TEXT-S&P: crude oil production strengthens Venezuela

<a href=reuters.com>Reuters Thu May 15, 2003 01:42 PM ET (The following statement was released by the ratings agency)

NEW YORK, May 15 - Increasing crude oil production and elevated oil prices have strengthened the financial position of the government of Venezuela and its national oil company, Petroleos de Venezuela S.A. (PDVSA), and directly or indirectly led to several ratings actions, according to a report published today by Standard & Poor's Ratings Services.

In late 2002, the Venezuelan oil industry was paralyzed by prolonged labor disruptions that, to a large extent, represented a political insurrection against the administration of President Hugo Chavez. However, since January, momentum has favored the Chavez administration. Sympathy for striking workers dissipated as shortages of staples (i.e., gasoline and food) weighed on Venezuelans.

Perhaps the most important factor in reversing momentum has been the restoration of crude oil production. Since January, production has steadily increased, with estimated production levels now ranging to about 3.2 million bpd (according to reports by Venezuelan officials) from 2.6 million bpd (according to analyst consensus).

"The outlook on the ratings on all PDVSA-linked transactions now is stable, (excluding PDVSA Finance as structured finance ratings carry no outlook)," said Standard & Poor's credit analyst Bruce Schwartz. "However, our concerns about political conflict in Venezuela, which could reignite in the run-up to a possible referendum on the Chavez administration in August, the structural imbalances in the Venezuelan economy, and the potential for government finances to deteriorate are reflected in the relatively low ratings."

Also, according to the report, the ratings encompass risks associated with sustaining PDVSA's current output, which is likely to be challenged by fiscal constraints and the dismissal of about half of PDVSA's 35,000 workers.

The full report, "Petroleos de Venezuela, Units Cope With Political, Economic Challenges," is available on RatingsDirect, Standard & Poor's Web-based credit research and analysis system.