Before we head Down The Rabbit Hole let’s look at something we’ve talked about before…Venezuela’s debt. Argus media reports Venezuela government sources say the Maduro regime is eying restructuring it’s debt. This reminds me of all the times Maduro said Venezuela was eying a deal with China for another $5 billion loan. After the early days of loaning the Chavistas money the Chinese had to cut them off knowing they were in way over their head and wouldn’t be able to repay anymore loans.

 The Venezuelan government certainly would love to restructure it’s debt but they won’t be taken seriously by anybody. When they first defaulted on their bonds the guy they put in charge of debt restructuring was specifically barred from talking to bond holders by US sanctions. Sounds like a real serious good faith effort to me. The debt cannot be restructured until sanctions are lifted and that’s not happening anytime soon. Venezuela distressed debt is currently rated at 5 cents on the dollar. So, what are the chances? In short…No Way!

 In another financial related matter Law360 reports that Venezuela has lost it’s bid to overturn the award of $1.2 billion to Crystallex. This allows Crystallex to continue going after Citgo, one of the few Venezuelan assets that’s worth anything. As we’ve said before, there cases like this all over the place. Between debts like this and sovereign debt Venezuela owes about $150 billion…and they’re broke!

 In what has the potential to be good economic news we have Business Recorder reporting that Maduro says the Venezuelan economy grew 4% in 2021. He provided no details and we’ve learned not to buy Maduro’s company line but this time he may actually have something as we’ve heard rumors of growth in Venezuela from other sources. We’ll wait for confirmation from reliable sources but if true, or at least to some degree true, this would be the first year the economy didn’t contract since Maduro took power eight years ago.

 New Lines Magazine had an interesting piece titled “A Blind Spot In Leftist Circles”. The DSA (Democratic Socialists of America) show fealty to autocrats while ignoring anything that doesn’t fit their narrative. The DSA went on a junket to Caracas last June and they were wined and dined by the Chavistas. There were decrepit hospitals and starving people all around them but they chose not to see them. Instead they expressed solidarity with their socialist brothers and sisters from the Maduro regime. They said they were aware of the food and healthcare situation but blamed the US for it’s destructive sanctions (which we’ve debunked numerous times) and not the Chavistas. They avoid any discussion of the ICC investigation into Human Rights violations and crimes against humanity. Kinda’ hard to blame that on sanctions.

 And then we have this from the Venezuela/Colombia border. Insight Crime reports at least 27 dead since January 1st in border clashes between FARC dissidents and ELN guerillas. The Maduro regime has close ties to ELN and they move freely between their camps in Venezuela over into Colombia to fight FARC. It’s worth noting that the FARC dissidents also have ties to Chavismo. I guess it’s just a matter of who is profiting today.

Now let’s head Down The Rabbit Hole…

 As the economy completely cratered, wages for those who remained lost all their purchasing power.They had gone from good jobs to mediocre jobs to bad jobs. The minimum wage got as low as 60 cents A Month and while PDVSA workers earned more than the minimum wage they were struggling just to feed their families. The last straw was when Maduro completely reconfigured the monetary and economic systems and raised the minimum wage 3,000%. The problem for experienced workers was they got nothing. No corresponding increase for them. Not even a token amount.A new hire would earn the same as an experienced professional (what few still remained).The exodus proceeded in rapid fashion.

 One last note on the personnel side of things.For the remaining administrators a paralysis set in. Nobody wanted to be the one who approved or denied anything so they delayed and side-tracked.When a decision absolutely had to be made they were in a damned if you do, damned if you don’t situation. If the word came down from above that they wanted to do something either corrupt or just plain stupid and it came to you, you had a choice. Sign off on it and set yourself up as a scapegoat if all didn’t go well or refuse to sign off and be thrown in jail.(Remember, in Venezuela, rights are a thing of the past) Many of these people found it was better to simply leave. At one point PDVSA stopped accepting resignations.

 So now you have a collapse in oil prices (they’ve rebounded but are far from the levels Chavez enjoyed) and production is falling. If they had to do some juggling with production at 2,500,000 bpd a drop to 2,000,000 bpd would be a real balancing act. The minimal investment in critical infrastructure and new exploration at 2,500,000 bpd was non-existent at 2,000,000 bpd. The deserted workforce at 2,500,000 bpd became a wasteland…and THEN IT GOT BAD!

 Under Maduro’s leadership production continued to decline each year approaching the unthinkable level of 1,000,000 bpd. The days of raking in over $300 million a day were a distant memory. Revenues were down to under $50 million and falling. Could it get any worse? You know the answer.

 In March,2019 Venezuela experienced a series of catastrophic blackouts.They were caused by the same issue afflicting PDVSA, years of little or no investment on critical infrastructure. And wouldn’t you know it, the hardest hit areas were the oil producing regions.March oil production came in at 720,000 bpd. Production would continue to fall to under 500,000 bpd. With operable drilling rigs down from 95 to some days ZERO, production from existing wells declining as they fell into disrepair, a complete collapse of the workforce, no experienced leadership, and no credit availability PDVSA is in a death spiral.

 Summary : It seems a pattern is developing here. PDVSA did not collapse due to civil war, a natural disaster, or outside influences. Other oil dependent countries as well as oil companies survived the collapse in oil prices and today are doing quite nicely. It is estimated that $10 billion a year will need to be invested for a minimum of 10 years to recover lost production. As there is no technical expertise nor responsible management at PDVSA they will have to partner with the large multi-national oil companies and oil service firms or contract the recovery and development out altogether. ( The same entities they already chased out of Venezuela) As has become our mantra, this was an entirely avoidable disaster, a man-made disaster, A Chavista-made disaster.

 We’ll have more for you on Monday…Have a great weekend everybody!!!