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Seizures expose PdV oil exports vulnerability

19 Jan 2018, 6.20 pm GMT

Seizures expose PdV oil exports vulnerability

Bogota, 19 January (Argus) — The prolonged seizure of a Venezuelan crude cargo in Dutch-controlled Curacao throws more light on the financial crisis gripping Venezuela's state-owned oil company PdV and the growing challenge of getting its oil to market.

The Panama-flagged Proteo oil tanker, a Lakemax carrier with a capacity of 600,000-700,000 bl that is carrying a cargo of Boscan heavy crude from western Venezuela, is retained in Curacao's port of Bullen Bay on a pre-judgement attachment order.

The order was granted by a local court to an unnamed party or parties claiming unpaid debts by PdV.

Final enforcement of the order, which could take months, will determine the fate of the cargo, attorneys on Curacao tell Argus.

The seizure is the latest in a string of retentions in Dutch-controlled Caribbean islands where PdV has a network of strategic refining and logistical infrastructure. Last year saw the retention of an oil cargo aboard the NS Columbus in St Eustatius, another Dutch island where US firm NuStar leases storage to PdV. Other seizures in the Dutch Caribbean over the past two years include the Lakemax Terepaima and the Moscow Stars.

Under Dutch law, a court order for a pre-judgment attachment of assets is easier to secure than in other legal jurisdictions such as the US. This is partly because the counterparty whose assets would be seized does not need to be present in the court when the preliminary order is issued, Roderik van Hees, a Dutch Caribbean attorney representing the plantiffs in the Proteo case tells Argus.

Van Hees declined to discuss the specifics of the current case, but said the main proceedings leading to an enforceable order must be initiated by the attaching party within four to eight weeks after the attachment has been levied.

With PdV in arrears on billions of dollars in debt, including bond debt, commercial debt and arbitration awards, the company´s cargoes are especially vulnerable to seizure as they wend their way through the Dutch Caribbean en route to China, India and the US Gulf Coast.

One way for PdV to lift a retention order is with a bank guarantee issued in favor of the creditor by a reputable bank. But the distressed firm, which has been subject to US financial sanctions since August 2017, would have difficulty obtaining such an instrument.

PdV relies on the islands´ oil facilities to process, blend, store and transship its oil exports, which account for nearly all of the Venezuelan government´s hard currency.

For their part, the islands depend on the oil business for significant economic revenue and employment.

On Curacao, PdV has a long-term lease on the 350,000 b/d Isla refinery that expires next year. PdV is unlikely to renew the contract, because it has no money to invest in the facility.

On Bonaire, PdV owns a 10mn bl storage facility that Dutch authorities have threatened to close as early as next month unless PdV makes urgent repairs. And on Aruba, PdV's US downstream subsidiary Citgo has agreed to revamp and restart a 280,000 b/d refinery, formerly owned by US firm Valero, as early as this year. That deal is in doubt, because of Venezuela´s shortage of cash.

The Proteo case surfaced in the wake of Venezuelan president Nicolas Maduro's 5 January announcement of a 72-hour closure of the country's borders with the three islands, claiming rampant smuggling of Venezuelan goods, including minerals such as gold as well as fuel and consumer goods.

On 9 January, Caracas said the closure would be indefinite until the islands crack down on contraband activity.

For the islands, the border action sparked immediate worries about their citizens.

"Although president Maduro promised that this would not affect Aruban citizens in Venezuela, approximately 200 Aruban citizens were stranded in four airports in Venezuela," Aruba's new prime minister Evelyn Wever-Croes told Argus on 11 January.

On 12 January, Dutch and Venezuelan officials met in Aruba and reached a preliminary agreement to tamp down on smuggling. Dutch officials did not confirm whether the significant oil ties between Venezuela and the islands were discussed in the five-hour meeting.

"An agreement in principle was reached, and this has now gone back to capitals," a Dutch foreign ministry spokesman said on 15 January. "We hope a final and formal agreement can be reached soon."

Although most of the islanders have since been allowed to return home, Venezuela's border closure remains in effect, and the Venezuelan government has been conspicuously silent on the talks with the Dutch, raising doubts about future relations.

The Venezuelans did not confirm a technical meeting that was supposed to have taken place yesterday, under the terms of the conceptual agreement reached on 12 January. The Dutch are still waiting for word from Caracas on next steps.

For the increasingly isolated Venezuelan government, whose senior officials are subject to targeted sanctions in the US, Canada and shortly in the EU, the risk of losing cargoes to creditors is becoming more costly, because it has fewer of them to sell.

Venezuela shed another 216,000 b/d of crude production in December, bringing official monthly output to just 1.621mn b/d, the lowest level since the mid-1980s, not including a 2002-03 labor strike, according to official Venezuelan data cited by Opec in its January 2018 monthly oil market report issued this week.

The December data cements a sharp acceleration in the decline trend, following losses of 118,000 b/d in November and 130,000 b/d in October 2017.


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