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PDVSA H1 revs fall, profits soar after tax change, devaluation

Daniel Wallis and Marianna Parraga
Monday, 16 Dec 2013 | 12:06 PM ET

CARACAS/HOUSTON, Dec 16 (Reuters) - A change to the tax system and a currency devaluation in Venezuela boosted state oil firm PDVSA's first-half results, but the company cut back on social spending after heavy election-year outlays in 2012.

Total revenue fell 5.5 percent to $59.1 billion in the first six months of 2013 as oil prices fell and the firm exported fewer barrels. But net income soared 518 percent to $12.9 billion, according to a PDVSA report seen by Reuters on Monday.

"This increase (in net income) was primarily the result of the fluctuation in the exchange rate ... we do not expect as significant an increase in net income for the full year ended December 31, 2013," the first-half financial report said.

Since the company was turned into the financial motor of the late President Hugo Chavez's self-styled leftist revolution, analysts tended to give less attention to its profits than for listed oil companies due to its heavy social spending.

Petroleum Minister Rafael Ramirez said last month that PDVSA's January-to-September revenue reached nearly $87 billion, and that the firm will invest $25 billion in its oil operations for a second year running.

He did not offer comparative figures. PDVSA's total revenue in 2012 was $124.5 billion, while profit was $4.2 billion, it reported.

PDVSA's profit was boosted during the first half of 2013 by a 32 percent devaluation of the bolivar currency in February that aimed to shore up government finances after heavy spending the year before that helped the ailing Chavez win re-election.

Opposition critics said the company has not invested enough in increasing production, and that Chavez, who died from cancer in March, scared off many foreign investors by nationalizing most of the oil industry during his 14-year rule.

The devaluation, Venezuela's fifth in a decade, came just days after officials revised the windfall oil tax structure to channel more of PDVSA's dollar revenues to the central bank and less to the off-budget state investment fund Fonden.

Under the changes, PDVSA will have reduced its contributions to Fonden by almost $3 billion in 2013. Last year, the secretive fund received more than $15 billion from PDVSA.

The devaluation, the tax change, and cuts in administrative and operating costs helped PDVSA during a period when it exported 2.48 million barrels per day (bpd), down from 2.52 million bpd in the first half of 2012. Its average export price fell to $97.50 per barrel from $105.41.

The report said overall crude oil production for the first six months of 2013 slipped to 2.86 million bpd from 2.91 million bpd in the first half of the previous year.

NEW BOND ISSUE

Ramirez, the petroleum minister, said in April that output from the country's second largest oil region, Norte de Monagas, declined during the first quarter of this year. Logistics bottlenecks also curbed production increases at flagship projects in the Orinoco belt.

In August 2012, the OPEC nation's biggest refinery was hit by a gas leak and deadly explosion that curbed products output. PDVSA blames the incident on sabotage by political opponents.

Last month, the company unveiled a $4.5 billion global bond issue, with $1.5 billion of the notes being sold to the central bank and $3 billion going to contractors that provide services and goods to PDVSA. The first-half report for investors was published to accompany the issue.

PDVSA has taken on more than $10 billion in private loans this year alone through agreements with partner companies and allied nations, including China and Russia. Last year, its debt to service providers reached $16.5 billion. The current issue takes total bond sales since 2007 to more than $32 billion.

With Venezuela holding the world's largest crude reserves, Chavez put the state oil company at the service of his radical socialist project. It still runs programs ranging from free health clinics to building houses to sports and cultural activities.

In its report, PDVSA said it contributed $7.3 billion to Fonden and social development projects in the first half of 2013, down from $12.6 billion in the same period last year.

It said, however, the reduction was largely due to exchange rate fluctuation. PDVSA's total contribution to the government, including Fonden transfers, social programs and taxes, was $19.3 billion, a 20.5 percent decrease from the same period in 2012.

Chavez's successor, President Nicolas Maduro, faces tough economic challenges including slowing growth, consumer goods shortages, and annual inflation that hit 54 percent last month.

Many local private economists have said another devaluation was inevitable. When the last one was ordered in February, the bolivar traded on the black market at four times the legal rate. Now it sells for about ten times the official level.

"Future governmental actions, including government spending, and actions to adjust the value of the bolivar, may trigger increases in inflation," the PDVSA report said.

One politically sensitive option is to cut domestic fuel subsidies that leave gasoline prices at about 6 cents per gallon, meaning it costs less than $2 to fill up an average SUV, and produce consistent losses for PDVSA.

(Reporting by Daniel Wallis in Carcas and Marianna Parrago in Houston; Editing by Jeffrey Benkoe)