Petr Ozu

Copyright

Petrolera Zuata, Petrozuata C.A.Harvard Business School Case N9-299-012Case Software 2-299-701

Copyright © 1998 by the President and Fellows of Harvard College

This case was prepared as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation.

Exhibit1

1970 7.3% 3.7% (0.9) 6.9% 89.0%1971 2.4 (1.0) 0.5 12.7 92.2 1972 2.5 (1.0) (0.2) 15.2 91.4 1973 6.1 2.5 1.6 14.0 88.6 1974 5.2 1.7 2.4 8.6 95.2 1975 5.1 1.5 0.6 6.8 94.6 1976 8.3 4.6 0.5 13.3 94.2 1977 6.2 2.5 (4.4) 25.1 95.4 1978 2.2 (1.3) (3.6) 35.7 95.1 1979 1.3 (2.0) 2.1 42.2 95.2 1980 (2.5) (5.5) 0.0 42.0 94.9 1981 (0.2) (3.0) 2.2 41.0 94.6 1982 0.8 (1.8) (2.1) 40.2 94.7 1983 (5.2) (7.5) (0.6) 48.1 91.3 1984 (0.5) (2.9) 2.8 63.8 87.7 1985 1.1 (1.4) 2.0 59.0 82.6 1986 6.2 3.5 (0.4) 56.4 69.2 1987 4.5 1.7 (1.7) 73.8 81.8 1988 6.2 3.4 (6.1) 57.5 76.4 1989 (8.5) (10.8) (1.1) 75.6 74.9 1990 7.5 4.9 (2.1) 68.3 80.0 1991 10.1 7.5 (1.4) 63.8 81.1 1992 7.4 4.9 (3.8) 62.4 79.0 1993 (0.6) (2.8) (2.5) 62.2 74.7 1994 (2.5) (4.6) (6.8) 62.6 72.7 1995 3.7 1.5 (4.6) 46.0 74.4 1996 (0.4) (2.5) 0.2 49.9 80.4

and early 1996, the government fixed the exchange rate. Between 1989 and 1994 and after early 1996, the government allowed the bolivar to float freely against the U.S. dollar.

Exhibit 1 Venezuelan Macroeconomic Data: 1970-1996

Real GDPGrowth

Per CapitaGDP Growth

GovernmentSurplus/GDPa

Total DebtStock/GDP

Oil Exports/Total Exports

Sources: Inter-American Development Bank, and International Financial Statistics, International Monetary Fund.

a Negative values signify Government Deficit/GDP.b The interest rates provided are yields to maturity on long-term Venezuelan government bonds.c The exchange rates provided are the official bolivar/U.S. dollar exchange rates determined by the Venezuelan government. Prior to 1989 and between 1994

Exhibit1

17.2% 7.8% 2.5% ... 4.45019.0 ... 3.2 ... 4.35017.3 ... 2.8 ... 4.35021.6 ... 4.1 ... 4.28533.4 7.6 8.3 ... 4.28525.6 8.3 10.3 ... 4.28523.6 6.8 7.6 ... 4.29321.3 5.5 7.8 ... 4.29318.8 5.1 7.1 ... 4.29323.9 5.8 12.4 ... 4.29326.2 6.6 21.5 ... 4.29324.3 6.8 16.2 ... 4.29319.5 7.8 9.6 ... 4.29317.4 11.2 6.3 ... 4.30021.0 14.3 12.2 13.15% 7.50017.3 14.3 11.4 12.55 7.50010.9 12.1 11.5 12.07 14.50014.9 9.9 28.1 13.49 14.50013.5 7.9 29.3 14.86 14.50023.4 9.7 84.7 17.32 43.07929.2 11.0 40.6 20.06 50.38023.1 10.1 34.2 27.14 61.55418.7 8.1 31.4 31.66 79.45018.0 6.8 38.1 41.03 105.64020.2 8.9 60.8 54.73 170.00017.9 10.9 59.9 53.38 290.00026.7 12.3 99.9 49.09 476.500

and early 1996, the government fixed the exchange rate. Between 1989 and 1994 and after early 1996, the government allowed the bolivar to float freely

Oil Exports/GDP

UnemploymentRate

InflationRate

InterestRatesb

ExchangeRatec

, International Monetary Fund.

The exchange rates provided are the official bolivar/U.S. dollar exchange rates determined by the Venezuelan government. Prior to 1989 and between 1994

Exhibit2

DuPont PDVSA1996 1995 1996

ASSETS

Cash $1,319 $1,455 $2,745 Accounts and notes receivable 5,193 4,912 3,429 Inventory 3,706 3,737 1,740 Prepaid expenses 297 276 1,124 Deferred income taxes 588 575 508 Total current assets $11,103 $10,955 $9,546

Property, plant, and equipment $21,213 $21,341 $32,957 Investment in affiliates 2,278 1,846 1,863 Other assets 3,393 3,170 1,036 Total assets $37,987 $37,312 $45,402

LIABILITIES AND EQUITY

Accounts payable $2,757 $2,636 $2,033 Current portion of long-term debt 300 551 1,137 Short-term debt and lease obligations 3,610 5,606 --- Income taxes 526 470 2,616 Other accrued liabilities 3,794 3,468 1,156 Total current liabilities $10,987 $12,731 $6,942

Long-term debt $4,983 $5,572 $4,668 Capital lease obligations 104 106 455 Deferred income taxes 2,133 1,783 19 Other liabilities 8,451 8,454 1,166 Total liabilities $26,658 $28,646 $13,250

Minority interests $620 $230 $354 Total stockholders' equity 10,709 8,436 31,798 Total liabilities and equity $37,987 $37,312 $45,402

Exhibit 2 DuPont and PDVSA Balance Sheets (U.S. dollars in millions): 1995-1996

Sources: Du Pont 1996 Annual Report and PDVSA 1996 Form 20-F.

Exhibit2

PDVSA1995

$4643,2261,551

729429

$6,399

$30,7741,899

853$39,925

$1,6721,074

---351952

$4,049

$4,933531313

1,168$10,994

$27128,660

$39,925

Exhibit3

DuPont PDVSA1996 1995 1996

Sales $43,810 $42,163 $32,786Other income 1,340 1,059 1,069

$45,150 $43,222 $33,855

Cost of goods sold $25,144 $23,363 $15,720Selling, general, and administrative expenses 2,856 2,995 967Depreciation, depletion, and amortization 2,621 2,722 2,749Exploration expenses 1,436 1,398 142Interest and debt expense 713 758 343Taxes other than on income 6,399 6,596 3,203Other expense (income), net --- --- 79 Equity earnings of affiliates --- --- (89)Minority interests --- --- 19

$39,169 $37,832 $23,133

Earnings before income taxes $5,981 $5,390 $10,722 Provision for income taxes (2,345) (2,097) (6,227)Net income $3,636 $3,293 $4,495

Earnings per share of common stock $6.47 $5.61

Average number of common shares (millions) 560.7 585.1

Year-end stock price $34.94 $47.06

Exhibit 3 DuPont and PDVSA Income Statements (U.S. dollars in millions): 1995-1996

Total income

Total costs and expenses

Sources: Du Pont 1996 Annual Report, and PDVSA 1996 Form 20-F.

Exhibit3

PDVSA1995

$25,050991

$26,041

$14,0611,1632,400

118421

2,513(354)(132)

23$20,213

$5,828(2,455)$3,373

Exhibit4

Conoco Maraven1996 1995 1996

Sales $20,579 $17,958 $5,503 Operating profit 1,818 1,257 3,574 Provision for income taxes (933) (660) na Equity in earnings of affiliates (25) 22 ---After-tax operating income $860 $619 $1,070

Identifiable assets $13,018 $12,634 $10,814Depreciation, depletion, and amortization 1,128 1,111 940Capital expenditures 1,616 1,714 612

Exhibit 4 Conoco and Maraven Financial Information (U.S. dollars in millions): 1995-1996

Sources: DuPont 1996 Annual Report, and PDVSA.

Exhibit4

Maraven1995

$4,0731,924

na---

($16)

$10,093770

1,871

Exhibit7

1996 1997 1998

USES Capital Expenditures Crude Oil Production $11,995 $191,849 $151,141 Crude Oil Pipeline 655 170,512 45,121

14,345 243,305 510,987 Upstream Contingency 0 0 0 Total Capex $26,994 $605,666 $707,249

Other Costs

$52,040 $23,328 $71,724 Initial Cash Balance 0 0 10,000 Financing Costs 0 61,134 86,816 Legal & Advisory Fees 0 15,000 0 Debt Service Reserve 0 0 0 Excess Cash Balance 0 47,213 0

Total Uses $79,035 $752,341 $875,789

SOURCES Total Project Debt $0 $1,000,000 $24,299

Shareholder Funds Initial Paid in Capital $79,035 $0 $0 Additional Paid-in Capital 0 1,986 550,148

0 47,213 4,484 Total Shareholder Funds $79,035 $49,199 $554,632

Total Sources $79,035 $1,049,199 $578,931

Exhibit 7 Sources and Uses of Funds (U.S. dollars in thousands): 1996-2000

Upgrader & Loading Facilitya

Deferred Development Costs and Operating Expenditures

Operating Cash Flowb

Source: Petrozuata Planning Documents.

aIncludes a $139 million contingency.bIncludes interest income.

Exhibit7

1999 2000 Total

$77,092 $16,702 $448,7800 0 216,288

230,306 67,912 1,066,8540 37,925 37,925

$307,399 $122,539 $1,769,847

$0 $0 $147,0930 0 10,000

94,955 111,556 354,4610 0 15,0000 80,865 80,8650 195 47,408

$402,353 $315,155 $2,424,673

$242,981 $182,720 $1,450,000

$0 $0 $79,035(1,576) (185,047) 365,511

160,948 317,481 530,126$159,373 $132,434 $974,673

$402,353 $315,155 $2,424,673

Exhibit8

Country

OIL & GAS PROJECTS Athabasca Oil Sands BBB Canada AA+ 26.8% Canadian Oil Sands BBB+ Canada AA+ 22.9 YPF Sociedad Anomima BBB Argentina BBB- 34.8 Ras Laffan (2001) BBB+ Qatar BBB 62.7 Petrozuata (2001) ??? Venezuela B 60.0

INDEPENDENT OIL COMPANIES Apache BBB U.S. AAA 45.8X Burlington Resources A- U.S. AAA 37.9 Husky Oil BBB Canada AA+ 41.9 Noble Affiliates BBB U.S. AAA 54.1 Norcen Energy Resources BBB Canada AA+ 49.6 Talisman Energy BBB+ Canada AA+ 30.0

INTEGRATED OIL COMPANIES Amoco AAA U.S. AAA 26.6X Chevron AA U.S. AAA 32.0 Exxon AAA U.S. AAA 21.0 Mobil AA U.S. AAA 32.7 Texaco A+ U.S. AAA 39.3 Shell Canada AA Canada AA+ 20.6 PDVSA B Venezuela B 15.4

Exhibit 8 Oil and Gas Industry Comparables: 1996 (unless otherwise indicated)

S&PRating

CountryRating

Debt toValue (%)

Sources: S&P's Global Sector Review, Bloomberg, and casewriter estimates.

Exhibit8

8.15X 11.09X 32.3% $251.58.62 13.49 30.7 118.34.77 8.2 44.0 5,937.004.51 na 51.1 851.64.70 3.65 79.4 569.2

2.68X 5.85X 60.1% $976.03.70 6.56 62.6 1,293.002.66 5.02 39.7 1,272.904.49 10.72 46.0 878.31.49 4.99 42.2 1,257.304.54 10.24 59.0 1,182.90

13.08X 21.22X 18.9% $32,150.09.85 14.2 16.9 37,580.0

10.25 15.06 13.8 116,728.011.73 16.69 11.9 71,129.0

5.68 8.83 10.1 44,561.06.57 10.47 19.7 5,140.0

32.26 40.27 48.7 33,855.0

Pretax InterestCoverage (X)

EBITDA/Interest (X)

Operating Incomeas a % of Revenue

Revenues($ millions)

Exhibit9

S&P Moody'sSovereign Dec. 1994 Dec. 1996 Dec. 1994 Dec. 1996

North America Canada AA+ AA+ Aa1 Aa2 Mexico BB BB Baa1 Ba2 United States AAA AAA Aaa Aaa

Central America Costa Rica n/r n/r n/r n/r Panama n/r n/r n/r n/r

South America Argentina BB- BB- B2 B1 Bolivia n/r n/r n/r n/r Brazil B+ B+ B1 B1 Chile BBB+ A- Baa2 Baa1 Colombia n/r BBB- n/r Baa3 Ecuador n/r n/r n/r n/r Peru n/r n/r n/r B3 Venezuela B+ B Ba2 Ba2

Exhibit 9 Credit Ratings for Selected Sovereign Foreign Currency Long-Term Debt

Sources: Bloomberg and "Country Credit Ratings," Institutional Investor, March 1995 and September 1996.

Exhibit9

Institutional InvestorSept. 1994 Sept. 1996

81.3 79.446.1 41.690.8 90.7

30.3 33.924.4 28.5

37.3 38.921.4 25.430.3 38.354.9 61.244.4 46.724.5 26.421.0 30.036.0 32.0

March 1995 and September 1996.

Exhibit10a

Cash Cash UsedForecast Available for DebtPrice of for Debt ServiceMaya Total Service Total Debt Reserve Equity Cash Flows

Year Crude Revenue (CADS) Service Account Dividends

1996 $12.25 $0 $01997 12.56 0 47,2131998 12.87 78,524 4,4841999 13.19 429,059 160,948 $1,5762000 13.52 804,108 317,481 (80,865) 185,0472001 13.86 569,156 384,765 (160,922) 1,614 225,4572002 14.21 583,597 389,154 (157,694) 1,614 233,0742003 14.56 598,398 366,575 (154,466) (11,509) 200,6002004 14.93 613,568 401,552 (176,949) (5,700) 218,9032005 15.3 629,117 398,211 (188,009) (6,345) 203,8572006 15.68 645,052 433,477 (200,307) (550) 232,6202007 16.07 661,386 435,267 (201,204) (4,671) 229,3932008 16.47 678,126 438,118 (210,153) 10,623 238,5882009 16.89 695,283 373,182 (166,148) 19,595 226,6292010 17.31 712,869 371,469 (150,455) (4,135) 216,8782011 17.74 730,892 378,471 (158,377) (3,438) 216,6552012 18.19 749,365 387,428 (164,964) 40,417 262,8812013 18.64 768,299 328,978 (85,668) (933) 242,3782014 18.64 768,798 358,441 (87,403) (19,051) 251,9882015 18.64 769,309 391,545 (124,573) (6,498) 260,4742016 18.64 769,831 383,528 (137,103) 4,468 250,8932017 18.64 770,365 382,868 (68,691) 62,038 376,2152018 18.64 770,911 327,531 (6,653) 0 320,8782019 18.64 771,468 308,024 (6,653) 0 301,3702020 18.64 781,859 283,051 (6,653) 0 276,3982021 18.64 782,441 299,464 (6,653) 0 292,8102022 18.64 783,036 295,554 (81,653) 3,327 217,2272023 18.64 783,644 294,578 0 0 294,5782024 18.64 784,266 289,656 289,6562025 18.64 784,901 289,705 289,7052026 18.64 785,550 278,074 278,0742027 18.64 786,214 276,806 276,8062028 18.64 786,891 274,449 274,4492029 18.64 787,584 263,604 263,6042030 18.64 788,291 247,540 247,5402031 18.64 789,014 250,329 250,3292032 18.64 789,753 242,937 242,9372033 18.64 790,508 240,644 240,6442034 18.64 791,279 226,196 226,196

Exhibit 10a Petrozuata Equity Cash Flow Projections (U.S. dollars in thousands)

Exhibit10a

Equity Cash FlowsInvestment Total Debt

(79,035) $0(1,986) 1,000,000

(550,148) 1,024,2991,267,2801,450,0001,411,1111,372,2221,333,3331,268,8561,187,6141,086,961

977,484849,556755,137669,137567,137449,137401,689348,241252,034134,448

75,00075,00075,00075,00075,000

0

Exhibit10a

Sources: Petrozuata Planning Documents, Federal Reserve Bulletin, S&P Bond Guide, and casewriter estimates.

Exhibit10a

S&P Bond Guide, and casewriter estimates.

Exhibit10b

Yields Yields

Federal Funds Rate 5.19% AAA 7.13%3-month Treasury Bill 5.03 AA 7.213-month LIBOR 5.78 A 7.3910-year Treasury Bond 6.56 BBB 7.7030-year Treasury Bond 6.81 BB 8.69

B 10.17

and casewriter estimates.

Exhibit 10b Capital Markets Data (as of January 1997)

Government orInternational Debt

Corporate Bond Ratings(U.S. industrials)

Sources: Petrozuata Planning Documents, Federal Reserve Bulletin, S&P Bond Guide,

Petr Ozu

Documents

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