Venezuela Invests Heavily in Oil Production While Chavez Prepares for Chemo

| Aug. 4, 2011 |

Published by Minyanville

Following last Thursday’s news that Venezuelan state oil company Petróleos de Venezuela ("PDVSA") owed $10.9 billion to suppliers in 2010, the company has announced that it will be investing $18 billion this year.

OPEC’s recent announcement that Venezuela has the world’s biggest proven oil reserves at 296.5 billion barrels, pushing it ahead of Saudi Arabia’s 264.5 billion, appears to have spurred the Latin American nation into action.

Of the $18 billion invested for 2011, $2 billion is earmarked for the country’s huge Orinoco crude belt. The company hopes to pump out more than 1 million barrels per day from the region by the end of this year, up from the 900,000 barrels per day it currently produces.

Investment isn't limited to the Orinoco region. The next few years will see investment in the Carabobo and Junin fields as part of a $142 billion spending plan between now and 2015. In 2010, the company invested $13.3 billion.

Oil minister Rafael Ramírez was keen to look at the bigger picture. “OPEC's reserves have gone up to 1,149 million barrels of oil, which means that they account for 80% of the world's oil reserves,” he said.

“Venezuela is involved in 25% of OPEC's reserves, and 20% of world reserves. What does this mean geopolitically? That Venezuela is and for a long time will be the country in this hemisphere that will have the oil reserves to supply demands on a global scale,” Ramírez added, with the theater typical of his boss President Hugo Chávez, who has courted the oil cartel since he came into power.

The minister, who also heads PDVSA, went on to take a swipe at the United States, suggesting that it encouraged “instability, invasions, and violence” against OPEC’s members, referring to Libya. “Aggression against our (partner) countries is aggression against OPEC,” he added belligerently.

Chávez himself read out a letter on state television on Monday from the Libyan leader Muammar Gadaffi thanking him for his support during the NATO-backed strikes against his government. The letter was handed to Venezuela’s foreign minister by Libyan finance minister Abdulhafid Zlitni in Caracas. The high-level nature of the message has spurred rumors of an oil deal brewing between the two pariah nations.

“Long live Muammar Gadaffi,” Chávez said, stoking the relationship between Venezuela and the west. “NATO is an embarrassment.”

Chávez himself is about to head into a second bout of chemotherapy. He has shaved his head in preparation for the images that are likely to be released in the coming weeks. “In a few days you will see Chávez bald,” the president said on state television. “Do you remember Yul Brynner? I’ll be Yul Chávez.”

The maverick president celebrated his 57th birthday on Thursday, declaring himself, “like a phoenix,” risen from the ashes. He took the opportunity to take his own swipe at the US. "The Yankees are broke. They have no money to pay their debt. It's a good thing they don't owe us anything, we'd have to give them a credit," he said, from the balcony of his Miraflores palace. "Shall we give Obama a loan?” he asked the crowd to huge applause.

Bond Sale Confirmed as Investors Hope for Chávez's Exit

The finance ministry confirmed earlier this week the allocation of a $4.2 billion, 20-year sovereign bond. All requests for bonds worth up to $4.95 million by companies in priority sectors were honored by the government. Other sectors received bonds in increments of $6,000.

Venezuelan authorities keep a tight check on dollar exchange. Bonds sales are therefore used as an exchange mechanism. These carry a coupon of 11.95%.

Much of the money from the sale has been allocated to one of Chávez’s social initiatives, Gran Mision Vivienda. The aim is to build 2 million houses for the country’s poor over the next seven years.

In another move that will anger the US, the initiative is to be funded in part by Iran. The governments signed the agreement on Wednesday, though they failed to reveal how much money would be changing hands. Already on board for the initiative are Russia, Cuba, Brazil, Argentina, China, and Belarus.

The US has already lambasted Venezuela’s ties to Iran earlier this year, slapping sanctions on PDVSA. However, many analysts agreed that they lacked any teeth.

JPMorgan has raised its recommendation on Venezuelan debt to “overweight,” from “marketweight.” Investors are looking forward to a change of regime in Venezuela. As Reuters points out, though, they have been sensitive enough not to mention Chávez’s cancer. JPMorgan’s statement cited instead “idiosyncratic domestic political events where positive outcomes could offer important market upside, the odds of which may still be underpriced.”