About that PDVSA proposed stock sale to the Chinese

Miguel Octavio posts, Why I Think PDVSA Plans To Sell Stock In One Heavy Crude Oil Project Via The Chinese Governement

A couple of notes here. First, note that the upside of the sale goes to the Chinese, not to, for example, to Venezuelan investors. Perverse, no?. Two, for Venezuela this is a no-brainer, PDVSA gives up dividends (investors will have to be paid somehow), but the Venezuelan Government will continue to charge royalties, taxes and windfall taxes on each barrel produced, which is where the big money really is.Three, the Chinese have realized a profit in their investment and can now plow the money back into Venezuela. Simply recirculate it, they can buy 40% of Petroanzoategui (formerly Petrozuata, fully owned by PDVSA) or they could buy 23.3% of Petromonagas (formerly Cerro Negro, where BP has a small stake). Then, they can turn around and sell these in the Hong Kong Stock Exchange.

And they can take their money and their profits or whatever they sell their shares for and plow it back into Venezuelan oil fields.

But more importantly, PDVSA has found a way to raise money for the new projects, which are not producing yet and the Chinese to establish how much they will be worth when producing, a nice way to know your return in investment ahead of the project. After all, a barrel of improved oil from any of these projects is worth roughly the same in all of them. The Chinese get some money back, likely have clauses that the oil from new projects will be shipped exclusively to China and more importantly, they can sell their stakes in the new projects once they are fully functioning too.

And in a virtuous circle, an almost pyramid, as long as people need oil, they can invest the money in ever new projects in Venezuela’s heavy oil fields. The much-hated markets will provide the endless funding, like this, as long as it is profitable:

You must read the whole post.

Remember, as oil prices rise and the Keystone pipeline cancellation benefits Venezuela, this will matter to us.

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