Venezuela: O RLY?

Thanks to reader 'UL' for the headsup. Why am I completely unsurprised about seeing US-sponsored ongoing bullshit about Venezuela exposed by facts? The report below mentions OPEC, but being DJNW has decided to leave out the main culprit of the propaganda campaign. The Energy Inormation Administration (EIA), sponsored by the US State Dept, has for close on ten years refused to include Venezuela's bitumen-like heavy crude as oil and skewed its figures for Venezuelan exports as a result, which in turn has allowed the North to come forth with its VenezuelaWeAllGonnaDie tosh and nonsense....that never happens. Anyway, here's the note:

Few Discrepancies In Venezuela Government Oil Export Data - Barclays

 

7:22p ET January 27, 2011 (Dow Jones) Few Discrepancies In Venezuela Government Oil Export Data - Barclays

DOW JONES NEWSWIRES

CARACAS (Dow Jones)--Venezuela's actual oil exports, which have long been questioned by industry organizations, are likely to be close to the government's official data, Barclays Capital analysts said in a research note Thursday.
In a new study, the bank compared Venezuela's reported oil exports since 2005 with what other countries reported as imports from the South American nation and found only marginal discrepancies.
"We do not find a major deviation from the official export data published by Venezuelan institutions," the bank said, adding, "therefore, we maintain our view that Venezuela does not have a problem of cash constraints."
With the petroleum sector serving as the lifeblood of the Venezuelan economy, economists and bond investors pay close attention to oil prices as well as the country's production and export levels to gauge its ability to make debt payments.
The bank estimated Venezuela exported 2.4 million barrels a day in 2010, down from an estimated 2.5 million in the previous year. For 2010, Barclays estimated that about 2 million barrels a day were sold at market price while the remainder were sold "under preferential conditions."
That compares to the Venezuelan government figures, which put 2009 exports at nearly 2.7 million barrels per day and 2.44 million barrels per day during the first half of 2010. The country said it produced 3.1 million barrels per day in the first half of CONTINUES HERE

Adventures in basic mathematics, Ecuador oil edition

Your humble scribe was surprised to see this report in his interwebnetpipes this morning:

BEIJING, Sep. 6, 2010 (Xinhua News Agency) -- Ecuador finance minister Patricio Rivera has said the country would sell 360,000 barrels/day of crude oil to PetroChina (601857.SH; PTR.NYSE) in the next four years, according to a Dow Jones Newswires report.

 The South American country's finance minister was quoted as saying that the crude oil will be sold at market prices. CONTINUES HERE

Why so? Time for the funmath!

1) According to home gov't and EIA figures (which unlike Venezuela largely agree) Ecuador currently produces 490,000 barrels of oil per day (bbl/d)

2) Ecuador's internal consumption of oil currently runs at 180,000bbl/d

3) This means that even in the very VERY unlikely event that Ecuador stops selling its wares to traditional partners (such as main customer USA or next door Peru) they still have another 50,000bbl/d to magic up from somewhere.

So tell me again how this greenheaven Yasuní ITT initiative will work? Meanwhile, today's pretzel math gives us a great chance to CUE THE MUSIC!

The Gulf of Mexico Oil Slick Satellite Photo

Not easy to see in blogsize so click on it to get better detail.

click to enlarge (gets very big)

By the way; please don't refer people to this post. If you want to spread the image around, please download it yourself and post it to wherever you want. This kind of image won't make it to the general public conscience if we leave it to MSM.

This may turn into man's worst ever single act of pollution.

More on crude oil

I've had WTI front'n'centre on my worrylist radar for a few days now, which has been reflected in the sudden surge of posts about the stuff recently in what's supposed to be a LatAm-y corner of cyberspace. But big deal...my blog, I'll do what I want.

So today Paul Krugman looked at crude and posted this short but sweet article on his NYT blog. It's worth reading, as even though he doesn't come out and admit in a loud voice he was wrong about oil last year (he was...but hey, T. Boone Pickens and his windmills too...Goldman Sachs, too etc etc too) he makes a good point about the current dynamics and particularly the fact that the word "speculation" should NOT be demonized in the way it's been suffering recently. Here's an excerpt from the Krugman note (but make the effort and read the whole thing here; it's not a long one):

Now, “speculation” isn’t a synonym for “bad”. If the underlying assumptions that seem to have been driving oil markets were right — namely, that a vigorous recovery is just around the corner, and demand will shoot up soon — then it would be perfectly reasonable to accumulate oil inventories right now. But those assumptions are looking less reasonable by the day.

I agree. The frictionless capital market has yet to be invented, which suits us little people as we search around for those wrinkles in value and try our hardest to take advantage of them. Right now oil is the theme, but it applies to most any part of the financial markets. So let the speculators speculate...after all, you buy a stock and you're one of them and only time tells whether our judgments are right or wrong. Faites vos jeux, mesdames et messieurs.......

Chart of the day is......

....crude oil futures, July contract, daily candlesticks.

Click to enlarge

The thing that gets me is the lack of major headlines being caused by this crude rally.

Maple Energy (MPLE.L): Rotten to the Core Values

Map of Peru with Pucallpa city marked

If you go over to the core values page at Maple Energy's (MPLE.L) website you read that.....

"We value employee and public safety and respect the environment"

.....as well as other things such as having high ethical standards and being committed to excellence. As is so often the case, this corporate babble isn't worth the pixels it's printed on. The following Youtube video came up on my radar today, thanks to the Red Ucayali blogsite that keeps a close watch on how companies in the jungle region of Peru operate.

It turns out that Maple Energy respects the environment a lot less than it claims in its corporate literature, because a local Pucallpa TV station recorded images of the Maple Energy emergency team mopping up oil pollution from a company pipeline leak. But that's just the start of things, because amongst other things in the report:

• The pipeline is over 50 (yes, fifty) years old

• It gets painted every so often by the company to make it look good, but it doesn't get infrastructure maintenance or any replacement.

• The oil leak recorded by the cameras is the fifth so far this year! Yeah seriously, in the first 10 weeks of 2009 the thing has spilled oil no less than five times.

• The pollution causes permanent environmental damage. As in permanent. Understand the word "permanent"? Good.

• The local chief engineer working for Maple Energy was very defensive when asked a few questions and really refused to give away any information about the leak or the previous spillages.
  

One of the other things that Maple Energy boasts on its website is the good relationship it enjoys with Peru government and officials. Well that one might mean something positive in good old anglosaxon North, but anyone who knows Peru can decipher that code very easily. It's also worth noting that the rich and influential Peruvian Pension Funds jointly hold around 15% of all shares outstanding. So it comes as no surprise to hear in the report that neither Peru's oil watchdog OSINERG nor the Ministry of Energy and Mines has so much as mentioned in passing the problems Maple Energy is causing to the Amazon Basin environment....so far, at least.

So maybe after reading all this you're not as impressed with Maple Energy as you could be and you'd like to complain in your own way. Well as MPLE.L obviously doesn't give much of a damn about things a letter to its IR department representative Alphonso Morante might not be the best method. However, as the IFC (International Finance Corporation), which is the financing arm of the World Bank, is a 6.2% shareholder in Maple Energy you might like to drop them a line and ask them how long they will continue sponsoring a company that uses a 50 year old permanently leaky pipeline that does far more harm than good to its host nation.

Chart of the day is............

.....crude oil via the WTI contract, three year chart.

I have no special comment for this one except for "WOW, I never thought it would get so low". And as WTI is somewhat the cream, most other crude contracts are much lower than this one. As an example, I note MidEast crude at $33.52 right now.

I'm glad I've never tried to play this market, as I would have been wiped out seven times over these last few weeks.

Ecopetrol (EC) update: nice numbers, good growth, possible hedge vehicle

It's been a tough debut for the ADR shares of Ecopetrol so far, as the chart above shows. After debuting at $25 the ADR has slipped to today's U$16.49. However the company is doing well enough and yesterday announced profits of U$942m, up from U$800m YoY. EPS was COP$97.06. As the ADR is equivalent to 20 shares and the exchange rate is COP2311=U$1 right now, that gives us a quarterly EPADR of U$0.84 for a U$16.49 equity...not bad at all, really. A forward P/E ratio of 4.9X for a growth hydrocarbons company is attractive, even in the face of $60/bbl oil.

In fact all key numbers were up compared to the same quarter in 2007, but the one that I like the most is production at 441,000bbl/d eq, compared to 392,000bbl/d eq for 3q07. This shows that EC is in position to weather the downturn in barrel prices.

One thing to note about EC is that it provides the US investor an excellent hedge against the USD going forward. If (and it's a big "if", but it must at least be considered) the US dollar weakens in the next few weeks both the Colombian Peso (COP) and oil prices will benefit. This double whammy effect makes EC a good stock to consider when portfolio balancing is on the agenda. DYODD dude.

Reuters runs the Talisman Energy story

Hey, this is totally cool. Reuters is today giving more airtime to the reports about Talisman (TLM.to) (TLM) in problems with Peruvian locals that I wrote about yesterday. Good to see a big news agency picking up on a socially-oriented story down in deepest darkest South America, and some good quotes from the company about how TLM is definitely not leaving Peru anytime soon (and a nice zinger about TLM in Sudan at the end, too). Methinks there's a conflict brewing.

Here's the whole thing. Enjoy.

(PS: Talisman Energy head office has visited this humble corner of cyberspace 18 times so far today....so maybe they're a tiny teeny eensy weensy bit more worried about this issue than they're letting on).

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

LIMA, Oct 22 (Reuters) - Talisman Energy , Canada's No. 3 independent oil explorer, said on Wednesday it had no plans to pull out of Peru, after local media reports said community leaders had given the company an ultimatum to leave.

The Calgary-based group, which is looking for oil in Peru, has two lots in the northern Amazon jungle. Several indigenous groups live in the area, including the Achuar people, whose leader has said protesters will throw the company out if it does not stop work by Nov. 15.

"We are not planning on leaving Peru any time soon," David Mann, a Talisman official, said.

"My understanding is we have all the agreements and consents we require from communities in the areas where we're operating. There may be other groups that are outside our area of operation who are asking for something different."

Talisman's chief executive met with a small delegation of Achuar leaders in April and said the company would not operate without their consent.

Protesters say oil work harms the environment and sows seeds of conflict.

"We, as indigenous people, reject the Canadian company Talisman. We do not want them working in our territory. We want the Peruvian state to respect us, and the armed forces to stop helping the company," Cesar Zuniga, president of the Achuar indigenous group FENAP, said on local radio.

Talisman, which operates in some 20 countries, was criticized by human rights groups for its activities in Sudan in the late 1990s and earlier this decade. Conflict over oil exacerbated Sudan's civil war, which lasted from 1983 to 2005.

(Reporting by Dana Ford; Editing by Walter Bagley)
((dana.ford@thomsonreuters.com; Tel. +511 221 2130))



Related Post
Talisman Energy has no charm in Peru

Talisman Energy has no charm in Peru

Tal"is*man\, n.; pl. Talismans.
1. A magical figure cut or engraved under certain superstitious observances of the
configuration of the heavens, to which wonderful effects are ascribed; the seal, figure,
haracter, or image, of a heavenly sign, constellation, or planet, engraved on a sympathetic
stone, or on a metal corresponding to the star, in order to receive its influence.

2. Hence, something that produces extraordinary effects, esp. in
averting or repelling evil; an amulet; a charm; as, a talisman to avert diseases.

Today, communities in the Peruvian jungle region of Loreto issued a straightforward warning to Talisman Energy (TLM) (TLM.to) ; you either leave voluntarily before November 15th or we will force you to leave. As noted in this report, the people who live in and around TLM's block 64 and 101 concessions do not want any development that might interfere with the environment in which they live. To quote the local leader Cesar Zúñiga Butuna, president of the Federación de Nacionalidad Achuar del Perú (FENAP):

"We do not want our forests, rivers and earth polluted, because this is our natural market."

"We as the indigenous people reject the Canadian company Talisman. We do not want them working in our territory, we want the Peruvian state to respect us, and the armed forces must stop supporting the company."

"If they do not want to leave we will force them out; this is the agreement that has been coordinated with theAwajún brother (people) and the Huambisas of the Amazon. It is time that the government listens to us and we will make them respect us."

"We have proof that pollution already exists, damage to nature and to indigenous people in the communities where petroleum activities are developed. For 37 years in the Achuar brother communities of the Corrientes River, petroleum has not brought any development to them; on the contrary they are sick and poverty stricken."

The locals also noted that Talisman was being rather underhand in its public relations exercises, as it had received the approval of two sets of social groups and was doing the rounds with these people promoting the company. The on-the-spot locals (of Nuevo Alegría in the Morona disctrict, part of the Datem del Marañón province of Loreto) accuse Talisman of bribing these people, and also point out they are from areas not affected by the development. They also say that the locals supporting Talisman in the area are two social groups, while there are 34 groups that reject Talisman's presence that are not getting their voice heard.

Now TLM is a big oil company with most of its developments either in North America or the North Sea. If it does eventually walk away from Peru it will hardly be a company killer. So now that the locals, the real locals, have made their voice heard and have given Talisman three weeks to leave the area, will they do so? Watch this space.


Related Post
Reuters runs the Talisman Energy story

Venezuela and the oil price and supplies and stuff...and Bloomberg nails the story

Scuse me while I kiss the sky

As could only be expected, the shouts of "Venezuela is going bankrupt hooray hooray" are doing the rounds again, what with WTI at $75/bbl right now. As your diligent Otto pointed out in this post, Venezuela isn't going bankrupt any time soon. When WTI hits $60/bbl, give me a call and we can run the numbers again, but until it does the chatter is just so much hype from people who care more about their own politics than they do about society. By the way, note that serious voices agreed with my call a posteriori.

Meanwhile, credit where credit is due; I recently pulled Matthew Walter of Bloomberg Venezuela apart for writing crap (his editors let it pass, so they need the finger pointed at them, too). However Walter has just published this report that picked up on a Vz gov't communique from yesterday, crunched it nicely and (apart from the 2.36Mbpd figure used by Bloomie that they cream from the EIA and is a crock...but that's not Walter's charge) hits the nail on the head.

It's a very good piece of reporting by Walter because it lays out the growing relationship between Russia and Venezuela without lapsing into a shrill voice. It points to the growth in VZ oil exports to China. It also notes that, according to the H-man himself, Venezuela is currently subsidizing 300,000bbl/d of oil for its less developed neighbors (the Petrocaribe initiative, etc). The 300Kbbl/d number was a fair guesstimate that was doing the rounds but it just got a lot more weight thanks to the Chávez confirmation.

This is what we want from pro-journalists: Sharp, concise reports that lay out the facts and lay off the hype. Good job, Matthew Walter: Is it too much to ask that this standard is kept?

Venezuela, and why $70/bbl is enough in 2009

I've had several mails and comments about this blog written last night in which I said that Venezuela won't "squirm" unless crude oil drops below U$70/bbl. Quite a few of the mailers wrote words to the effect of "wanna show me how you figure that one, Otto?", so here we go with some ballpark calculations.

First thing to point out is that there is a lot of misinformation about the Venezuelan oil business. Some of it is the typical uninformed crap and can be easily ignored, but other parts are more subtle propaganda. As an example, pro-Chávez propaganda includes the way PdVSA says it pumps 3.1m or so barrels of oil per day (bbl/d). Anti-Chávez propaganda exaggerates to the downside. An example of anti-Chávez oil BS is in this AFP report right here, where ex-central bank head Domingo Maza Zavala says that as Venezuela exports 700m barrels a year, if barrel price goes under $90 in 2009 Venezuela won't be able to support itself. He does this via the following logic:

700m barrels X $90 = $63Bn
Venezuelan imports = $50Bn
Venezuela debt servicing = $10Bn

With this Maza Zavala says the U$63Bn revenues from oil won't be enough to cover the $50Bn + $10Bn + other stuff obligations that the country faces. But this is just so much BS, and Señor Maza knows it. If you actually go round and do some fact checking you'll see that Venezuela exports around 2.25m bbl/d, which works out at around 820m bbl/year, and when it comes to covering Maza Zavala's U$65Bn or so in external obligations this makes a lot of difference to the calculations. Check out this table and see why:

Venezuela Gross Export Revenues for Crude Oil 2009
bbl/d payable export(m)	1.9	2	2.1	2.2	2.3	2.4
bbl/year export(m)	693.5	730	766.5	803	839.5	876
Avg barrel price
$50	$34,675	$36,500	$38,325	$40,150	$41,975	$43,800
$60	$41,610	$43,800	$45,990	$48,180	$50,370	$52,560
$70	$48,545	$51,100	$53,655	$56,210	$58,765	$61,320
$80	$55,480	$58,400	$61,320	$64,240	$67,160	$70,080
$90	$62,415	$65,700	$68,985	$72,270	$75,555	$78,840
$100	$69,350	$73,000	$76,650	$80,300	$83,950	$87,600
$110	$76,285	$80,300	$84,315	$88,330	$92,345	$96,360
$120	$83,220	$87,600	$91,980	$96,360	$100,740	$105,120
source: incakola finger-in-the-air

First let's assume that Maza Zavala's numbers are ballpark correct and Venezuela needs to cover $50Bn in imports, $10Bn in debt servicing and a few billion more to break even with the world (i.e. be a net creditor nation). Maza Zavala seems to be suggesting $65Bn as the break even number, but let's make it even more difficult and set the bar even higher to give room for extra imports or growth or whatever. So let's set our minimum at U$70Bn in total exports to cover 2009.

Maza Zavala is saying that Venezuela exports 1.9m bbl/d, and so at $90/bbl we have U$62.415Bn in gross revenues according to the table. But if we use the true export number of 2.2mbbl/d, $90 brings in U$72.27Bn and Venezuela is easily covered. Even if we take our export number at 2.1mbbl/d of payable exports (taking into account the amount of oil that goes to pre-paid customers and Venezuelan oil donation programs) we still end up with $68.985Bn in gross revenues. Hey, we're covered!

However, that's not the whole story. Maza Zavala conveniently forgets that oil is not 100% of Venezuelan exports, but around 90%. So add 10% to all those table figures up there to get the real amount of revenues that Venezuela enjoys from exports. This means that $64Bn from oil is in fact $70Bn in total exports for the nation.. This means that even 2.2m bbl/d at $80 is enough to cover the bills.

BUT WAIT, THERE'S MORE! Oil production is about to go up by 200,000bbl/d thanks to new fields coming on line (because all that recent investment from Norway, Brazil, Iran, Portugal, Russia, China etc isn't just lip-service; they are actually truly ramping production and it starts to come on line very soon). This means that exports are likely to be in the 2.3 to 2.4mbbl/d ballpark in 2009. And by checking that chart again, even U$75 oil covers all obligations once other exports are factored in.

AND THEN FINALLY, there's the one thing Maza Zavala definitely didn't want to mention. In the course of the recent oil boom, Venezuela has squirreled away international currency reserves to the tune of U$38Bn. So if there is any shortfall in the balance of payments, Venezuela does not have to go to the world market and float very expensive new debt paper (that would start a rather nasty vicious circle). It can easily cover obligations by tapping reserves or even buying back its own debt instead of rolling it over. After all, the "safety net" of international reserves is designed to help out at exactly that kind of moment. So if necessary, Venezuela can use up to $10Bn of reserves in 2009, taking the pressure off oil revenues and allowing a $70/bbl average to be enough to pay its way.

Of course, Venezuela can't rely on its currency reserves forever, but one year will not hurt its cause. As a sidebar there's also the austerity plan that Chávez announced on September 19th, and we can expect certain non-Venezuelan expenses to be cut down. For example the ALBA foreign aid costs around U$7Bn a year...that one is likely to be trimmed substantially by popular appeal. Arms purchases can wait a year. Import bills can be cut, of course. Hey, that's what the word 'austerity' means. Etc etc.

So there you have it; a very ballpark lesson in why $70/bbl might not make for a boom year in Chávezlandia version 2009, but it will be enough and the squirm can be delayed indefinitely. Any questions?

Squirm

Tonight I got this message from A.N. Other:

"It's going to be good seeing Chavez squirm when less and less dollars on coming in because of lower oil prices."

There are a lot of people who feel the same, I'm sure. If you're one of those people, why are you reading this blog? Why do you follow the investment scene down here when you obviously know nothing and never will unless you change your head? And what basic right do you have to enjoy watching another country squirm when the collapsed financial system that you espouse is directly responsible? Or is it just a case of sadistic enjoyment?

But let's not think about the discomfort the US financial mess is going to cause millions of non-US citizens...let's just personify it and make it hurt just one dislikeable person, shall we? Much easier to swallow, I'm sure.

But the real problem with that sentence up there is that it's not even true. Chávez isn't going to squirm. Not with crude at $100, or $90, or $80, or even $70 a barrel. Not when PdVSA crude costs just six bucks to produce. I mean, if you think Venezuela is going to squirm, what about the Canadian oil sands people with break even North of $50/bbl? Where do you think crude is going when they shut off production up there for lack of profit? Are you guys that crazy to believe crude is going back to $30?

The thought of Chávez squirming is just another uninformed fantasy from those up North who yearn to dominate not just Venezuela but the whole of Latin America....just like the good ol' days. So run along and read the IBD coverage of LatAm if that's what suits your taste better, and leave this blog for people who want to hear it like it is.

The Dollar: the USD index chart

click to enlarge

Forget oil. Forget precious metals and base metals. Forget every single conspiracy theory from the tin foil hatters.

The US dollar is the whole ballgame right now, and this chart says that the dollar is about to take a well-deserved break. The moves in everything else will march to the drum of the dollar, and let's go on record here: I fully expect the dollar to reverse and weaken off this (approx 80) high and allow copper, silver, gold and the rest to rally.

Spooky chart

The blue line is WTI crude, November 2006 to date

The red line is the Nasdaq index overlaid on the chart with its now infamous peak in early 2000 (and before you ask, the timescale is 1:1 and has not been stretched or compressed in any way).

The correlation between the two lines is 96.65%, according to the guy who sent me this last night (he sent it as an Excel file and the numbers do seem to check out correctly. FWIW I regenerated this chart to check them myself.).

Post Labor Day drop: it had to happen

...or at least it was always a strong possibility.

Gustav missed and oil continues to unwind. The combo of words "demand concerns" are wheeled out at the right moment (a strange 180° turnaround from the accelerating US GDP number of last week, but let's not dwell on the silliness when we have arch-stupidity to examine).

The result is more fuel for the tinfoil hat conspiracy theorists that left over 70 comments under my two SeekingAlpha posts last week and tried anything to discredit the arguments offered without actually addressing the issues. Gotta laugh. Live free or die, dudes*.

Anyway, I'm rambling, but also kind of excited to see today's plummet. Thats cos I'm carrying cash and getting ready to buy things. This is where I want to buy copper exposure.....

.....and it's close to where I want to get gold exposure, too. U$780 would be nice again....

Meanwhile, the observant among you will note that I moved the furniture around a bit Chez Otto last night. The Adsense blocks have been demoted to sit between the posts. You now have no excuse not to sign up for one of the free magazines offered by the two links above and the two below on the right. I've also brought the Fortuna Silver and Seinest ads into view a little more, and I hope you take time out to visit them; two excellent companies.

*To live free, leave the USA. But then life gets uncomfortable, doesn't it? Discuss.