BREAKINGVIEWS-Chevron doubles down on Chavez staying power

Fri Jul 20, 2012 7:48pm BST

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(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)

By Raul Gallegos

NEW YORK, July 20 (Reuters Breakingviews) - Chevron (CVX.N) is doubling down on the staying power of Hugo Chavez. Venezuela’s bond yields have gyrated with investors’ changing views of the strongman’s cancer survival odds. But the U.S. oil major’s $2 billion loan to state oil giant PDVSA [PDVSA.UL] is a clear bet on Chavez’s re-election and survival. His shadow may darken the nation’s economic outlook for a while yet.

Plenty of investors still hope Chavez is on his way out. Venezuela’s 2022 bonds now yield 12.7 percent, against an average of 14.6 percent over their life and the 15 percent-plus levels seen before Chavez revealed his illness a year ago. The feeling is that anyone but Chavez will manage the economy better. Aside from nationalizations and other market-unfriendly moves, Moody’s reckons Venezuela may run up a 7.7 percent of GDP deficit this year.

But polling data for the Oct. 7 presidential election looks good for the incumbent president. Datanalisis, Venezuela’s most reputable pollster, reckons 46 percent of voters backed Chavez in June, with roughly 31 percent supporting his younger and healthier challenger, Henrique Capriles Radonski. Undecided voters are still one-fourth, but recent elections suggest their votes follow a similar split as more partisan ones.

Then there’s the question of Chavez’s health. Though information is scarce, of late he seems re-energized, perhaps boosted by the election race and the polls in his favor.

Chevron has no illusions about how Venezuela works. It first set up shop there in the 1920s, when strongmen showed heavier hands than Chavez. Scores of populist governments and two oil-industry nationalizations later Chevron is still pumping crude. And when PDVSA asked for a couple of billion to invest in Boscan, a jointly-run field Chevron first came across in the 1940s, the oil major obliged. The 13-year loan is costing PDVSA Libor plus 4.5 percent, far less than the 11 percent that its 2027 bonds pay.

Of course Chevron’s relationship with PDVSA could easily outlast Chavez. But the president’s people are hands-on with the oil company and it would be odd to do PDVSA a favor now if the U.S. company thought someone else would be pulling the strings any time soon. Whatever less-informed investors may think, at least one savvy insider is betting with the Chavistas.

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CONTEXT NEWS

- U.S. oil major Chevron has extended a $2 billion loan to Venezuela’s PDVSA, the state oil company said on July 18. The financing is intended to boost oil production at Petroboscan, a joint venture between the two companies.

- Since the end of 2010, Venezuela's energy ministry has been pressuring some 20 joint ventures between PDVSA and foreign energy partners to find extra funding to raise output. The socialist administration of President Hugo Chavez has threatened to cancel the ventures' permits if they fail to hike production.

- The latest numbers from Venezuelan pollster Datanalisis on July 16 showed 46.1 percent of voters backing Chavez and 30.8 percent supporting his opponent Henrique Capriles Radonski for the presidential election on Oct. 7. Undecided voters make up nearly 21 percent of the voting public.

- Chavez has undergone cancer treatment on several occasions in the past year. The Venezuelan government has released few details of his condition or prognosis.

- Reuters: Venezuela’s PDVSA, Chevron reach $2 bln financing deal [ID:nL2E8III19]

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- For previous columns by the author, Reuters customers can click on [GALLEGOS/]

(Editing by Richard Beales and Martin Langfield)

((raul.gallegos@thomsonreuters.com)) Keywords: BREAKINGVIEWS CHEVRON/VENEZUELA

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