Venezuela Has to Pay Debt and Protection Money and Has Declining Oil

Venezuela will struggle to produce 1 million barrels per day through 2019. The IMF and most other analysts expect the reported November production of 1.137 million barrels per day to drop by 18% or more. Oil production is currently falling at 50,000 to 100,000 barrels per day each month.

Venezuela Has $600 Million to $1 Billion Each Month to Manage Problems

Every 100,000 barrels of oil per day is about $1.4 billion per year or $120 million per month. Oil is at $50 per barrel but Venezuela cannot get market prices. They have costs to refine their heavy oil to more valuable lighter oil.

Venezuela had domestic oil consumption of 450,000 barrels per day and they have to make oil shipments to Russia, China and Cuba for debt repayment and security services. This is basically protection money.

Venezuela needs at least 200,000 barrels per day internally. They have to run the military and police. Russia, China and Cuba have to be paid or Venezuela’s security (aka prevention of a coup) will be crippled.

Venezuela has made several settlements to pay several debt holders to prevent the seizure of its US oil refinery assets and other foreign assets.

PDVSA paid $500 million in the fourth quarter of 2018 and will pay off the remaining $1.5 billion plus interest quarterly over 4.5 years.

In November, Venezuela paid an initial $425 million to Crystallex, which will suspend all enforcement efforts until at least Jan. 10. Venezuela will have to post collateral to secure the balance, which will be paid in installment by early 2021. Crystallex will still get another billion plus interest.

If Venezuela misses any one of the $500-700 million per year in settlement payments they will lose $8 billion in Citgo refinery assets. Losing Citgo would cripple Venezuela’s ability to convert oil into cash.

It seems there are at least 400,000 barrels per day of must pay internal or external obligations for Venezuela. Venezuela is already past the point of a long-term sustainable situation.

Rebuilding their oil production capacity will take years and require tens of billions in investment and competent foreign workers and companies.

US Sanctions prevent any more debt issuance and being in default means only countries with means of enforcement will deal with Venezuela.

Venezuela is borrowing another $5 billion from Russia in exchange for future oil. Venezuela owes over $150 billion to China, Russia, and others.

Venezuelan President Maduro will be inaugurated for a new six-year term on January 10, 2019.

How Much Would Russia and China Be Willing to Pay to Prop This Up?

Below 400,000 barrels per day then Venezuela would miss payments and lose control of Citgo.