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Venezuela Said to Allow Oil Joint Ventures to Manage Fund

Petroleos de Venezuela SA will allow joint ventures with China National Petroleum Corp. and Chevron Corp. to manage $6 billion in loans designed to reverse oil output declines, said a PDVSA official.

The state-owned producer reached agreements on terms of a $2 billion credit from Chevron for the Petroboscan venture and a $4 billion loan from China Development Bank for Sinovensa, said the official who was briefed on the negotiations. The transactions probably will be signed by the end of June, said the person, who isn’t authorized to speak publicly.

PDVSA is allowing the joint ventures to handle the funds directly for oil infrastructure rather than being channeled through the state company or the government, as occurred with previous loans from China, said the official. PDVSA is also working on arrangements with oil service providers to pay as much as $2 billion in overdue payments and for new funding.

“PDVSA had to do something to kick-start production,” Gianna Bern, president of Brookshire Advisory & Research Inc. in Chicago, said today by telephone. “This is definitely a step in the right direction if in fact things do come to pass.”

Kurt Glaubitz, a Chevron spokesman, said by telephone that he didn’t have an immediate comment. An e-mail sent to CNPC after business hours wasn’t immediately answered.

Falling Revenue

Venezuela, which channels oil earnings into social programs and regional fuel subsidies, is depending on the ventures with foreign partners to tap more of the world’s largest oil reserves. Progress on the funding had been delayed by two presidential elections and the death of former President Hugo Chavez. Oil Minister Rafael Ramirez said May 15 that he would travel to China soon to sign the Sinovensa credit.

Venezuela became the Americas’ largest recipient of Chinese credit under Chavez, as private lenders were driven away by the nationalization of more than 1,000 companies or their assets as well as currency and price controls. China Development Bank has lent Venezuela more than $40 billion since 2008, with most loans issued to the government and paid back with oil shipments from PDVSA.

Ramirez said on May 3 that PDVSA would invest $15.4 billion in exploration and production this year and that its partners must meet production targets or risk having projects disbanded. Ramirez said last month that PDVSA would ask its partners to finance at least $8 billion of a $25-billion investment program this year.

Output Target

PDVSA saw its sales fall to $124.4 billion last year from $124.8 billion in 2011 as the company sold more of the crude at subsidized prices in Venezuela instead of fetching higher prices from exports.

“With Venezuela’s enormous oil reserves, obviously opportunities exist but the government needs to make different types of decisions than it has in the past,” said Bern.

PDVSA is in talks for similar funding with companies including Repsol SA and Royal Dutch Shell Plc as it targets output capacity of 3.5 million barrels a day by the end of 2014 from about 3 million at the end of 2013, the official said. PDVSA reported daily oil and natural gas liquids production of 3.03 million barrels last year from 3.13 million in 2011.

Kristian Rix, a Repsol spokesman, didn’t respond to e-mails and phone messages left today seeking comment. Shell’s press department didn’t respond to phone messages and e-mails. A PDVSA press official, who isn’t an authorized spokesperson, said the company had no comment on the loans beyond those made by Ramirez on May 15.

The Venezuelan company has no plans to sell dollar debt this year, although the government may do so, said the official. The company is studying ways to refinance debt maturing in 2014-2017, the official said.

Yields PDVSA’s 8.5 percent bonds due in 2017 fell 25 basis points, or 0.25 percentage point, to 9.19 percent at 2:00 p.m. in Caracas, according to data compiled by Bloomberg. The price rose 0.89 cent to 97.52 cents on the dollar.

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