Venezuela’s Creditors Are Cutting Its Crude-Oil Lifeline

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The rulings are a major blow to the cash-strapped and increasingly isolated nation at a time when its once-thriving state energy monopoly, Petróleos de Venezuela SA, or PdVSA, has been left in tatters after years of mismanagement.

Conoco’s aggressive actions, the latest in a decadelong legal battle, threaten to further undermine Venezuela’s diminished ability to store, refine and export crude oil, which it needs in part to ship to China as repayment for loans.

They follow efforts by a pair of mining companies to enforce payment of $2.6 billion won in separate arbitration cases. The companies are now seeking court approval to seize Venezuela’s external assets, including Citgo Petroleum Corp. in the U.S. Investors holding at least $2.5 billion in defaulted Venezuelan bonds could also target Venezuelan assets.

Combined with sanctions levied by the U.S. and other countries across the Americas, Venezuela is facing the tightest noose on its economy since 1902, said Venezuelan oil economist

Orlando Ochoa.

That is when European gunboats blocked its ports to recover unpaid infrastructure loans.

“This will have a brutal effect for PDVSA’S operational and storage capabilities,” he said.

Spokesmen at PdVSA and Venezuela’s oil ministry didn’t respond to calls seeking comment. The oil ministry posted several messages on its official

Twitter

account Friday indicating it was ready to pay the money it owes Conoco. The posts were deleted an hour later.

Conoco was able to secure the court orders against PdVSA after winning a $2 billion arbitration ruling last month by a tribunal representing the Paris-based International Chamber of Commerce. The company “will pursue all available legal avenues to obtain full and fair compensation for our expropriated investments in Venezuela,” said Conoco spokesman Daren Beaudo.

After the ICC ruling, a Curaçao judge on May 4 authorized a Dutch-registered Conoco subsidiary to target $636 million in oil products there. The company then began seizing oil cargoes at the Isla Refinery in Curaçao, which PdVSA leases from the island government.

Separately, a judge on the island of Bonaire, where PdVSA uses a 10-million-barrel storage facility, authorized Conoco to seize assets on Bonaire, St. Martin and Aruba to recover $1.5 billion, plus $449 million in interest.

The court orders led PdVSA to send a dozen tankers back to Venezuelan waters out of fear of confiscation, according to people familiar with the matter, prompting the Isla Refinery to shut down.

More than 16% of all Venezuelan oil exports passed through the Isla refinery and storage and port facilities in Aruba, Bonaire and Curaçao last year, according to BMI Research.

“The timing really couldn’t be any worse” for Venezuela, said

Mara Roberts Duque,

an analyst with BMI Research. “If they’re not able to get those shipments out, even to the degree that they were able to do so a week ago, that is going to be detrimental to the Venezuelan government.”

Francisco Monaldi,

an energy expert at Rice University in Houston, said Conoco’s actions in Curaçao were “a very big blow” to Venezuela. He said the country has just one domestic terminal where it can fill the larger tankers used to export crude to Asia.

Conoco’s actions haven’t been without controversy on Curaçao, which is concerned over job losses and fuel shortages on the island. “Shame on you

ConocoPhillips

for choosing not to fight this war on your own turf in the energy corridor in Houston,” former Curaçao Prime Minister

Maria Liberia-Peters

wrote in a public letter.

ConocoPhillips said it was working with local officials to address their concerns. “It is PdVSA that has failed to honor our award by ignoring the judgment of the ICC tribunal,” Mr. Beaudo said.

The decay of the oil industry in Venezuela, which sits atop the world’s largest crude reserves, is a major political concern for Mr. Maduro, who first became president in 2013 after the death of populist

Hugo Chávez,

and has presided over a 40% economic contraction in the past five years.

Food and medicine shortages are rampant in Venezuela, as the country struggles to import basics. As many as three million people have left the country according to some estimates, fleeing hyperinflation that has rendered salaries, including those of oil-field and refinery workers, to about $2 a month.

Sunday’s election, in which Mr. Maduro is seeking another six years in power, has been deemed illegitimate by the Trump administration and much of Latin America.

Over the past year, Mr. Maduro has responded to the oil crisis by jailing dozens of PdVSA officials on corruption charges and has placed the management of the industry into the hands of a national guard general,

Manuel Quevedo,

who had no prior experience in the energy business.

A rusting domestic refining network is operating at less than a quarter of its 1.3 million barrels-per-day capacity, according to refinery union leader

Ivan Freites.

Venezuelan oil production last month fell to its lowest point in decades, about 1.4 million barrels a day, according to a Monday report by the Organization of the Petroleum Exporting Countries.

The decline has left Venezuela unable to benefit from a global rise in oil prices—now at their highest levels in more than three years.

Venezuelan economists say the country is generating revenue from only about 500,000 barrels daily. Another 300,000 goes to China to repay loans. The remainder is consumed domestically, where fuel is virtually free, or given to allies including Cuba at cut-rate prices.

Write to Kejal Vyas at kejal.vyas@wsj.com

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