LATIN & SOUTH AMERICA OIL SITUATION SHAKEN BY LOW PRICES BRAZIL-VENEZUELA-COLOMBIA-MEXICO

Venezuela, Brazil and Colombia are the three largest producers of hydrocarbons in South America. The past year depressed oil price created havoc and the status of Latin & South American Oil industry is precarious. Let’s review the situation in Brazil, Venezuela, Colombia and Mexico.

Brazil

Brazilian state-run oil company Petróleo Brasileiro SA, Petrobras has been shaken by a political bribery scandal that culminated into former President Dilma Roussef impeachment. Petrobras has been forced into a massive restructuring plan including sales of assets. The latest one being the sale of its gas pipeline unit, Nova Transportadora do Sudeste SA. announced this week to Canadian Brookfield Asset Management Inc.

The company, did not unveil the value of the sale and said the terms of the deal will be presented to its board and disclosed publicly after the board’s approval. According to local media, the value of the transaction could reach about $5.2 billion. Petrobras needs to sell certain assets to reduce its debt currently at $124 billion with a revenue of $98 billion in 2015. Petrobras revenue has been steadily decreasing since 2011 when it picked at $145 billion. Analysts expect the revenue in 2016 to be lower than 2015. Petrobras announced that it is planning to sell a total of $15.1 billion in assets through the end of 2016.

The mood at Petrobras is not good and the mindset is far away from the announced $221 Billion strategic investment plan announced in 2013. Situation is difficult and a barrel at $45 is certainly not easing the pain.

It will be a long road to recovery.

Venezuela

Venezuela is facing the worst economic and humanitarian crisis in its history. Venezuela has been hit by the 24 months’ collapse in oil prices. Its economy is expected to shrink 10 percent at the end of 2016, the biggest contraction in the last 13 years, while inflation has reached more than 700 percent according to the International Monetary Fund (IMF). Other analysts say that inflation has already reach 1,000 percent.

In Venezuela 96 percent of foreign currency come from oil industry and with the collapse of the oil prices the income has fallen more 50 percent. But in addition to declining revenues, oil production has also dropped, compounding the problem for Venezuela.

But the end is not even near, several oil service companies suspended or slowed operations in Venezuela this year due to difficulties in obtaining payment from the state-run oil company, Petróleos de Venezuela (PDVSA). Contractors have cut back on drilling in Venezuela amid rising unpaid debt, which threatens to take Venezuela’s output down even further, accelerating the downward spiral. The number of oil rigs in Venezuela dropped to about 50 in Summer this year. The CEO of the Italian oil and gas contractor Saipem SpA said that in April the company had suspended 89 percent of its operation rigs in Venezuela (25 of its 28 rigs). Other companies as Schlumberger or Halliburton Co are reducing their activities in Venezuela because of unpaid services bills. Venezuela’s active rig count, a good indication of future production, fell from 71 to 49 in July according to Baker Hughes, the lowest since the end of 2011.

Since 2000, oil production in Venezuela has been reduced by 750,000 barrels per day, with output falling by 250,000 barrels per day in the first half of 2016 alone, according to the Latin American Energy Policy -University in Houston. And it looks that the trend continues with 2016 numbers that could be lower than 2015.

PDVSA is in talks with oil services companies to restructure services offering guarantees- Barter- for service provider to make sure that they continue to operate in the country. Venezuela’s oil minister Eulogio Del Pino last month said that PDVSA had signed financing agreements with Weatherford International Plc and Halliburton and was close to a deal that would allow Schlumberger to boost its presence in the OPEC nation.

In recent years PDVSA’s debt has increased from $3 billion to more than $43 billion and this is a combination of low price and chaotic operations. This is a very sad situation, let’s hope the situation improve but the road to recovery here also could be long and painful for the entire country.

Colombia

Colombia experienced a dramatic rise in energy production since the implementation of regulatory reforms in 2003; however, crude oil prices have declined since 2014, which has slowed production growth.

Colombia is South America’s largest coal producer, and the region’s third-largest oil producer after Venezuela and Brazil. In 2015, Colombia was the world’s fifth-largest coal exporter. The country is also a significant oil exporter, ranking as the fifth-largest crude oil exporter to the United States in 2015. A series of regulatory reforms enacted in 2003 makes the oil and natural gas sector more attractive to foreign investors led to an increase in Colombian oil and natural gas production. The Colombian government implemented a partial privatization of state oil company Ecopetrol (formerly known as Empresa Colombiana de Petróleos S.A.) in an attempt to revive its upstream oil industry. But the Country is facing a lot of local issues that have been impairing the road to growth.

Latest incident is in the Colombia department of Putumayo, Ecopetrol says that coca growers’ strike that has intensified in recent days” is jeopardizing oil production of up to 40,000 barrels per day. The protest began on July 25 by disaffected and unemployed locals, many of whom have been put out of work by coca eradication efforts, and has included road blocks and damage to bridges that have made it difficult for the state-controlled oil giant’s vehicles to access the area.

Roadway infrastructure issues occurring near oil fields and facilities is extremely disruptive as Colombia has a low level of infrastructure and need to make sure that access to Oil field and to ports are easy. After 50 years of civil war Colombia needs to reconstruct its infrastructure and destruction of roads, bridges or oil fields could have very damaging consequences for the overall Oil output of the Country.

From all the Countries Colombia is probably the shining star in a grey environment.

Mexico

Petroleos Mexicanos or Pemex, the state oil company is facing its 12th consecutive year of declining output and struggling under a liquidity crunch. Pemex could slash spending further to reach a goal of cutting 100 billion pesos. The state oil company, may avoid deeper cuts to its 2017 budget if lawmakers approve an 86-billion-peso ($4.6 billion) reduction proposed by the Finance Ministry.

The government seeks a total budget of 392 billion pesos for Pemex, 18 percent less than what was proposed for 2016, according to documents on the Finance Ministry website. Officials at the ministry and Pemex, said no further reductions are expected. The amount is in in line with an earlier mandate from the government to cut 100 billion pesos from the company’s budget.

The oil producer has a 2017 investment plan of 204.6 billion pesos under the government’s plan -- a drop of 30 percent compared to this year’s proposal.

Pemex’s cash flow shortfall is expected to reach almost $22 billion this year from $13 billion in 2015, according to data and estimates reported by Bloomberg. Pemex’s company losses reached $32 billion last year.

This is not good and here again recovery is heavily dependent on the price of the barrel. OPEC has clearly a lot of power over the rest of the world and our friends from Latin and South America are suffering but at the difference from the Large Oil Companies when South America State Oil companies are in trouble it may means disastrous situation for an entire Country…..