Venezuela’s state-owned oil company, Petróleos de Venezuela, is being squeezed by low oil prices, and the government in Caracas is feeling the pain.
Venezuela, which holds the world’s largest crude reserves, saw GDP shrink by 3% in 2014 and is bracing for another contraction this year. Debt-ridden PDVSA posted a nearly 8% drop in oil and gas revenues last year.
With oil accounting for more than 90% of export revenues, the administration of president Nicolás Maduro is desperately seeking ways to boost output. PDVSA’s contributions to the regime’s social programs—which totaled $15.7 billion last year—help the government maintain public support in a rapidly deteriorating economy.
PDVSA announced in June it would halt gas imports from Colombia to boost domestic production in the Gulf of Maracaibo in a project run by Spain’s Repsol and Italy’s Eni. It is also reportedly in talks to divest foreign assets. Citgo of the US was on and off the auction block.
In a move to alleviate the country’s mounting food shortages, PDVSA is seeking arrangements to swap oil for food and other products.
PDVSA has appealed to Venezuela’s allies for help. Russia’s Rosneft invested $1.8 billion in Venezuela’s energy sector between 2010 and 2014, and China has pledged $10 billion in loans to Venezuela this year, with a portion earmarked to develop oil fields. China has provided the country with more than $45 billion in credits, with repayment made through oil and fuel shipments.
PDVSA is even is turning to its workers for ideas. CEO Eulogio del Pino organized the company’s 152,000 employees into working groups and urged them to submit suggestions for its 2016‒2025 strategic development plan.
Moody’s has downgraded PDVSA to Caa3 from Caa1with a negative outlook after a sovereign downgrade in January based on rising debt and government ties. But the Maduro administration will surely not relinquish control of its cash cow, especially not now.