Venezuela is Doomed....

It’s well known that PDVSA’s oil production is down 25% in the past 10 years (since Chavez took over). It’s well known that Chavez fired most of his competent engineers after the failed coup and replaced them with loyal party hacks. It’s well known that capex has suffered as Chavez has transferred revenue toward social programs.

The article says that most people don’t realize that Chavez gives away much of his oil. He buys friends by giving away 1.2 MMbopd to members of the “Petrocaribe” club He sells the rest to the US for market price. The “Petrocaribe” nations pay 30% of the market price within 90 days and the balance over the next 25 years…it does not take an engineer to figure out that those countries will likely default on that debt as soon as it’s politically desirable. By my calculation, in a $65/bbl environment, Chavez gets about $42.25/bbl…the actual number is probably less because his Orinoco crude is heavy and sour and trades at a discount to WTI.

http://www.telegraph.co.uk/news/worldnews/southamerica/venezuela/3183417/Venezuelas-oil-output-slumps-under-Hugo-Chavez.html

Key graf:
“As production falls, the sales to the US become more important," said Pietro Donatello, an oil analyst from Latin Petroleum in the capital, Caracas. "Only the US is paying the full amount for Venezuelan oil and in cash, the rest are in some kind of barter agreements."
The state oil company, PDVSA, produced 3.2 million barrels per day in 1998, the year before Mr Chavez won the presidency. After a decade of rising corruption and inefficiency, daily output has now fallen to 2.4 million barrels, according to OPEC figures. About half of this oil is now delivered at a discount to Mr Chavez's friends around Latin America. The 18 nations in his "Petrocaribe" club, founded in 2005, pay Venezuela only 30 per cent of the market price within 90 days, with rest in instalments spread over 25 years.”