viernes, 1 de febrero de 2019

PDVSA financial statements show export sales of oil and products for USD 50.861 billion that did not fully enter the coffers of the oil company in 2017

By Maibort Petit

An evaluation of the consolidated financial statements of PDVSA for 2017 show export sales and their products for USD 50,861 million. The evaluation for the previous year 2016, showed sales at  USD 41,361 million. Not all of these revenues appeared into the coffers of the state. This accounting  discrepancy was revealed by a report issued by the Chief Commissioner of Petroleros de Venezuela, PDVSA.

The document in our possession reveals that only a portion of the stated revenues were collected by the corporate treasury, so that the operational results achieved with the real limited currency budgets can be appreciated. This is based on the total revenue figures that were available in cash, during the year 2017, which have been shown by PDVSA's Vice Presidency of Finance, of effectively 16,549 million USD, obtained with an average daily export price of  46.66 USD per barrel.

The report makes a series of warnings regarding the performance of the state that account for the low oil production, plummeting income and corruption.This resulted in a situation in the labor force of the industry that lead to a progressive flight of highly skilled professionals from the bosom of the most important company in the country.

On December 7, 2018 Silvestre Molero Torres,  Chief Commissioner of Petróleos de Venezuela, directed the communication to the Minister of Popular Power of Petroleum and president of PDVSA, to send him the report of the year 2017. This communication is identified with the number COM-2018-0046 . Request for information on the state company was made so that this would be considered by the Shareholders' Assembly. This information contained an analysis of the results of the evaluations, observations and recommendations on the general management of the administrators, the level of compliance with the strategic guidelines and the policies on hydrocarbons and instructions that were dictated by the National Executive.

The chief commissioner urged the shareholders' meeting to approve or disapprove the consolidated financial statements of PDVSA, prepared by the Corporate Office of the Financial Comptroller and reviewed by the Office of Support to the Commissioner, once the external auditors issued their opinion.

In said report, Molero Torres stressed that the independent character of the Mercantile Commissioner was encouraged that it would represent the most important interests of the shareholder, the Venezuelan state. He expressed confidence that Mercantile would produce  an objective professional evaluation regarding the general management performed by the administrators. The appointment of this official takes place during the first ordinary annual meeting of shareholders.

It is indicated that this is the second annual report that Molero Torres issued. It was explained that he carried out his work in the company of a small team of highly experienced professionals that make up the Office of Support for the Commissioner (OAC).

 The preparation of the Annual Report of the Commissioner includes the coordination of efforts with all the organizations that are deployed along the value chain of the business, as well as with the control and internal audit bodies. It relies on the performance of external auditors in evaluating the  figures included in the consolidated financial statements. This means that the issuance of the Annual Report of the Commissioner must coincide with the opinion of the aforementioned external auditors, namely Rodríguez Velázquez & Asociados KPMG.

It is specified that 2017 was an exceptional case.  There were adverse effects because of the external audit and the numerous cases of investigation that mostly corresponded to past years. What was revealed required compliance with the protocol established by international standards and that which is imposed by the performance of forensic auditors. It is emphasized that the Annual Report of the Commissioner coincides with the opinion of the external auditors.

 These external auditors had to delve into the multiple related implications, as well as to identify the material impact of the damage suffered and demonstrate or rule out the systemic nature of the damage infringement of internal control inflicted on the corporation. To carry out the work, actions were coordinated with the Corporate Internal Audit Executive Directorate. This allowed the external auditors to examine reports, work papers and files related to the cases that were most uncertain while appreciating the financial impact caused. 

Likewise, the communication stated that at the time of the delivery of the commissioner's report, the report of said external auditors was still pending.

The report

For the preparation of this report, Silvestre Molero Torres made a general assessment of the administrative management carried out by the PDVSA board of directors. It also included an assessment of  the information prepared by the Corporate Office of the Financial Comptroller, which included the examination of the minutes of Shareholders' Assemblies. Including assessing the resolutions of the board of directors and executive committee of the state and management reports of the administrators.

The main cases of investigation were also reviewed, including the scope and delimitation of losses, violations of control, operational modalities, identification of organizational positions and officials with responsibilities, judicialization, accounting records provisioned and equity recovery actions undertaken. The commissioner attributes the importance of the investigations to the supposed judicial impulse that the Public Prosecutor's Office printed on the inquiries.

 The report evaluates the timely and efficient compliance of policies and strategic guidelines on hydrocarbons. These were defined during the first ordinary annual meeting of shareholders of the state. It is their job to see that the instructions issued by the national government are complied with, in accordance with the Law of the Plan of the Fatherland, Simón Bolívar National Project, Second Socialist Plan for Economic and Social Development of the Nation 2013-2019 ", as well as the Socialist Strategic Plan 2016-2026 during the year to be analyzed, in this case the one corresponding to the year 2017.

High performance against production

Among the first conclusions issued by Silvestre Molero Torres is affirming that the results of the year 2017 do "reveal a high performance, considering the resources applied. The production of 2,220 MBD during the year 2017 is a relevant figure given the action of the accumulated restrictions in foreign currencies and the international financial boycott ".

In the opinion of the Chief Commissioner of PDVSA, the operational and financial results expressed at the end of 2017, which were prepared by the Corporate Management of the Financial Comptroller, "vindicate the efforts made by the workers, the PDVSA management team and the Ministry of the Poder Popular de Petróleo, which during the year managed to maintain an average daily level of liquid hydrocarbons production of 2,220 MBD. "

He admits that these achievements were obtained, despite “ the obsolescence and deterioration of infrastructure of operations, because of the pronounced divestment and limited maintenance of a capital-intensive industry of external component, besieged by the manifest boycott for the access to the international financial system and  the  sharp loss of critical skills due to the phenomenon of staff desertion".
Income only on paper

Molero Torres refers to the fact that the preliminary studies of the consolidated financial statements of PDVSA for the year 2017 at the time of the issuance of the report were in the process of external audit, showed export sales and their products for 50,861 million USD, while the previous year, 2016, had been 41,361 million USD. These resources were not in effect  entered into the state coffers.

The alert reveals that only a portion of these revenues are  received by the corporate treasury. The operational results achieved with limited real currency budgets can be appreciated. Based on the total revenue figures that were available in cash during the year 2017, and which have been shown by PDVSA's Vice Presidency of Finance, of effectively USD 16,549 million, obtained with an average daily export price of USD 46.66 per barrel.

It warns that when this amount of cash receipts was applied to the PDVSA expenditures - namely USD 8,507 million - as well as USD 5,198 million corresponding to promissory notes sold to the Central Bank of Venezuela (BCV) to obtain the necessary bolivars in the financing of local operations, there is an effective availability in foreign currencies of USD 3,309 during 2017 for the payment of the external component to suppliers and contractors.

Molero Torres highlights the case of Bariven, S.A., a subsidiary that presents senior long-term liabilities that in 2017 only recorded international purchases for a value of USD 191.09 million, supposedly due to the restricted financial scenario.

The subsidiary recorded obligations for USD 655.31 million that were not accounted for by works and services in the operations of the Orinoco Oil Belt, which represent contributions from contractors, but which do not meet the full financing requirement.

That is why even if the operational results of PDVSA in itself could be qualified as relevant, it is necessary to compare them with the abundant historical resources available for investments and operating expenses, which supported the production of the three million barrels per day of the industry. 

It refers, in this sense, the actual outflows in foreign currency reported in the operational financial reports during the last years, which would be in 2009, of USD 5,182 million; in 2010 of USD 14,517 million; of USD 33,117 million in 2011; USD 20,051 million in 2012; USD 21.520 million during 2013; USD 22,598 million in 2014; of USD 15,532 million 2015; USD 6,058 in 2016 and USD 8,507 in 2017.

 The report says that if the production levels reached with insufficient resources are taken into account, it is possible to glimpse explanations about the magnitude of the crisis that has overtaken PDVSA and the country, which presents a severely weakened productive apparatus, even though in 2017 it closed with a price average daily that rose by USD 11.51 above the 35.15 dollars per barrel of 2016. A rebound that is in accordance with the appreciation of the commissioner could not be used during the aforementioned fiscal year 2017 "because of the inefficiency of the assets productive that are awaiting funding. It can be concluded that the operating results for 2017 are significantly affected by the lack of availability of financial resources expressed in foreign currency, this being the first and main cause that has impeded the complete execution of investment projects, operational programs and periodic maintenance of plants, and therefore has limited the scope of the volumetric goals foreseen during the year 2017, of PDVSA and its subsidiaries ".

Loss in oil production

The report refers to the PDVSA 2017 production plan that included crude, condensates and NGL (natural gas liquids), in the order of 2,606 MBD, of which 2,220 MBD were produced, according to the report. it constitutes 85 percent of the planned goal.

It is explained that the production of 2,116 MBD of crude oil was distributed as follows:
a) Orinoco Oil Belt (1,157 MBD);
b) The West (470 MBD);
c) East (441.5 MBD);
d) Offshore (34.8 MBD);
e) PDVSA Gas, S.A. (12.6 MBD).

To these figures we must add the production of 104 MBD of NGL.

Molero Torres indicates in the report that production by  management reached 1,086 MBD, equivalent to 51 percent, which was a decrease of 17 percent compared to 2016 when production was 1,313 MBD.

The production from the management of the joint ventures of the CVP, produced 1,037 MBD (49 percent), which translates into a decrease of 9 percent compared to 2016 when the production was 1,141 MBD.

Digitized numbers

The PDVSA chief commissioner's report says that at the end of 2017, exports were 1,581 MBD of crude oil and 326 MBD of products, which totaled 1,907 MBD. A figure that represented only compliance of 78.8 percent in relation to the original plan that included 2,421 MBD.

Likewise, a decrease of 282 MBD (12.9 percent) was observed in comparison with the 2016 exports.

It is indicated that the 904 MBD of crude and products exported to the Asian continent in 2017, 472 MBD corresponded to commitments derived from the Chinese Fund, while the 646 MBD exported to North America, only 158 MBD corresponded to exports addressed to CITGO.

The drop was also observed in the processing by the PDVSA refineries in 2017, when the volume was 1,343 MBD of crude, which meant a sustained reduction of 1,098 MBD (45 percent), compared to the level reported in 2008. This decrease it was 46 percent in the National Refining System (SRN), and 44 percent in the international sector, which, in the view of the commissioner, was due to the sale during that period of the shareholding in several refineries abroad, equivalent to 345 MBD, the rest is attributed to the decrease in crude processing at the ISLA Refinery.

Little money, little production

PDVSA's chief commissioner estimates that the marked and sustained decline in oil production derives from the declining trend in operational reliability, which is characterized by the low efficiency of facilities and the insufficient foreign currency resources available to the state.

It refers back to the year 2008, taken as reference by its production level located at 3,422 MBD to make the comparison with the volumes of other exercises and thus we have that:  
In 2009 the production was 3,170 MBD; 
in 2010 it was 3,122 MBD; 
in 2011, 3,129 MBD were produced; 
in 2012 it was 3,034 MBD; 
in 2013 of 3,015 MBD; 
in 2014 of 2,899 MBD; 
in 2015 production was 2,863 MBD; 
in 2016 it was 2,571 MBD; and 
in 2017 the figure was 2,220 MBD.

He argues that the high disinvestment in 2017, determined the decrease in the production of hydrocarbons and that by 2018 pointed to a further decline.

Disinvestment in the core processes of the industry, mainly in the Executive Directorates of East and West Production,  observes Molero Torres,  deepens the decrease in oil production that began to accentuate as of 2014, "at the request of the fall in prices of oil, to a greater service of external debt during the period 2014-2017, and to the high commercial debt that PDVSA has with the suppliers of goods, construction companies and service providers for the Corporation. This is a matter immediately linked to the financing of cash flow in foreign currency necessary to operate adequately, financial insufficiency that has had a notable impact on the decrease in the level of execution of drilling activity, infrastructure maintenance, rehabilitation and well services, and has precipitated an increase in deferred production, (crude oil that does not flow into the business through inactive wells, and repairs), due to the low reliability of the facilities, including the improvers of crude and maintenance in plants and infrastructure in general. " 

Reference is made to what it considers an emblematic fact of insufficient resources during the year 2017, namely the Paraguaná Refining Center (CRP), for which a foreign currency budget of USD 1,226 million was foreseen for plant stops for the purpose of the respective maintenance, but whose disbursements were deferred due to the low availability of cash flow in foreign currency.

It formulates a call to design and develop management strategies that allow PDVSA to provide the required foreign currency resources in order to recover the operative capacity of the company and thus guarantee compliance with the volumetric goals foreseen. 

In the same way, he warns about the essential need for "promotion of policies and effective actions aimed at reversing the growing tendency to the desertion of human talent".

Responsible payment of financial debt

Silvestre Molero Torres highlights the recognition of the responsibility of PDVSA's management, "by acting diligently despite the difficulties, to honor the Corporation's external debt."

This is related to the fact that payments were made during the year 2017 to cover said services for USD 7,672 million, both from the parent company and the subsidiaries for operations in the country, "which reveals the importance of promoting an acute hierarchical exercise of strategies based on the perceived resources, considering renegotiations of the debt, in order to collect sufficient cash flow to finance the increase in production and with these actions to enhance the yield of variables and factors that are really within the reach of the Nation and that they also allow compliance with guideline N ° 28, issued by the Shareholders Assembly, which establishes that PDVSA must maintain a cash flow that guarantees operations, investments, fiscal resources and social investment in the national territory. "
Deferred production in inactive wells 

The report continues, indicating that in 2017 PDVSA's tendency to decline some 3,000 wells per year that went from productive status to inactive wells with deferred production, class "2" or class "3" was confirmed.

This circumstance was due to the lack of repairs with drills or the need to replace parts or parts in deterioration and technically with the opportunity of immediate productive reactivation.

This is how the West area showed at the end of 2017, a total of 4,932 wells under category "2", equivalent to 76 percent of the deferred production in the corporation.

The commissioner considers that "these wells with the opportunity of productive reactivation, of mediating the diligent remedial effort and the regular attention of office that must accompany the deferred production processes, programmed or not programmed".

Deterioration of infrastructures for gas management

The report points out the low commercial use that PDVSA makes of natural gas in Venezuela, since the total volume produced of 7,439 MMPCD, 4,849 MMPCD is destined to injection of deposits, fuel, burning, venting and waste, which is equivalent to 65 percent of said total.

To the domestic market, 2,444 MMPCD are delivered, that is, 33 percent, while 2 percent, that is, 146 MMPCD, is transformed into NGL. 

Uneven workforce performance

  On the other hand, the commissioner found an unequal performance of the workforce of PDVSA Petróleo, S.A and of the mixed companies of the CVP.

He explains that the PDVSA workforce at the end of 2017 totaled 132,559 workers, while the oil contractors reported 7,836 people.

The state company had 106,894 workers in Venezuela, 4,576 people abroad and 21,039 workers who worked in non-oil activities.

It should be noted that the subsidiary CVP had 774 workers and its joint ventures with 18,576 workers, totaling 19,350 people who at the end of 2017 produced 49 percent of the 2,116 MBD corresponding to crude, with which the corporation officially closed the year. To this figure are added 104 MBD of NGL, to complete the global production of 2,220 MBD of liquid hydrocarbons.

In this sense, the report invites to reflect on these figures to reorganize and restructure the industry. He adds that in the own petroleum workforce, 76 percent is male and 24 percent is female, a proportion that is maintained in the context of the non-oil workforce. The report states that PDVSA's workforce capacities have been "historically" reduced, due to the 2002 oil strike, the desertion of personnel and the recent progressive flight of highly trained professionals. 

Risks revealed by hydrocarbon reserves

The report refers to the fact that Venezuela has the largest reserves of liquid hydrocarbons in the world, projecting the sustainability of the business for the next four centuries.

In the opinion of Molero Torres this is a reason to be alert given that it is a situation that "contrasts and makes the powerful nation of the United States detract. In its disadvantageous and uncomfortable position with a reserve / production index (RPR) of just 10 years, this is its reserves only reach for a short period, with the aggravation of being a voracious consumer of fuels, in a society based in the automobile, whose strategies to ensure the supply of the energy resource, impel him to act in the international scenario executing destabilizing and disintegrating plans against countries with large hydrocarbon reservoirs; a historical characteristic of the unequal exchange imposed on the development dynamics of the elite countries is the cheap obtaining of raw materials, as a basis for the financing of their comfort society; this puts in context the implacable boycott, exercised on the economic processes of any kind undertaken, both by the Venezuelan State and by the national private sector, and constitutes a challenge to management action to recover the operational regularity of the Industry, enforcing the principle of full sovereignty over their energy resources ". 

Boosting internal control 

Finally, the PDVSA chief commissioner recognizes the control impulse displayed by the authorities of the state-owned Ministry of Popular Power of Petroleum during 2017 to improve the activities related to the balance, inspection and measurement of hydrocarbons and other Internal Control processes. Molero Torres considers that the latter promoted the execution of subsequent investigations, with proven judicial consequences allowing the improvement of the control environment in sensitive and strategic phases of the business. In his opinion, these control actions complement the one that also considers an "efficient performance of the Public Ministry with its vigorous judicial impulse, in order not to tolerate corruption, avoid procedural delay, and prevent cases of impunity."

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