Marcelo Odebrecht, former head of the company’s biggest contractor, was sen-tenced to 19 years for corruption and money laundering.

The third generation of his family to head the Odebrecht conglomerate was also convicted of criminal association and now faces a long stretch behind bars unless he agrees a plea-bargain agreement with prosecutors in which he details political involvement in the scheme in return for a lighter sentence.

In jail since his arrest in June 2015, Odebrecht has so far refused to co-operate with prosecutors. His family has been a central player in Brazilian politics since the country’s military dictatorship, funnelling cash to political campaigns in return for the public works contracts that helped it grow to become the biggest constructor in Latin America.

Odebrecht maintained that his family did not oversee management of operations at the con-glomerate of which he was president.

Rumours that Odebrecht might talk, along with Leo Pinheiros, the former president of rival company OAS, set off new tremors in Brasilia. The businessmen could lift the lid on dodgy dealings by both government and opposition politicians. The febrile political mood in the capital has intensified with reports that former Petrobras executive and serving senator Delcidio do Amaral is facing charges of attempting to obstruct justice. He was recorded arranging to pay a former Petrobras executive accused in the case to flee the country.

Amaral’s plea-bargain testimony has already been leaked to the media and indicates that Pres-ident Dilma Rousseff, who is facing impeach-ment proceedings in Congress, was fully aware of the flawed purchase of the Pasadena refinery in Texas. The deal resulted in hundreds of mil-lions of dollars in losses for Petrobras, of which she was president at the time.

Street protestsThe revelations come as several million Brazil-ians took to the street on March 13 to protest against corruption at Petrobras and to demand

Rousseff’s removal from office.Her support base is eroding in part because

of the deepening economic recession, which is to some degree the result of the paralysis in the energy sector caused by the Petrobras case.

Petrobras is undertaking swingeing cuts in response to the oil price collapse. It is currently involved in an asset fire-sale and has sought loans from China to meet its debt payments after a series of downgrades impaired its access to capital markets.

Last month the company announced it had secured a US$10 billion credit line from state-controlled China Development Bank.

The deal was modelled on a similar arrange-ment the driller secured from the bank in 2009.

It is a cash-for-oil arrangement in which Petrobras has earmarked supplies of 200,000 barrels per day of crude to Sinopec for ten years.

The company announced last week it had secured a further US$1 billion in financing from China’s ICBC Leasing for its P-52 offshore oil platform. Meanwhile, it is waiting to hear from Argentina’s Pampa Energy, which has a one-month option to decide if it will make a formal offer for Petrobras Argentina’s assets.�

Jail sentence for Odebrecht chief as pressure builds on Rousseff

Rousseff was allegedly fully aware of the

flawed purchase of the Pasadena refinery in Texas.

Street protests in Brazil on March 13 urge the impeachment of President Dilma Rousseff

BRAZIL

Marcelo Odebrecht has been sentenced to 19 years for corruption and money laundering


LatAmOilLatAmOil

FRENCH oil company Total is poised to start drilling what has been deemed the deepest off-shore well in the world offshore Uruguay.

“There could be an elephant out there. This is what we’re chasing,” Total’s exploration director in Uruguay, Christian Tichatschke, told Bloomb-erg last week.

Total is one of a handful of foreign companies, including UK-based BG Group and BP, that have won licences to explore off the country’s coast.

Total will be the first to drill and has brought in US-based ExxonMobil and Norway’s Statoil as minority partners in Block 14.

The drilling will be in water depths of 1,850 to 3,500 metres on the block, located in the Pelo-tas Basin of the South Atlantic Ocean, approxi-mately 200 km off the coast. It covers an area of 6,690 square km.

If the first well, known as Raya-1, proves suc-cessful, this could spark more drilling by Total and other companies, with the first production coming as soon as 2021, Tichatschke said.

After acquiring a 15% stake in Block 14, Sta-toil went on to sign a farm-in agreement with

Ireland-based Tullow to acquire a 35% working interest in the adjacent Block 15.

“With this transaction, we are increasing our exposure to the upside potential of this untested geological setting. This is in line with Statoil’s exploration strategy of access at scale,” Nicholas Alan Maden, senior vice president of explora-tion, said at the time.

Block 15 covers an area of more than 8,000 square km and sits in a water depth of 2,000 to 3,000 metres. Tullow is the operator of the block with a 35% stake, while a unit of Japan’s INPEX holds the rest.�

N E W S I N B R I E F

Total poised to drill off Uruguay

P R O J E C T S & C O M PA N I E S

URUGUAY

Maersk Drilling has been selected by Total to drill its first well offshore Uruguay

P O L I C Y

Former Brazil president Lula ‘to become minister’Former Brazilian leader Luiz Inacio Lula da Silva is expected to accept a key ministerial role in President Dilma Rousseff ’s government, media reports say.

Members of the governing Workers’ Party say his appointment will strengthen her beleaguered administration. In becoming a minister, Lula will also have some legal protection. Last week, prosecutors requested his arrest in a money laundering inquiry over a luxury sea-front penthouse. The popular former president has denied any wrongdoing and says the claims are politically motivated.BBC, March 15, 2016

Caribbean countries urged to develop energy sectorCaribbean countries have been told to reduce energy costs in order to help the region improve growth and strengthen competitiveness. Countries in the Caribbean still need to increase competitiveness despite

the drop in oil prices, according to a research paper by the IMF. The paper, written by financial experts including Grenadian economist Arnold McIntyre, argues that the global oil price decline has not improved relative prices for the Caribbean.

They concluded the recent oil price decline is just a “temporary breathing space” to give the Caribbean time to make efficiency savings. JAMAICA OBSERVER (JAMAICA), March 9, 2016

Ministry of Finance reassures Colombian bondholdersColombian Finance Minister Mauricio Cardenas has met with institutional investors in London to explain the government’s recent economic decisions and promote a new bond emission. “It’s very important to renew and strengthen investor confidence, so that investors see Colombia as a serious country which is responsible at managing its money,” said the minister.

He added that Colombia plans to make a bond emission in the next few months, to meet this year’s financing needs. The minister concluded that the investors were “in

agreement” with how the economy was being handled and positive about the country’s prospects.EL ESPECTADOR (COLOMBIA), March 8, 2016

Mexico will go ahead with frackingMexico is looking to begin hydraulic fracturing of gas and oil deposits in the north of the country, according to energy secretary Pedro Joaquin Coldwell. The Tampico-Mislanta basin is just one of the areas which has been singled out for future activities.

“We will soon begin licensing within the areas to be contracted out,” Coldwell commented during the 28th Congress of Civil EngineeringEL UNIVERSAL (MEXICO), March 9, 2016

Venezuela opposition seeks to oust MaduroA Venezuelan opposition coalition has said that it will pursue “all constitutional means” to remove President Nicolas Maduro from office. The MUD coalition, which has been meeting for weeks, plans to pursue a recall


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referendum, a constitutional amendment and mass protests. In December elections, the Venezuelan opposition won an overwhelming majority and took control of the National Assembly for the first time in 17 years.

Many of the opposition candidates campaigned on a platform of ousting President Maduro, whose term ends in 2019. MUD called on the Venezuelan people “to launch the largest popular pressure movement that has ever existed”. BBC NEWS (UK), March 8, 2016

Venezuela calls back top US diplomatVenezuela has called back its top diplomat in Washington, after US President Barack Obama decided to renew a sanctions decree against several of the country’s top officials. Maximilien Arvelaiz was the Venezuelan charge d’affaires in Washington and had been hoping to be named as ambassador to the US.

The sanctions were first imposed by the US a year ago, with Obama electing to renew the order on March 6. Arvelaiz said in a December interview: “Sometimes I feel I’m in a plane and every five minutes I need to put my seatbelt on because of the turbulence.”REUTERS, March 9, 2016

C O M PA N I E S

Ecopetrol to aid impending electric crisisState oil firm Ecopetrol has said that it will contribute 32.5 MW to the country’s national grid by upping the production of fuel at the Barrancabermeja refinery.

Colombia could face electricity rationing, over government fears that national

production cannot meet with increased demand.LAFM (COLOMBIA), March 9 2016

Ecopetrol Covenas terminal attacked by protestorsInstallations at Colombian state oil firm Ecopetrol’s Covenas-based terminal have faced attacks by protest groups, which began at midnight on March13. “Due to the protests, group activity within the terminal has been carried out in accordance with a contingency plan activated on March 13 and hasn’t affected normal operations,” the company stated in a release.HSBNOTICIAS (COLOMBIA), March 14, 2016

Pemex faces rising borrowing costsMexico’s state oil company Pemex faces higher borrowing costs this year, as its finances worsen and US interest rates rise, El Financiero newspaper reported. The company will have to go to the market to raise funds at higher rates for paying debts this year. The company has about 100 billion pesos (US$5.6 billion) in debts falling due this year.

An additional problem is that Mexican investors are less interested in buying new bonds from the company, said director of corporate debt at the Mexican bank Banorte-Ixe Tania Abdul Massih. As a result, the company likely will seek funds on international markets, she said.EL FINANCIERO (MEXICO), March 7, 2016

Fitch assigns new debt ratings to PemexFitch Ratings has assigned a ‘BBB+’ long-

term rating to Pemex’s 2.25-billion-euro (US$2.49-billion) senior unsecured debt issuance composed of: 1.35 billion euros due in three years and 900 million euros due in seven years. The company expects to use the proceeds from the issuances to finance its investment programme and working capital needs; also to refinance indebtedness. The debt issuances are guaranteed by Pemex Exploracion y Produccion; Pemex Transformacion Industrial; Pemex Perforacion y Servicios; Pemex Logistica; and Pemex Cogeneracion y Servicios.

Fitch’s key assumptions included WTI crude prices average US$45 per barrel in 2016, increasing to US$65 per barrel by 2018 in the long term. The ratings agency also anticipated that the company would continue to face difficulties increasing its output over the next four years.FITCH RATINGS (US), March 14, 2016

Pemex could lose Baa1 Moody’s risk ratingPemex could face a drop in its current risk rating, according to the firm’s CEO. “In a few weeks it’s very likely that Moody’s will take the decision as to whether we will reduce the risk rating or not, it’s 70% likely that we will.” CEO Alberto Jones said.

“If Moody’s didn’t have the support (from Mexico’s government) it’s likely that its risk rating would be five times lower,” he added.EL UNIVERSAL (MEXICO), March 14, 2016

Pemex remains bottomless pit for Mexican investorsMexican state oil firm Pemex is something of a bottomless pit for the country’s Bank of Mexico (Banxico) and board of investors. Around 100 billion Mexican pesos (US$5.64 billion) were invested in the firm last year alone, yet investors have yet to see a marked turn around in the company’s 2016 budget and production goals.

A lack of investment and poor planning are being cited as principal problems faced by the firm.EL UNIVERSAL (MEXICO), March 14, 2016

MX Oil sells shares, reports on plansAIM-quoted oil and gas investing company MX Oil said it had raised GBP 2.5 million (US$3.57 million) before expenses via a placing of 333,333,333 ordinary shares at a


LatAmOilLatAmOil N E W S I N B R I E F

price of 0.75 pence (US$1.07) per share and 66,666,667 warrants over ordinary shares.

It also said it planned to assign three of its four Mexican interests to its local joint venture partner, Geo Estratos, in return for an increased interest in one licence, Tecolutla in Gulf coast state Veracruz, which it considers to provide the most attractive investment opportunity, and a cash payment. MX OIL (UK), March 14 2016

Touchstone increases Trinidad reserves in 2015Trinidad-and-Tobago-focused Touchstone Exploration has announced its audited reserves report, which it says shows that the company is defining new reserves in Trinidad faster than it can extract them. The company replaced 219% of its 2015 Trinidad production, adding 1.2 billion barrels of 2P reserves. Annual production from the company’s Trinidad operations totalled 573.2 million barrels, or 1,570 bpd.

The company now has Trinidad reserves of approximately 22 years. Touchstone increased its 2P reserves in the country by 4.6% this year. The Trinidad reserves represent 57% of the company’s consolidated 2P reserves. TOUCHSTONE, March 9, 2016

Range Resources spuds Trinidad wellAustralian-British Range Resources reported the successful spudding of its MD 250 well, onshore Trinidad, beginning 4,150 metres of drilling, which is expected to last up to five weeks. The well will test deeper horizons of the Upper and Middle Cruse sand trends and explore the potential of out-step drilling. MD 250 is a directional well from the previously drilled MD 248 well location.

The Upper Cruse sands, though penetrated by numerous surrounding wells, have not been fully exploited in this area of the Morne Diablo field. The Middle Cruse sands have been identified as well-developed in nearby

wells with some of those having produced in excess of 100,000 barrels from this horizon during the well life.RANGE RESOURCES, March 14, 2016

O I L

ELN guerrilla group set fire to two oil tankersFour members of Colombian rebel group the ELN have attacked two oil tankers in the Casanare department. The men hijacked the vehicles on March 9 at around 7 pm. The tankers belonged to the New Granada company.

The drivers were forced to abandon their vehicles, open the tanker valves and set fire to the oil they were transporting.EL ESPECTADOR (COLOMBIA), March 9 2016

Ecopetrol suspends Cano Limon pipelineEcopetrol suspended pumping on the Cano Limon pipeline after rebel attacks generated an oil spill after twin attacks. The state oil company has mobilised a contingency plan to avoid major environmental damage.

The 780-km pipeline can transport up to 210,000 barrels of crude per day. CARACOL RADIO (COLOMBIA), March 13, 2016

Pemex crude closes for fourth consecutive day at over US$30 per barrelPemex crude has closed for the fourth day running at around US$30.84 per barrel. The firm has announced plans to maintain crude prices at around US$25 per barrel, in an attempt to meet with ambitious investment and cost cutting plans for 2016.EF MERCADOS (MEXICO), March 10 2016

Nicaragua chooses US crude over previous provider VenezuelaNicaragua has reduced its purchases of Venezuelan crude, with only 26.81% registered from the South American country at the beginning of 2016. The country has increased its purchase of US crude by 36.74%.

Venezuela is currently looking to China, once again, in an attempt to secure an additional loan for its sickly hydrocarbons sector.SUMARIUM (NICARAGUA), March 13, 2016

PDVSA launches major crude tenderPDVSA has launched one of its biggest ever oil tenders, putting a call out for 8 million barrels of US or Nigerian light crude for delivery in the next three months. That would make an order of 90,000 bpd, almost double the 50,000 bpd that the company bought last year.

The company began importing crude in 2014. Due to well-publicised cash flow problems, the company has been struggling to find a deliverer.

It is proposing payment options including cash swaps and letters of credit. PDVSA is requesting WTI crude, Nigerian Qua Iboe and Brass River.REUTERS, March 10, 2016

G A S

China CNPC starts work on Peru’s block 58China National Petroleum Corporation (CNPC) is working on a plan to begin production in block 58, a project that could increase significant volumes of gas to overall reserves.

According to the Ministry of Energy and Mines, the block contains 3.6 tcf of probable and possible reserves. The Chinese oil company concluded its first exploratory campaign in January 2016, with encouraging results.EL COMERCIO (PERU), March 14, 2016


LatAmOilLatAmOil

S E R V I C E S

Colombian oil sector patents dropped 24% in 2015Colombian hydrocarbons sector regulator Campetrol reported a 24% drop in patents taken out during 2015. A total of 50 patents were registered in the sector during 2014, with some 38 registered this year to date.

A drop in oil prices and budget cuts have seen Colombia’s oil sector reduce the number of patents approved as an austerity measure.AMERICAECONOMIA (COLOMBIA), March 13, 2016

Low oil prices hit Panama CanalLow international crude prices are affecting oil tankers that would normally use the Panama Canal. Tankers are now using longer routes which enable them to travel at faster speeds as opposed to through the intricate canal lock system. A recent report by Danish

firm SeaIntel Maritime Analysis has revealed that firms can save up to US$380,000 per trip, if transporting around 50 weeks per year.

The total annual saving could reach around US$19 million annually.MDZOL (PANAMA), March 13, 2016

BHP Billiton bucks trend and ups explorationAs other oil majors slash exploration budgets, BHP Billiton is set to embark on its biggest exploration push in over a decade. The company is set to slash dividends and jobs, but will keep oil exploration steady at US$600 million a year, targeting big finds in countries including Trinidad and Tobago. BHP Billiton is also set to acquire an extra offshore drill rig, in order to pursue targets in the Gulf of Mexico and Trinidad and Tobago concurrently.

Former company head Tim Cutt is credited with narrowing the company’s focus, and successor Steve Pastor is following the same strategy. THE AUSTRALIAN (AUSTRALIA), March 12, 2016

R E F I N I N G

China’s CNOOC eyes Petrobras’ stake in Braskem China’s CNOOC is interested in purchasing a minority stake in Brazilian petrochemical company Braskem SA from state-run Petrobras, a Brazilian newspaper said. A Petrobras source said in January the company had been receiving interest from major international chemical companies for its 36% stake in Braskem. Talks are still preliminary, financial daily Valor reported.

Petrobras has tried to speed up a long-stalled programme to sell assets as it struggles to finance expansion and pay down US$130 billion in debt, the largest of any oil company. Braskem’s controlling shareholder, engineering conglomerate Grupo Odebrecht SA, is also seeking to exit Braskem and could sell its stake in a joint transaction with Petrobras, three sources told Reuters last week. REUTERS, March 15, 2015

N E W S I N B R I E F


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