By Marianna Parraga
HOUSTON, Jan 21 (Reuters) - A more acute crude price slump
this month has put several South American countries in the
difficult position of selling oil for less than what it costs to
produce, according to traders and sources at three companies in
Colombia and Venezuela.
So far, the most affected crudes are blends formulated with
naphtha and other imported diluents. But if the price rout that
shows few signs of ending soon persists, other grades could be
hit too, the sources added, potentially putting more pressure on
public finances in the oil-dependent countries.
Some of the most known South American blends, which normally
trade at significant discounts to benchmark Brent that has
tumbled to under $30 per barrel LCOc1 , are fast becoming a
type of 'negative oil' in a global glut.
Red numbers have also affected Canadian grades and U.S.
shale crude, a change that increases the pressure on producers
to consider shutting wells rather than running at a loss.
Among the varieties already affected in South America are
Venezuela's Diluted Crude Oil (DCO), which is now selling around
$15 a barrel and Colombia's best seller Vasconia, offered at
below $21 in spot deals LCO-VAS , sources from producing firms
said.
South America's fourth largest oil producer, Ecuador, is
also under breakeven point, President Rafael Correa said, which
is forcing the country into fiscal cuts.
"We have a crude price that is not even covering production
costs, which are $24 per barrel," Correa told journalist on
Wednesday.
The latest figures from Venezuela's state oil company PDVSA
show the average production cost for all its crudes is $18 a
barrel, while Toronto-listed Pacific Exploration & Production
PRE.TO , Colombia's largest private operator, said its
production cost including diluents, transportation and taxes
averaged $20 to $22 in the third quarter of 2015.
"Last week we were right at the breakeven point," said a
source from Pacific. "But we are currently below that line."
Pacific, Colombia's state-run firm Ecopetrol ECO.CN and
PDVSA PDVSA.UL buy diluents on the open market, where naphtha
and natural gasoline prices are currently around $35 per barrel,
to make exportable blends.
The firms did not immediately respond to a request for
comment.
Venezuela exports around 1.9 million barrels per day (bpd)
of crude, Colombia 750,000 bpd and Ecuador 430,000 bpd.
EXPENSIVE BLENDING
Before the latest price tumble of 20 percent this month,
Ecopetrol and Pacific reduced sales of heavy Castilla LCO-CAS
while increasing purchases of diluents to formulate more medium
Vasconia, which is better priced but has a bigger imported
component.
The strategy, however, has not been enough to halt the
revenue slide, according to the sources. High taxes and
royalties, along with costly logistics keep production costs
relatively high, they added.
Venezuelan President Nicolas Maduro asked PDVSA on Tuesday
to make a big effort to bring down production costs. "How many
countries in the world can maintain oil production at $22 per
barrel? A few or none," he said.
In Venezuela, one of the crudes still making some profit is
so-called syncrude, which can be sold at a premium after running
through upgraders that turn extra heavy oil into a lighter one.
Traditional Boscan heavy crude, meanwhile, is also below
breakeven levels estimated to be about $16 a barrel.
"If Boscan heavy crude is being sold around $12 per barrel,
Orinoco belt's DCO cannot have any profit after taking diluent
costs into the account," one of the sources said.
A barrel of a Venezuelan DCO made with naphtha is usually
sold 15 percent cheaper than a crude blend, a government source
confirmed. So while Venezuela's price for Merey blend, an extra
heavy crude from the Orinoco belt produced by PDVSA and its
joint ventures, is currently around $17.25 a barrel, DCO cannot
be sold over $15 per barrel.
According to Deutsche Bank (DE:DBKGn), which has warned about
Venezuela's "dangerous" oil prices, a $30 average crude price in
2016 would widen the country's foreign exchange deficit to $34.2
billion from a previous deficit estimated at $18 billion.
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Colombia reshuffles crude exports to weather low prices -sources
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Venezuela's PDVSA still mulls debt refinance proposal
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