Possible Chavez demise seen having minimal impact on PDVSA

Wed Dec 19, 2012 12:17pm EST

* Cancer could force Socialist leader to step down

* Few changes expected at state company in short-term

* OPEC nation has world's largest crude reserves

By Daniel Wallis and Andrew Cawthorne

CARACAS, Dec 19 (Reuters) - Ten years ago when Venezuelan President Hugo Chavez's leadership was in serious doubt, the state oil company embarked on a devastating strike to force him from office, resulting in a years-long decline in production.

Now, with the world's 11th largest oil exporter on the brink of a political transformation if cancer forces Chavez from power, the odds are the opposite: an extension of "Chavismo" should keep existing projects on track, while a change in parties may usher in more foreign capital.

While state-run PDVSA's loyalties long ago shifted in staunch support of Chavez, few analysts expect anything like a repeat of the late 2002 crisis that shut down the oil sector and crippled the economy - even if the primary opposition leader wins power and follows through on a promise to shake up PDVSA and fire long-time President and Energy Minister Rafael Ramirez.

The likelihood is that things continue much as they are including joint ventures with Chevron and Spain's Repsol in the Orinoco extra heavy crude belt adding a small amount to the country's current production of around 3 million barrels per day (bpd).

"You have lots of political uncertainty, but I don't believe that's affecting the ongoing projects," said Venezuelan energy expert Luisa Palacios at New York-based Medley Global Advisors.

"These Orinoco belt projects can work under different political circumstances. This gradual, ongoing investment in the oil projects will continue."

Chavez has named Vice President Nicolas Maduro as his heir apparent and urged supporters to vote for him if it came to that. The former bus driver and union leader is a close ally of Chavez who is seen broadly sticking to his policies.

Before October's vote, PDVSA union boss Wills Rangel told Reuters that workers guaranteed continuity of production under any political scenario, and rejected efforts to bring back "the bad old days" of previous governments.

DEALS QUESTIONED, INVESTMENTS OPENED?

Venezuela is South America's biggest oil exporter, a top-four supplier to the United States and an increasingly important fuel source for China. Last year, OPEC said it overtook Saudi Arabia as the country with the world's biggest crude reserves.

The government hopes to add 2 million bpd of output for investments of more than $80 billion in joint ventures in the Orinoco belt.

PDVSA sends tens of billions of dollars a year to government coffers to fund Chavez's "21st Century Socialism" project, and carries out the preferential supply deals signed with political allies.

The company is powerful: in 2002, it all but shut down output for two months. Now it has more than 100,000 workers and its net profit jumped 42 percent to $4.5 billion last year on record revenue of almost $125 billion.

If Chavez is forced to step down, a new election would be held within 30 days.

"If it is a transition to Chavismo without Chavez, then you have the status quo," Palacios said. "Or, you have an opposition government, which represents upside...they will be more open to private investment."

Likely opposition candidate Henrique Capriles would make some important changes: ending some of the politically motivated oil deals of the Chavez years; streamlining PDVSA - which is widely seen as a bloated and inefficient company - and reviewing all of its joint ventures.

But these would probably take years, and after criticizing Chavez so roundly on the campaign trail all year, Capriles would not want to endanger production, even in the short term.

Among the deals to be scrutinized would be around 115,000 bpd of preferential oil sales to Cuba, as well as shipments to ideological allies further afield such as Syria, Belarus and Iran.

Capriles has also said he would look into whether it was possible to pay China with cash, not fuel, for the loans. PDVSA sends China 430,000 bpd of crude and products in repayment for loans totaling $34 billion to Caracas, and he said that would help solve the company's cashflow problems.

China would remain an essential partner under an opposition government, he said. "No one in the world can do without China."

Before losing October's presidential election to Chavez, Capriles said he would only fire one PDVSA worker, Ramirez.

He also said he would take politics out of the running of the company - Ramirez once described it as "red from top to bottom" - which has repeatedly failed to hit its own production targets and suffered a string of sometimes deadly accidents.

But he could face resistance from more militant members of the workforce. Union leaders, who are deeply loyal to "el comandante", could be expected to reject any layoffs or other changes to operations as a betrayal of his memory.

SUBSIDIES INTACT

Neither Capriles nor Vice President Maduro is likely to do much quickly about domestic fuel subsidies that have made Venezuela's gasoline the cheapest in the world: it costs less than $2 to fill up an average SUV.

Capriles says he wants to start a debate on the issue with an eye to eventually increasing fuel costs, but the topic has been a sensitive one since deadly riots over price hikes in 1989.

Whatever happens to Chavez, oil will continue to contribute more than 95 percent of Venezuela's hard currency earnings.

"In the short term, there is little likelihood that sweeping changes will be made to existing policies," J.P. Morgan said in a research note.

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