Key takeaways
- Preliminary figures show weaker EBITDA of US$20bn on lower oil prices; payments to the govt. dropped 50% to US$12bn
- PDVSA ended 2015 with US$5.5bn in cash and STD of US$7bn; investors are concerned about liquidity for '16 payments
- Our UW recommendation is due to uncertainty on refinancing options at very low oil prices (the VZ basket was $24/bbl in Feb)
Preliminary "management" figures for 2015
Preliminary 2015 figures ("best estimates") for PDVSA submitted by the company to the government highlight weaker 2015 revenues and EBITDA due to lower crude oil prices (which is of no surprise) and slightly lower cash balances. PDVSA expects to release its 2015 annual report at the end of the March and numbers could then change.Below we provide a quick review of the key highlights.
Payments to the government declined 50% YoY to US$12bn
Considering royalties & extraction taxes, payments to the government declined 50% YoY to US$12bn. Social expenses (accrual basis) were down 33% YoY to US$3.6bn.Income taxes were just US$1.7bn for the year.
PDVSA ended 2015 with $5.5bn in cash & STD of $7bn
The question on everyone's mind is will PDVSA be able to repay its bond payments due later in 2016 and other short-term debt (STD). PDVSA ended 2015 with US$44bn intotal debt, of which US$7bn is due in 2016 and US$5.5bn in cash. Supplier's credits came in at US$20bn for YE15. PDVSA will need to find new sources of liquidity in 2016unless it can generate positive free-cash-flow from operations - a daunting task for all oil producers in the current low price environment. Principal payments made in 2015 were largely funded by several new credit facilities at both Citgo and PDVSA and disbursements from the Chinese Development Bank (CDB) (see next page). FY15 gross and net leverage were up to 2.3x and 1.9x respectively - from 1.5x and 1.3x in 2014.
Revenues down 27% YoY; hit by lower prices
It is no surprise to see consolidated revenues down 27% to US$89bn on lower crude oil production (-1% YoY) & lower crude oil prices (-50% YoY). Export revenues were down 40% to US$38bn. Crude production averaged 2.75mm bpd in 2015 while natural gas production averaged 7.5bn cfd. The Venezuelan crude oil basket dropped toUS$44.6/bbl from US$88.4/bbl in 2014. Since December, it has declined by an additional US$6/bbl to US$24/bbl in February.
Weaker FX helped costs, but not enough for EBITDA decline
EBITDA was down 33% YoY to US$20bn in 2015, with an EBITDA margin of 23%. The weaker FX rate helped lower costs but not enough to offset lower revenues.Purchases of crude oil were down 33% to US$23bn and royalties & extraction taxes were down 48% to US$7bn. SG&A expenses were also down to US$20bn. Capexdeclined to US$14.5bn (E&P was 63% of total).
Our UW highlights uncertainty on refinancing options
Our Underweight recommendation reflects uncertainty about PDVSA's weak liquidity situation and reduced refinancing options. We are uncertain how PDVSA will generate adequate cash to meet all its financial and supplier obligations in 2016. A changing political environment in Venezuela also raises the question as to whether all parties believethe country should use its liquidity to repay debt or not. PDVSA has a US$1bn bond due in October-2016 and a US$2bn payment on the 8.5% 2017 bonds.
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